Since its launch in October 2021, the ProShares Bitcoin Strategy ETF (BITO.US), the first Bitcoin futures exchange-traded fund (ETF) in the United States, has fallen by 40%, while gold prices have risen by more than 13% during the same period. Lawrence Fuller, head of the investment group The Portfolio Architect, gave the BITO fund a "sell" rating after its debut, saying that he prefers to hold gold when a store of value is needed.
The BITO fund has plummeted 40% since its listing, and the price of gold has increased by more than 13% during the same period.
More than two years later, the prediction seems prescient.
Last week, the first high-profile U.S. Bitcoin spot ETFs began trading after receiving approval from the U.S. Securities and Exchange Commission (SEC). The market is optimistic that investors and financial advisors will be able to invest directly in Bitcoin through these new products, which will be very beneficial to Bitcoin prices in the medium to long term.
However, recent trends indicate that the launch of these 11 Bitcoin spot ETFs is a "sell the news" event. Fuller said that after peaking above $49,000 on its first day of trading, the price of Bitcoin fell below $42,000, as if it were a technology stock that failed to meet profit expectations. The difference is that technology stocks represent a company with profits, assets and fundamental value. Not so with Bitcoin.
Supporters of Bitcoin claim that the digital currency can serve as an inflation hedge as well as a store of value that can improve the risk-adjusted performance of a diversified portfolio. Fuller said he has not seen Bitcoin exhibit any of these characteristics over the past two years. As a result, Fuller reiterated his “sell” rating on Bitcoin. Over the past month, Bitcoin’s price has soared on optimism about the approval of a Bitcoin spot ETF.
Bitcoin proponents claim that the value of Bitcoins lies in their limited supply, but Fuller said most things have a limited supply and are not worth more than $49,000. As for a store of value, how can an asset that loses 10% of its value in a day, let alone half of its value in a year, be considered a store of value?
Finally, in a world of negative real yields, the emergence of Bitcoin spot ETFs creates far less competition. Bonds are unattractive, but money market returns exceed 5%, which is stiff competition for digital currencies. Fuller believes that the popularity of Bitcoin spot ETFs will slowly decline over time.
All in all, Fuller believes that Bitcoin has no established fundamental value and that its appreciation depends on more and more investors participating in the craze, which is more like a tulip than a legitimate new investment class. It is understood that in the 17th century, Dutch tulips triggered a speculative frenzy that eventually led to price collapse and thousands of people going bankrupt. Fulle will continue to avoid Bitcoin.