Working Together
Disclaimer: Your capital is at risk. This is not investment advice.
ByteTree BOLD Index Monthly Rebalancing Report;
The Vinter ByteTree BOLD1 Index (BOLD) invests in Bitcoin and Gold. BOLD combines the world’s two most liquid alternative assets on a risk-adjusted basis. Due to their naturally low correlation, the diversification benefits of holding both assets have been unusually high. Bitcoin prefers risk-on market conditions, while Gold prefers risk-off.
In August, BOLD rose by 0.1%, Bitcoin fell by 8.7%, Gold rose by 2.3%, and global equities rose by 2.5% in USD terms. The target weights last month were 25.3% and 74.7% (Bitcoin to Gold). Price changes over the month led to the last day’s weights at 22.6% and 77.4%. This means the latest rebalancing has seen 2.4% added to Bitcoin and correspondingly reduced from Gold to meet the new target weights.
Bitcoin, Gold, BOLD and Equities in August 2024
BOLD Performance
Over the past year, Bitcoin’s performance has returned 102.2%, in contrast to Gold with 27.4%, while equities rose 21.5%. BOLD has returned 47.5%.
Bitcoin, Gold, BOLD and Equities Over the Past Year
When viewing the performance over three years, since 30th August 2021, BOLD shows its strength. Bitcoin is +21.4%, which is in line with equities, while Gold is +38.3% and BOLD +54.6%.
Bitcoin, Gold, BOLD and Equities Over the Past Three Years
It is remarkable how over three years, Bitcoin has been +40%, -65%, +40% again, and is now +20%. BOLD is +54%, having briefly been -20%. The key to the excess return comes from the monthly rebalancing transactions.
August Rebalancing of the BOLD Index
BOLD allocates to Bitcoin and Gold on a risk-adjusted basis, using past volatility, which is calculated using daily price movements. The less volatile asset, which has lower daily price moves, gets a higher weight in the index at the end of the monthly rebalancing. Bitcoin’s volatility, measured over a year, has fallen significantly since the early days and is now no more volatile than a typical blue-chip stock.
Bitcoin and Gold’s Past 360-day Volatility
The volatility for Bitcoin and Gold over the past 360 days was observed to be 42.2% for Bitcoin and 14.0% for Gold. That means both assets have continued to see an increase in volatility in 2024. The purple line shows the difference in volatility between the assets. As that falls, the asset weights come closer together. If Bitcoin and Gold had the same volatility, there would be no difference, and the weights would be 50/50. Indeed, if Gold’s volatility was ever higher than Bitcoin’s, then Bitcoin would have a larger share of the BOLD Index.
This has resulted in new target weights of 25.0% Bitcoin and 75.0% Gold using this formula. Rather than having the same amount of value invested in each asset, the BOLD strategy aims to hold an equal amount of “risk” in each asset. It is, hence, “risk-weighted”.
The history of the Bitcoin weight in the BOLD index is shown. The residual, which is 100% less the Bitcoin weight, is held in Gold. Bitcoin exposure dropped to just over 5% in 2018, when volatility was very high. It has peaked above 30% after periods of lower volatility with strong intramonth performance.
Bitcoin Daily Weight
The daily weights can deviate more than the monthly target weights due to the intramonth price differences between Bitcoin and Gold. Then, at the end of each month, these weights are brought back into line according to their volatility. The current weights are at the upper end of the historical Bitcoin exposure within BOLD.
BOLD Rebalance Weights
All data regarding the BOLD index is freely available here. If you generate some interesting charts or findings, please let us know.
Positive Flows
Over the past month, the Bitcoin ETF flows have improved. The underlying story here is that while there has been steady demand for Bitcoin, the Grayscale Bitcoin ETF (GBTC), once the largest Bitcoin fund in the world, has seen huge outflows. The outflows seem to be slowing, and, as a result, net inflows into the Bitcoin Network have resumed. This should help to drive prices higher in time.
Bitcoin Held by ETFs
We are also seeing inflows into the Gold markets after a three-year break. Institutional investors have low Gold exposure, and this should help keep the price underpinned.
Gold Held by ETFs
Atlas Pulse and ATOMIC
ByteTree Research publishes monthly publications on Gold, called Atlas Pulse, and Bitcoin, called ATOMIC. I shall share the highlights from the latest issues.
Atlas Pulse
In The Quiet Gold Boom, I covered how the data from the futures market, which shows high investor interest, isn’t what it seems and investor position is still light. There is plenty of demand for Gold that is yet to come.
We also covered the potential for a dollar bear market, which would be buoyant for both Bitcoin and Gold. The dollar is overvalued and has been rising for a long time. With lower interest rates coming, that’ll change, and the dollar will fall.
US Dollar Purchasing Power
ATOMIC
In ATOMIC, The Cost of Doubling, I looked at the capital requirement to double the Bitcoin Network. The basic idea is that the network must balance, so if miners are cashing out, real money must fund that. I accept that not all coins mined have been sold for cash, but with high energy costs, most have. By observing price doublings against total miners’ revenue, we get a sense of the cost of doubling the price of Bitcoin.
The Cost of Doubling
The next double won’t happen until the price is $125,829, with a $43.6 billion bill and climbing. It may well happen in October, and at the cost of 3.8% (or perhaps 4% by then) of the market cap, maybe that’s good value. After all, it will be creating $1.2 trillion of value.
Summary
Bitcoin and Gold are important alternative assets, and it seems they take it in turns. With Gold recently having had such a strong run, it’ll be Bitcoin’s turn before too long. Bitcoin and Gold work together.
Contact
For information on investing in BOLD, contact bold@bytetree.com.
If your investment firm or media outlet would like a private briefing on BOLD, we will be happy to oblige. If a physical meeting is not possible, we can arrange a Zoom call.
Further Information
Vinter Index Provider
21Shares BOLD ETP
BOLD.report
Research
ByteTree provides more in-depth research on Bitcoin and Gold for free on our website.
