Bitcoin has achieved a remarkable milestone in the US financial market, as it has overtaken silver to become the second largest commodity in terms of exchange-traded fund (ETF) assets. According to a report by ETF.com, Bitcoin ETFs had a total of $28.9 billion in assets under management as of January 18, 2024, surpassing silver ETFs, which had $27.8 billion.
This means that Bitcoin is now only behind gold, which has $149.3 billion in ETF assets, in the ranking of the most popular commodities for investors.
This development reflects the growing demand and acceptance of Bitcoin as a legitimate and valuable asset class, especially after the launch of the first Bitcoin futures ETFs in October 2021. These products allow investors to gain exposure to the price movements of Bitcoin without having to buy or store the cryptocurrency directly, thus reducing the barriers and risks associated with it.
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Since their debut, Bitcoin futures ETFs have attracted massive inflows and trading volumes, making them some of the most successful ETF launches in history.
The rise of Bitcoin ETFs also coincides with the impressive performance of the cryptocurrency itself, which reached a new all-time high of over $100,000 in November 2021 and has remained above $80,000 for most of 2022 and 2023.
Despite the volatility and regulatory uncertainty that still surround it, Bitcoin has proven to be a resilient and innovative asset that offers diversification and hedging benefits to investors, especially in times of inflation and geopolitical turmoil.
The surpassing of silver by Bitcoin is not only a symbolic achievement, but also a sign of a paradigm shifts in the global financial system. Silver has been used as a form of money and a store of value for thousands of years, while Bitcoin is only 15 years old and represents a new era of digital and decentralized finance.
The fact that investors are now allocating more capital to Bitcoin than to silver shows that they are embracing the potential and vision of this revolutionary technology, which could challenge and transform the existing structures and institutions that govern money and finance.
Bitcoin has outperformed many traditional assets, including silver, in terms of returns and adoption. This indicates that investors are recognizing the value and potential of this innovative technology, which offers a decentralized, secure and transparent way of transferring and storing value.
Bitcoin is not just a digital currency, but a network of distributed nodes that validate transactions and maintain the integrity of the system. Unlike silver, which is a physical commodity that requires storage, transportation and verification, Bitcoin is a purely digital asset that can be accessed and transferred anywhere in the world with an internet connection. Bitcoin also has a limited supply of 21 million coins, which makes it scarce and deflationary, unlike silver, which can be mined indefinitely.
The fact that investors are now allocating more capital to Bitcoin than to silver shows that they are embracing the potential and vision of this revolutionary technology. They are not only looking for short-term profits, but also for long-term value creation and innovation. Bitcoin is not a fad or a bubble, but a paradigm shift that will transform the way we exchange and store value in the digital age.
“The fundamental case for Bitcoin remains weak” says UBS Switzerland
Yet, this is not global. In a recent report, UBS, one of the largest and most influential banks in Switzerland, has expressed its skepticism about the long-term viability of Bitcoin as an asset class. The report argues that Bitcoin lacks some of the key features that make a currency or a store of value attractive, such as stability, scalability, and regulatory acceptance.
The report argues that Bitcoin lacks some of the key features that make a currency useful, such as stability, scalability, and regulatory acceptance. Moreover, the report claims that Bitcoin faces significant environmental and social challenges, as its energy-intensive mining process contributes to global warming and its anonymity facilitates illicit activities.
The report states that “the fundamental case for Bitcoin remains weak”, and that it is unlikely to replace traditional money or become a mainstream asset. It also warns investors that Bitcoin is subject to high volatility and regulatory uncertainty, and that they should be prepared for large price swings and potential losses. The report concludes that Bitcoin is more of a speculative gamble than a reliable store of value or a medium of exchange.
Despite its reputation as a groundbreaking technology, Bitcoin is actually quite outdated and limited in its functionality. It uses a proof-of-work (PoW) consensus mechanism, which is wasteful and vulnerable to attacks. It also has a hard cap of 21 million coins, which limits its growth potential and creates deflationary pressures.
Moreover, Bitcoin is unable to support smart contracts or decentralized applications (DApps), which are the main drivers of innovation and adoption in the blockchain space. To overcome these limitations, Bitcoin relies on third-party solutions, such as the Lightning Network or sidechains, which are complex and risky.
The fundamental case for Bitcoin remains weak. Bitcoin is not a reliable store of value or a medium of exchange. It is not environmentally friendly or socially responsible. It is not innovative or scalable. It faces significant challenges and risks that threaten its long-term viability. Therefore, I believe that investors and enthusiasts should be cautious and realistic about Bitcoin’s prospects and explore other alternatives that offer more value and potential.
UBS’s view on Bitcoin is not shared by all financial institutions, however. Some other banks, such as Morgan Stanley and Goldman Sachs, have shown more interest and openness towards the cryptocurrency, offering their clients exposure to Bitcoin-related funds and products.
Additionally, some companies, such as Tesla and MicroStrategy, have invested in Bitcoin as part of their corporate treasury strategy, signaling their confidence in its future potential. Furthermore, some countries, such as El Salvador and Ukraine, have taken steps to adopt Bitcoin as legal tender or to facilitate its use by their citizens.
Therefore, it remains to be seen whether UBS’s pessimistic outlook on Bitcoin will prove to be accurate or not. Bitcoin is still a relatively young and evolving phenomenon, and its future may depend on how it adapts to the changing technological, economic, and regulatory environment. While UBS may have valid reasons to doubt Bitcoin’s long-term prospects, it may also be underestimating its innovative and disruptive power.
The report also points out the environmental and social risks associated with Bitcoin mining, which consumes vast amounts of energy and generates significant carbon emissions.
The report concludes that Bitcoin is unlikely to replace traditional money or become a mainstream asset anytime soon, and that investors should be cautious about its high volatility and uncertain future.