Late to the party: why big Bitcoin bets could backfire

Investors, especially older Australians, are moving into Bitcoin just as the chances of high returns begin to fade.

US President Donald Trump at the Bitcoin 2024 Conference in Nashville. Picture: Mark Humphrey

Australian investors are suddenly betting big on Bitcoin, just as the days of outsized returns from crypto may be coming to an end.

In a historical turnaround, mainstream Australian investors using exchange-traded funds are currently pouring more money into Bitcoin than gold.

Many of the newer entrants to the crypto market are older Australians taking a first-time bet on Bitcoin.

The ATO estimates self-managed super funds held more than $1.6bn in crypto in March, while the average new investment in ETF crypto products is more than $30,000 per transaction, again suggesting older, wealthier investors.

The rush for Bitcoin is running in tandem with very strong support for gold as investors at all levels seek security from uncertainty linked with the Trump administration in America and a falling US dollar.

Mainstream investors had waited on the sidelines during the initial run-up of Bitcoin because they were reluctant to invest outside traditional guardrails. Now money is flooding into the sector as the ASX provides a conventional gateway through ETFs; in the month of May, mum-and-dad investors put $87m into Bitcoin-related ETFs against just $1.5m into gold bullion ETFs.

So far this year, gold and Bitcoin have risen virtually in tandem, gaining around one-third since January 1. Gold is now close to $US3361 ($5123), while Bitcoin has pulses racing after reaching a new “all-time high” of $US120,000.

But retail investors ignoring gold in favour of Bitcoin may well be late to the crypto party;

Cameron Gleeson, senior investment strategist at Betashares, says: “We are seeing a broader appetite over time for Bitcoin, with that you would expect volatility – and the potential upside of Bitcoin – to moderate.”

As Gleeson explains: “Perhaps we won’t see some of the incredible returns that we saw over the last 10 years. The days of waking up and finding out that it went up 20 per cent overnight are probably fading.”

Put simply, the more money that flows into Bitcoin, the more it stabilises, reducing the possibility it will deliver anything like the knockout returns of its earlier days.

In fact, despite the push from pro-crypto President Donald Trump, Bitcoin’s recent record levels have disguised a slowing in the cycle. Bitcoin is rapidly stabilising, with its volatility running at roughly one-third the levels of a decade ago.

Some investors see Bitcoin as a digital alternative to gold, believing that crypto could act as a non-correlated asset similar to the yellow metal. Under this theory, Bitcoin would rise when there is a sharemarket fall and vice versa.

While Gleeson at Betashares says “there is still merit in including an allocation of Bitcoin in a diversified portfolio”, he also suggests the jury is out on whether Bitcoin will ever prove itself to be a digital gold capable of growing in price when other “growth” assets are falling.

Meanwhile, gold continues to accumulate powerful “buy” signals from the escalation of central bank demand for gold. As the World Gold Council reports, central banks have doubled their gold buying over the past three years, and 95 per cent of central banks expect their peers to keep buying gold over the next 12 months.

Against this backdrop, the returns on gold-related investments have been very strong, extending beyond bullion to include goldminers. While the ASX 200 is up around 5 per cent over the year to date, the ASX All Ordinaries Gold Mining Index has gained more than 30 per cent.

James Kirby hosts the twice-weekly Money Puzzle podcast