Welcome back to Learn, Apollo’s weekly newsletter about the Bitcoin ecosystem and people building it.

This week’s edition is about the history of the Gold ETFs, which launched in 2004: how they got off the ground, how they’ve performed since, and what we can learn about the the likely trajectory of bitcoin ETFs by comparison.

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Hope you enjoy it.

— Julian Fahrer, Apollo CEO

A Brief History of the Gold ETFs

Gold ETF Origin Story

In November 2004, the first gold ETF launched in the United States and several other countries around the world.

At the time, gold was just beginning to rebound after a 20-year bear market. Prior to the introduction of gold ETFs, investors were limited to gold miner stocks, bullion, futures contracts. There was a bunch of additional complexity and risk: the fundamentals of the miners themselves, storage costs, insurance, and trading inefficiencies.

The ETFs, which gave investors all over the world instant frictionless access to a liquid market without any of the cumbersome requirements to insure, transport and store gold, were thus a radical innovation.

Post-ETF gold bull run

The effect of the ETFs on the price of gold was immediate, drastic, and long lasting. An eight-year gold bull run kicked off and the it was basically up only until 2012.

To illustrate: in the eight years prior to GLD’s launch the price increased 16.84%, whereas in the eight years post-launch it went up 286.90%

There is some nuance, however. As you can see in the chart below, for the couple of years prior to GLD’s launch, the price had already been rising.

One of the pioneers of GLD Graham Tuckwell said that this was an early factors in the ETFs success: “When the first gold ETF became available in March 2003, it was a good time to start marketing gold as it had risen steadily from $250 to $350.”

Nonetheless it’s clear that the ETFs were what really poured gas on the fire.

So why did this happen? What was it about the ETFs that changed the game so much for gold investors?

According to State Street Advisors in a piece of analysis written in 2006 (two years after GLD’s launch), by reducing the friction associated with Gold investment the ETFs had made gold “easily accessible to a wider investor base”, which had “most likely led to the beginnings of a secular revaluation of the asset class.”

In short, according George Milling-Stanley, vice president and chief gold strategist for SPDR ETFs at State Street Global Advisors: “What we did, basically, was democratize the whole gold thing.”

Gold vs Bitcoin

The theory

How do the bitcoin ETFs compare to the GLD story?

Bitcoiners are already familiar with the ‘digital gold’ analogy, when it comes to comparing the two assets.

As far as the ETFs are concerned, there may be some parallels too.

For many of the same reasons bitcoiners tout BTC as superior gold (namely the portability), it was much easier to for retail investors to access bitcoin prior to the ETF launch than it was for gold investors in 2003.

Nonetheless, it’s fair to say that the ETFs are likewise ‘democratizing’ access to bitcoin in a fashion analogous to GLD and gold.

The challenges of self-custody, or even just trusting an exchange, have most likely been bottlenecks for mainstream bitcoin adoption. The ETFs change that.

There are other echoes in the gold ETF history sounding again today. Funnily enough, many of the concerns that bitcoin ETF doubters are raising today, are basically the same as those that gold ETF bears had many years ago.

Two years after launch, the majority of ownership of gold ETFs was from retail investors, with institutional investors accounting for 36% of ownership, and mutual funds 5%.

These investors were gold noobs, and that had people a bit spooked.

In 2010, the World Gold Council estimated that between 60-80% of GLD investors had never invested in Gold before and, “No one knows how those newcomers might react in a sharp downturn.”

Similarly, Bryan Armour, director of passive strategies research at Morningstar, said, “I would expect the flows trend to reverse should market risk increase…A bear market would likely see a flight to quality and investors taking risk off, which would hurt flows in bitcoin.”

Whether or not history repeats and the bears are proven wrong, the analysis is pretty thin anyway. And basically just a tautology. Yes: people sell in bear markets. Not news.

In practice: results so far

The biggest different between gold and bitcoin ETFs so far, of course, is where it matters most: inflows and price.

The gold ETFs were transformative in their time, and all things considered put a rocket under the price.

Well, so far, bitcoin ETFs make that experience look geriatric.

Blackrock’s ETF (IBIT) alone passed the $10B mark in seven weeks, while it took GLD two years to get there.

And not only has the early bitcoin ETF experience blown past that of gold, but it seems like they’re actually gobbling up gold ETF inflows too.

So where is it going from here? Not financial advice, but: probably up, and probably a lot.

Eric Balchunas, Senior ETF Analyst at Bloomberg, expects bitcoin ETFs to surpass the Gold ETFs in AUM within two years. Meanwhile Bitwise CIO Matt Hougan predicts $200B in bitcoin ETFs before the next halving.

What’s clear is that, even in the first three months, bitcoin ETFs are blowing up the gold experience.

Some similarities are there, but now we’re definitely in uncharted territory.

Strap in.

That’s it for this week.

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I’ll see you back here next Monday.

— Julian