Arbitrage Between Gold and Bitcoin?

Yes, I know.  I said that this post would be in Tether.  Next one, I promise.  But this one is short.

In my prior post, I made what I thought was a pretty convincing argument that the recent “gold rush” was primarily due to 2025 ETF buying.  That would be people like you, adding gold to your IRA, 401k, brokerage account, whatever.

Here is something else to consider.

Roughly 5% of the total bitcoin supply is held in ETF’s, the leader being Blackrock’s bitcoin ETF IBIT, holding over 800,000 BTC, which represents about 3.8% of the total supply of bitcoin.

This 5% does not seem very significant until one considers that most bitcoin is being HODL’d, and that only about 28% is being actively traded. 

Which means that the 5% in the ETF’s represents potentially 18% of the actively traded bitcoin, which is now significant.

Given Bitcoin’s $1.8 trillion market cap and knowing that about 5% of bitcoin are in ETF’s, this implies that there is about $90 billion worth of bitcoin in ETF’s.  We also know that about $560 billion of “above ground gold” is held in global ETF’s.

Which implies a 560 / 90 ratio, or about 6:1, between gold and bitcoin held in ETF’s.

Let’s assume that there is arbitrage occurring between bitcoin and gold, that investors are continuously adjusting how much they have of each, selling one and buying the other.  If this were the case, then the movements of the bitcoin price would be about 6X the corresponding movement of the gold price.

Now consider the 5-year graph above, comparing the price of Bitcoin and Gold.

The red / green circle pairs represent a downward correction in gold followed by a larger upward correction in bitcoin. (and vice-versa).

Seems to me that there is a pattern, but I will let you draw your own conclusions.