March 24, 2021
Bitcoin, Gold, and Paul Tudor Jones

In May 2020, Paul Tudor Jones wrote an investor letter explaining why he bought Bitcoin.

He listed a few reasons, but one reason came from a poll he ran with his research group. Each member of the group was asked to rank four different asset classes on their store of value properties:

Paul's subjective store of value metric was weighted based on four variables:

When the final results were tallied, Paul noticed an interesting finding:

At the time, Bitcoin was worth less than 2% of gold's market cap, and an even smaller fraction of the other two assets. Despite its low market cap, Bitcoin's score as a store of value was 69% of the score given to gold.

This led Paul Tudor Jones to conclude that "something appears wrong here and my guess is it is the price of Bitcoin".

Paul’s perception was that Bitcoin's utility had outpaced its price, and he was correct. Since Paul's letter on May 7th 2020, the price of Bitcoin is up 440%, while the price of gold is flat.

And while some may look at Bitcoin's return and conclude that the arbitrage opportunity Paul spotted is gone, a few new trends have emerged this year that signal a continued market dislocation between Bitcoin's utility and its price.

One Year Later

Today, Bitcoin's market cap is roughly 10% of gold's market cap, a 5x jump from where it was in May 2020, but still a far cry from the 69% assessment from Paul's poll.

But since May 2020, there are new signs that Bitcoin demand is approaching - and even passing - the market demand for gold, despite being worth only a small fraction of gold's market cap.

Bitcoin ETFs vs. Gold ETFs

Canada made headlines earlier this year with the approval of a Bitcoin ETF. In the 33 days since Purpose's Bitcoin ETF began trading, it has amassed over $1B of assets under management, and has paved the path for a handful of other Bitcoin ETF competitors to launch as well. As of today:

In addition, Ninepoint's Bitcoin Trust ($385M of AUM) is expected to convert funds into a Bitcoin ETF in April 2021, and 3iQ ($1.4B of AUM) has received a receipt for their 3iQ Bitcoin ETF's preliminary prospectus from Canadian regulators.

In short, Canada could have five Bitcoin ETFs with $2-3 billion of AUM in the coming months without any additional cash inflows or new Bitcoin ETF entrants.

How do these figures compare to gold ETFs in Canada? Canada's largest gold ETF has been around since 2009, and has $1.05B of assets under management. Below are the three largest gold ETF in Canada:

Despite the fact that Canada didn't have a single public Bitcoin fund until early 2020, or a Bitcoin ETF until early 2021, the gold ETFs with a decade-long headstart are already being overtaken by the newcomer Bitcoin ETFs.

Purpose Investments

The most obvious illustration of Canada's demand for Bitcoin over gold comes from Purpose Investments. Their Gold Bullion ETF (launched in 2018) has $289.7M of AUM, while their Bitcoin ETF (launched 33 days ago) has $1B of AUM.

Both have the same ETF structure, both are run by same company with the same client base, and yet their Bitcoin ETF is not only 4x larger than their gold ETF, it is the largest in the entire Purpose Investments portfolio, beating all of their other 37 ETFs to the $1B AUM mark.

Bitcoin vs. Gold Search Volume

Searches for Bitcoin have also quietly surpassed the search interest for gold in a number of key markets.

Firstly, in Argentina, Venezuela, Turkey, and Nigeria, Bitcoin already has had a higher search volume than gold for almost all of 2021.

These nations are currently dealing with rapid inflation, and have an immediate need for a reliable store of value. The fact that their citizens are searching for Bitcoin far more than they are searching for gold is telling. It's also another blow to the Bitcoin critics who claim volatility ruins Bitcoin's ability to serve as a store of value.

But how about the stable, developed nations that have easy access to global financial markets, reserve currency privileges, and strong gold reserves at their central banks?

As it turns out, Bitcoin search volume has even passed gold search volume in the US, Germany, Italy, and France during the last year.

Not only are these are some of the most well-recognized fiat regimes in the world, their central banks are also the four largest holders of gold in the world!

Final Thoughts

Bitcoin has been on a wild run in the last year, and it's tempting to look into the rearview mirror and conclude Bitcoin's vertical climb isn't sustainable. However, it's still only 10% of gold's market cap, and some markets are showing signs that the desire for Bitcoin is as strong - or stronger - than the desire for gold.

Paul Tudor Jones spotted a market dislocation in 2020, and it can be argued that the gap between Bitcoin's utility and its price is just as wide today.

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