Investors are selling Gold ETF for cryptocurrency

As more and more people begin to understand cryptocurrency as profitable investment outlets, many traditional investments may suffer huge withdrawals.

By Uche Ndimele

In a recent analysis, JPMorgan has shown evidence that institutional investors are divesting from gold ETF into Bitcoin and other cryptocurrency investments.

In the report, which compared the “flow trajectories for Grayscale Bitcoin Trust (GBTC) and gold Exchange-Traded Funds (ETFs)”, JPMorgan attributed the flight to cryptocurrency to “corporate endorsements and the endorsement by Paypal, a couple of weeks ago. The report then opined that the analysis “supports the idea that some investors that previously invested in gold ETFs may be looking at bitcoin as an alternative investment to gold.”

Paypal endorsed cryptocurrency by announcing the launch of its cryptocurrency service on October 21, while other corporates like Square Incorporated and MicroStrategy also signaled their endorsements by allocating some percentages of their assets to bitcoin. To be exact, while Square Inc allocated 1% of its asset to bitcoin, MicroStrategy invested $425 million in cryptocurrency.

That scenario could be playing out amongst Nigerian investors too, as the popularity of cryptocurrency increases in Nigeria. Analysis of the recently released mutual funds NAV Summary Report conducted by Quantitative Financial Analytics shows that investors withdrew a whopping N16.493 billion from the New Gold ETF, leading to a 44% decrease in the Net Asset Value (NAV) of New Gold ETF as of November 6th, 2020.

The thinking was that the withdrawal was as a result of the improvements being noticed in the Nigerian Stock Market, where stock prices have begun to regain lost grounds and trading has peaked. It had been thought that the money withdrawn from the ETFs made their way to the Nigerian Stock Market.

However, from the analysis conducted by JPMorgan, as noted above, it is not unlikely that the money investors withdrew from New Gold ETF must have found its way into bitcoins.

Is Cryptocurrency a danger to other Asset types?

Those investors making the switch must have thought it out properly because even though New Gold Etf, the most volatile investment in the Nigerian mutual fund industry, recorded an impressive performance in the first week of November 2020, when it generated an estimated N905 million in gain; it has been noted that bitcoin revenue has been soaring in the range of 1000%. A return that can lure even the most astute and conservative investor.

As more and more people begin to understand the cryptocurrency market and cryptocurrency as profitable investment outlets, many traditional investment types and asset classes may suffer huge withdrawals and erosion of net asset value. Investors are, however, advised to exercise caution.

Uche Ndimele

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.