Opposites Attract
ByteTree BOLD Index Monthly Rebalancing Report
Following rebalancing on 29th November 2024, the new target weights for the BOLD Index are 25.0% Bitcoin and 75.0% Gold, a 0.4% increase for Bitcoin.
The 21Shares ByteTree BOLD ETP (BOLD) invests in Bitcoin and Gold. BOLD combines the world’s two most liquid alternative assets on a risk-adjusted basis. Due to their natural 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 November, BOLD rose by 7.4%, Bitcoin rose by 38.5% (calendar month), and Gold fell by 3.7%, while global equities rose by 4.5% in USD terms. The target weights last month were 24.6% and 75.4% (Bitcoin to Gold). Price changes over the month led to the last day’s weights at 31.9% and 68.1%. This means the latest end-November rebalancing has seen a 6.9% reduction from Bitcoin and added to Gold to meet the new target weights.
Bitcoin, Gold and BOLD (USD) – November 2024
It was a particularly interesting month for Bitcoin as it challenged the $100k level for the first time. Surprisingly, it reached $99,728 before reversing. Yet, when you look back, Bitcoin stalled at every round number, each marking a 10x move. The stalls in 2011 ($1) and early 2013 ($100) were brief. But the pause in 2012 ($10) lasted well over a year, and the later ones in 2013 ($1,000), and 2017 ($10,000) both lasted for around three years.
Bitcoin Stalls at $100k
Bitcoin will likely pass $100,000, but it may take a little time for the recent high expectations to cool. The US election was positive for Bitcoin, but less so for Gold. There has also been heavy buying from Bitcoin evangelist Michael Saylor. His company, MicroStrategy, has acquired 402,000 BTC by issuing new shares along with convertible bonds. This is possible due to a high share price. Despite high Bitcoin demand, with additional support from the ETFs, Bitcoin has stalled at $100k. This suggests there are natural sellers in the network, which may take a little time to overcome before we see the next new all-time high.
Bitcoin Held by ETFs
Bitcoin and Gold Research
ByteTree Research publishes research on Bitcoin and Gold. In the latest issue of Atlas Pulse, Opposites Attract – Gold Can No Longer Ignore Bitcoin, I looked at the correlation between the assets.
In the powerful surge in November, Gold was left behind as Bitcoin surged, with periodic inverse moves almost point for point, especially after the election.
Bitcoin and Gold Intraday in November
I covered the Bitcoin and Gold correlation, which has averaged just 14% since 2018. Contrast this with Gold and Silver, or Bitcoin and Ethereum, and the answer would be close to 80%. That means those pairs tend to move together. In contrast, Bitcoin and Gold do not, making them a naturally diversifying pair. This is a key point in understanding the benefits of rebalancing Bitcoin and Gold to enhance the outcome for the BOLD Index.
BOLD Performance
Over the past year, Bitcoin has returned +158.2%, in contrast to Gold with +29.8%, while equities rose +26.0%. BOLD has returned +60.4%.
Bitcoin, Gold, BOLD, and Equities - Past Year
Since the BOLD ETP inception on 27 April 2022, Bitcoin is +149.2%, Gold +40.1%, and equities +35.7%. BOLD has returned +86.4%.
Bitcoin, Gold, BOLD, and Equities – Since Inception
Monthly Rebalancing of the BOLD ETP
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’s Past 360-day Volatility
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 42.4% and 14.1%, respectively. In 2024, Bitcoin has seen a modest increase in volatility compared to Gold.
If Bitcoin and Gold had the same volatility, the weights would be 50/50. Indeed, if Gold’s volatility was ever higher than Bitcoin’s, then Bitcoin would have a larger allocation. The volatility measures have resulted in new target weights of 25.0% Bitcoin and 75.0% Gold using this formula.
Asset allocation is an important feature. Over the long term, the aim is to equalise the risk in each asset. In 2017 and 2018, BOLD had relatively low exposure to Bitcoin due to its high volatility at the time, which held it in good stead in the 2018 bear market. At other times, it has generally been in the 20% to 25% range.
In recent years, the monthly rebalancing transactions, which repeatedly topped up the weaker asset, have added significant value compared to buy and hold. This was not true in 2016/2017 when Bitcoin saw the price surge but has been an effective tail wind since Bitcoin has matured as an asset, making the BOLD strategy highly relevant today.
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. This ensures the strategy maintains the optimised weights on a regular basis.
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, as defined by volatility, roughly the same in each asset. That means BOLD 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 and a key advantage over holding Bitcoin and Gold independently.
BOLD’s Volatility Is Comparable with Gold and Diversified Equities
Summary
It has been a good run for both assets, and it may well be that they take a break. But what seems to keep on happening is that the larger the deficits grow, and with that, nominal GDP, the more BOLD responds.
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.