On Wednesday, the first exchange-traded product to combine gold and bitcoin in a single fund will launch.
“We are making bitcoin an acceptable asset to hold and bringing gold into the 21st century,” said Charlie Morris, chief investment officer of ByteTree Asset Management, which is behind the 21Shares ByteTree Bold Index ETP, due to list on the SIX Swiss Exchange with the ticker BOLD. A German listing is expected to follow later.
Despite the fact that gold ETPs and spot Bitcoin ETPs are both publicly available, Morris stated that ByteTree’s active rebalancing method improved returns by 7-8 percentage points per year in backtesting.
In order to maximize risk-weighted returns, the fund will rebalance monthly based on 360-day volatility, with the less volatile asset receiving a larger proportion. In practice, this means gold tends to dominate the portfolio, with a 70-90% weighting in backtesting dating back to 2016.
The classic balanced portfolio of 60% equities and 40% bonds has struggled this year as both asset classes have dropped down at the same time. Morris said: “60/40 works in a deflationary period. In an inflationary one BOLD is the 60/40, in the sense that it is balancing a risk-on asset with a risk-off asset.“
In backtesting, Morris said that the ETP was less volatile than eight of the ten biggest companies in the US during the last five years, with Berkshire Hathaway and Johnson & Johnson coming in second and third, respectively. Going back to 2014, the largest calendar-year loss would have been 12.7% in 2018, when bitcoin fell 73.8%.
Fees will be 1.49% each year, which is expensive for an ETP in general but not so much for a crypto product. The challenge of finding a custodian able and willing to manage both actual gold and bitcoin, according to Morris, drove up expenses. ByteTree was forced to share custody between JPMorgan (for gold) and Coinbase (for bitcoin).
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