By Paul R. La Monica

Even as stocks have climbed to record highs this year, investors have been also flocking to assets that have performed even better: gold and Bitcoin. It may come as no surprise that some money-management firms are looking to bundle precious metals and cryptocurrencies in single funds.

Quantify Funds, an investment firm that offers hedge fund-like strategies through exchange-traded funds, has recently launched the STKD Bitcoin & Gold ETF, which invests in gold and Bitcoin futures and uses derivatives to amplify its gains. The ETF began trading earlier this week and is already up nearly 5% from its opening price.

There is also an exchange-traded product from 21Shares called the 21Shares ByteTree BOLD ETP. It trades on some European exchanges and has been available since 2022.

The ETF from Quantify uses futures to get its exposure to gold and Bitcoin, while the 21Shares fund actually invests in physical gold and spot Bitcoin. In other words, the Quantify fund doesn't offer direct exposure to gold and crypto, while the 21Shares fund does.

Both funds appear to be making a play for investors who have piled into these assets, a classic case of both fear and greed coming into play as motivations. Gold often does well during times of geopolitical turmoil, so it benefits from fear, while Bitcoin is a momentum trade on steroids, gaining from investors' desire for outsize returns. And there has also certainly been a fear of missing out on further gains for both assets.

Gold has surged more than 30% this year to a record high above $2,700 an ounce thanks to worry over the wars in the Middle East and Ukraine. A global push toward lower interest rates and a weakening of the U.S. dollar have helped as well.

Gold in generally traded in dollars, so the price goes up when the greenback weakens. Lower rates help because holdings of gold don't pay interest, so the amount of yield investors forego by owning the metal diminishes when returns on assets such as Treasury bonds fall.

And you could argue that the spike in Bitcoin, which some refer to as "digital gold," has occurred for similar reasons. The world's most valuable cryptocurrency is up more than 60% in 2024 and is hovering just below $69,000.

David Dziekanski, CEO and chief investment officer of Quantify Funds, said in an interview with Barron's that the new ETF is a way for investors to get exposure to "two themes with a common investment outlook."

Along those lines, 21Shares said in the fact sheet about its fund that its strategy "combines gold's proven success and Bitcoin's emerging role, as a store of value" and added that it "offers a balanced approach for investors seeking to hedge against inflation."

Dziekanski added that both gold and Bitcoin are also assets that have scarcity value. There is only so much physical gold on the planet. And there is a finite limit as to how many Bitcoins can be digitally mined and put into circulation.

But while gold and Bitcoin have been rallying in tandem this year, there isn't a perfect correlation between the two assets. Gold is far more stable while Bitcoin tends to be volatile, rising and falling more in tandem with technology stocks as opposed to commodities or currencies.

Alex Ebkarian, chief operating officer and co-founder of precious metals dealer Allegiance Gold, said in an interview with Barron's that crypto and gold do have a "lot in common," namely that they can both benefit from a push by global central banks to reduce their allocations to U.S. dollars. Demand would rise to the extent that central banks put their reserves into precious metals or cryptocurrencies rather than Treasury debt.

But he added that they aren't really the same asset class. Gold is still a classic store of value while Bitcoin is not. "Time will tell. But you probably don't want to substitute Bitcoin for gold or vice versa," Ebkarian said.

Still, Dziekanski isn't really advocating for that approach. He argues that having exposure to both gold and Bitcoin makes sense at a time when many experts expect another big push for fiscal stimulus from Washington next year. Both Donald Trump and Kamala Harris or pushing for more spending and lower taxes.

"Bitcoin and gold will both have their day, sometimes collectively," he said, noting that they each benefit from "the commonality of currency debasement."

That has proven to be the case this year. It could continue in 2025 if the White House and Congress spend more while the Fed is still lowering interest rates.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 19, 2024 03:30 ET (07:30 GMT)

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