Natural Diversification and +64% in 12 Months

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 September, BOLD rose by 5.3%, Bitcoin rose by 8.0%, Gold rose by 5.3%, while global equities rose by 1.8% in USD terms. The target weights last month were 25.0% and 75.0% (Bitcoin to Gold). Price changes over the month led to the last day’s weights at 25.4% and 74.6%. This means the latest rebalancing at the end of September has seen 0.8% reduced from Bitcoin and added to Gold to meet the new target weights.

Bitcoin, Gold, BOLD, and Equities – September 2024

BOLD Performance

Over the past year, Bitcoin’s performance has returned +133.9%, in contrast to Gold with +41.7%, while equities rose +19.7%. BOLD has returned +64.3%.

Bitcoin, Gold, BOLD, and Equities over the Past Year

Over three years, since 30^th September 2021, BOLD has shown its strength. Bitcoin is +46.5%, similar to Gold +50.1%, and above equities +29.9%. BOLD returned +71.7%.

Bitcoin, Gold, BOLD, Equities over the Past Three Years

BOLD has beaten both Bitcoin and Gold with no derivative or leverage. Moreover, the increase in volatility has been marginal for such a significant outperformance.

Bitcoin, Gold, BOLD Index and Equities Volatility

September Rebalancing of the BOLD Index

BOLD allocates 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 and Gold Volatility over the Past 360 Days

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 and is hence “risk-weighted”. The volatility for Bitcoin and Gold over the past 360 days was observed to be 42.9% and 14.0%, respectively. In 2024, Bitcoin has seen a modest increase in volatility. If Bitcoin and Gold had the same volatility, there would be no difference and so 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.

The volatility measures have resulted in new target weights of 24.6% Bitcoin and 75.4% gold using this formula.

The history of the Bitcoin target weight in the BOLD index is shown in the chart below. 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.

BOLD Rebalance Weights

The daily weights deviate much more than the monthly target weights due to the intramonth price movements between Bitcoin and Gold. For example, if Bitcoin were to have a material fall in price, then at the end of the month, it would be boosted to the target weight during rebalancing. If rebalancing didn’t occur, the strategy would be underweight Bitcoin and overweight Gold, meaning it would lack sufficient Bitcoin exposure to participate fully in the next period of Bitcoin price strength.

Similarly, if Bitcoin was particularly strong one month or Gold was weak, the rebalancing process would reduce Bitcoin exposure back down to the target weight at the month’s end. This process keeps the amount of risk roughly the same in each asset. That means the BOLD index maintains its level of risk over time, not being overly exposed to either Bitcoin or Gold. This explains why BOLD’s volatility is so low.

BOLD Volatility Is Comparable with Gold and Diversified Equities

The deviation of the exposure to Bitcoin and Gold changes daily (pink) due to price movements. Those weights are returned to the target (black) at the month’s end, as shown.

BOLD Daily vs Monthly Target Weights

The daily deviations from target weights can be as high as +/- 8% in a given month but are on average 2.3%.

BOLD Monthly Rebalancing Transaction Size (%)

On a rolling 12-month basis, the annual turnover is shown. Annual rebalancing transactions have ranged between 20% and 45%. This has tended to increase during Bitcoin bear markets. High turnover can deliver returns over holding Bitcoin and Gold individually through buying low and selling high.

BOLD Annual Turnover (%)

Positive Flows for Bitcoin and Gold

Bitcoin ETF flows have remained stable, with September reversing the mid-month outflows.

Bitcoin Held by ETFs over the Past Year

It is important to note that during the 2020 Bitcoin surge, the flows were strong, as highlighted in the chart below. That was a period when the funds purchased 500k Bitcoin in a year, and the price was strong. Flows were strong earlier this year, and the expectation is that they will improve in the fourth quarter. This is becoming increasingly likely as the Grayscale ETF (GBTC) shrinks, which has been causing network outflows.  

Bitcoin Held by ETFs over the Past Five Years

Gold flows into the ETFs have been consistent and strong since May. Investors have added 3 million ounces of Gold to portfolios.

Gold Held by ETFs over the Past Year

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 Atlas Pulse, Wall Street Buys Gold (and the Saudis), I revisited the central bank purchases, which are vast. This month it was revealed that Saudi Arabia was the biggest buyer, trying to accumulate bullion discretely through Switzerland. I also showed how Wall Street (a term for financial investors) is underweight Gold. The 10-year average has been 3.7%, and today, just 2.8%. It’s been higher than 15% when investors last caught gold fever.

Investors are Underweight Gold

ATOMIC

In ATOMIC, Bitcoin Blooms in the Autumn, I looked at Bitcoin’s annual seasonality over the past decade. The strongest period has been the fourth quarter, and the weakest period is the late spring and summer. This is not dissimilar for stockmarkets as well.

Bitcoin Seasonality

Summary

Bitcoin and Gold are natural portfolio diversifiers that fit together and help to return with a decrease in portfolio volatility for much of the time.

Product Details

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.