Exploring Bitcoin and Gold for Portfolio Diversification

Learn more about BlackRock’s insights on bitcoin and digital assets.

ETPs have made it easier than ever for investors to gain exposure to assets like gold and bitcoin. These vehicles offer efficient and cost-effective access — alleviating many of the complexities of direct ownership:

Convenience:

• Gold: Prior to ETP adoption, investors largely managed gold exposure through direct ownership like gold bars or jewelry, or more sophisticated investors might use derivatives such as futures contracts. But owning gold directly can present liquidity and custody challenges, as buying, selling, and storing physical gold can be cumbersome and expensive. For example, storing gold bars might require buying a safe or renting a safety deposit box at a local bank. And selling one’s gold bars might require going to a dealer who could charge a wider spread relative to the current market prices. Gold ETPs like iShares Gold Trust (IAU) or iShares Gold Trust Micro (IAUM) store their gold bars in military-grade vaults for safekeeping.
• Bitcoin: Establishing a robust bitcoin custody arrangement can be operationally challenging as it requires investors to either secure, store, and manage their individual private keys, which can be thought of as the password that authorizes the movement of associated bitcoin, or engage an institutional-grade custodian. Without deep technical knowledge or robust processes, investors have at many times throughout bitcoin’s history suffered substantial losses.
  
  The iShares Bitcoin Trust ETF (IBIT), an example of a spot bitcoin ETP, utilizes an institutional-grade segregated cold storage vault custody solution, meaning private keys are generated and stored in secure, offline facilities. This is done through Coinbase Prime,⁹ the world’s largest institutional digital asset custodian — so investors don’t need to manage their own wallets or keys 

Efficient access:

• Gold: Gold ETPs like IAU or IAUM allow investors efficient access to the changes in gold prices within an ETP wrapper that can be owned within their traditional brokerage accounts. The market for gold ETPs is deeply liquid, with millions of shares exchanging hands daily. These market dynamics provide for low bid-ask spreads, resulting in low trading costs for investors. The market for gold ETPs is deeply liquid, with millions of shares exchanging hands daily. These market dynamics provide for low bid-ask spreads, resulting in low trading costs for investors.
• Bitcoin: Spot bitcoin ETPs like IBIT allow investors to gain exposure to the price movements of bitcoin in the convenience of the ETP wrapper. IBIT has solidified itself as one of the most frequently traded ETPs in secondary market activity.¹⁰ This trading activity on traditional exchanges provides for high liquidity and low bid-ask spreads, significantly reducing transaction costs for investors versus what many face when trying to trade bitcoin directly on crypto exchanges. Through an ETP like IBIT, investors can gain exposure to bitcoin through traditional brokerage accounts, creating a bridge between traditional finance and cryptocurrency.

Learn more about investing in digital assets.

The operational convenience of bitcoin and gold ETPs coupled with rising uncertainty in global markets has driven investor demand for bitcoin and gold ETPs, which have seen $13.6 billion and $19.2 billion in new assets year to date. iShares ETPs have driven a significant share of net flows, taking in $6.1 billion in net gold ETP flows and $15.2 billion in net bitcoin ETP flows.¹¹ This surge in flows reflects investors seeking out these assets through the convenience of the ETP wrapper. As uncertainty persists, bitcoin and gold will continue to be seen as strategic tools for diversification and as a potential long-run store of value.