James Butterfill: Once you understand gold, Bitcoin is impossible to dismiss

​Bitcoin is becoming increasingly intertwined with traditional finance. Banks are embracing blockchain, investors are looking for protection against monetary debasement, and tokenization is gradually changing financial infrastructure. In an interview with Traders Union, CoinShares Head of Research James Butterfill explained how gold led him to Bitcoin and what could become the next major catalyst for the crypto market.

From gold to Bitcoin

Before moving into crypto, James Butterfill spent many years in traditional finance, researching precious metals at ETF Securities. It was his work on gold, he says, that eventually led him into digital assets.

“It was gold that led me to Bitcoin. At ETF Securities I spent years researching precious metals and the monetary conditions that drive them, and once you have internalised the case for gold, scarce, non-sovereign, nobody's liability, Bitcoin is impossible to dismiss, because it exhibits the same monetary properties in digital form with an even harder supply schedule.”

Exchange-traded products also shaped his thinking. Butterfill had seen how ETPs made gold easier to own by removing many of the practical barriers associated with the physical metal, and he expected Bitcoin to follow a similar path.

“I had watched ETPs democratise gold, taking an asset that was operationally awkward to own and making it accessible through a brokerage account, and it was clear the same transformation would happen to Bitcoin.”

Traditional finance is moving the crypto market

Traditional finance has become a much stronger force in crypto markets. The growth of ETFs and ETPs has brought more institutional capital into digital assets, with investment decisions increasingly shaped by macroeconomic factors.

Butterfill says major crypto market moves are now increasingly tied to inflation data, Federal Reserve communication and developments in the government bond market rather than crypto-native events.

“Traditional finance is now the marginal price setter in crypto. The arrival of ETFs and ETPs at scale means the largest incremental buyer is an institution allocating on macro grounds, and the market trades accordingly: the biggest weekly moves in our fund flow data now cluster around inflation prints and Fed communication rather than crypto native events.”

The relationship, however, now works both ways. After years of traditional finance directing capital into digital assets, banks are increasingly adopting technologies that emerged from the crypto industry.

“For a decade capital flowed from traditional finance into crypto assets; now the technology is flowing back the other way, with banks building on stablecoins, tokenised deposits and public blockchain rails. We describe this convergence as hybrid finance, and it means the boundary between the two markets is dissolving rather than one absorbing the other.”

What is holding large investors back from crypto

Despite the market’s development, pension funds, insurers and banks still face barriers to investing in digital assets. Butterfill believes the main obstacle for many institutions has not been a lack of appetite, but the absence of suitable investment structures.

This is one reason CoinShares launched its UCITS platform, allowing investors to gain digital-asset-related exposure through a fund structure already familiar to European institutions.

Other barriers remain. Banks face punitive capital requirements for direct crypto exposure, while insurers face unfavorable solvency treatment and fiduciaries must consider the career risk of investing early in a volatile asset class.

“Each of these erodes with time, regulatory clarity and track record, which is why we think the constraint is now pace rather than direction.”

Investors have changed how they view crypto

Investor behavior has also changed. A few years ago, flows into crypto products largely followed price momentum. Today they react much more quickly to inflation data, labor market reports and U.S. Treasury yields.

Butterfill also notes that investors have become more disciplined, increasingly buying weakness and using short Bitcoin products to hedge risk.

“The most striking change is that flows have become an expression of macro views rather than crypto sentiment. A few years ago flows chased price momentum; today they respond to inflation data, payrolls and the Treasury curve, often within hours of a release.”

Demand is also gradually broadening beyond Bitcoin. Ethereum has regained investor interest, while altcoin products are attracting steady flows. However, Bitcoin still dominates when macro conviction is particularly strong.

Financial markets are moving toward 24/7 trading

One advantage crypto has over traditional assets is that it trades around the clock, including on weekends. Butterfill believes traditional financial markets are gradually moving in the same direction.

The main obstacle, in his view, is not demand but infrastructure. Clearing, settlement and corporate actions were historically designed for markets that close overnight and on weekends.

Crypto already partly fills this gap, particularly when geopolitical crises erupt while traditional exchanges are closed.

“The weekend gap is where crypto already performs a genuine service, since when geopolitical shocks land on a Saturday, crypto venues become the only live price discovery for global risk, and traders use them exactly that way.”

Butterfill expects continuous weekday trading in traditional assets to become commonplace relatively soon, while genuine 24/7 markets could arrive later this decade. He sees tokenization as one of the key factors enabling that transition.

Tokenization is real, but expectations are too high

Tokenization has become one of the biggest trends across both crypto and traditional finance. However, Butterfill believes some of the excitement is running ahead of what the technology can currently deliver.

Putting real estate, a private asset or a security on a blockchain does not automatically create liquidity. Butterfill says many real-world asset tokenization projects have already demonstrated this limitation.

At the same time, demand for some tokenized financial instruments is already clear. Stablecoins have proved their usefulness, while Butterfill sees tokenized money market funds as a potential next major area of growth.

“Where demand is unambiguously real is money: stablecoins are the one tokenised asset with proven product market fit, with a float in the hundreds of billions of dollars doing genuine settlement work, and tokenised money market funds from the largest asset managers are the logical second wave because they solve a real problem, namely collateral that moves at internet speed.”

Butterfill expects the infrastructure enabling tokenization to capture much of the value first.

“The trend is real and durable; the timeline is longer and the winners narrower than the marketing suggests.”

Gold and Bitcoin protect against different risks

Against a backdrop of geopolitical uncertainty, investors are once again looking for assets capable of protecting capital. Butterfill believes there is no single answer: gold and Bitcoin are better suited to different types of risk.

During an acute geopolitical shock, gold still has the advantage because of its centuries-long history and structural demand from central banks. Bitcoin, by contrast, can initially fall alongside other risk assets.

When the risk is a slower deterioration in public finances, monetary debasement and declining confidence in sovereign balance sheets, however, Butterfill sees Bitcoin as potentially better suited.

“For acute geopolitical shock, gold remains the superior instrument: it has centuries of precedent, a structural central bank bid, and it behaves reliably in the hours that matter, whereas Bitcoin often trades with risk assets initially before recovering.”

“For the slower burning risk, fiscal deterioration, monetary debasement and eroding confidence in sovereign balance sheets, Bitcoin is arguably better suited, as a fixed supply asset that no government can dilute.”

That is why Butterfill does not believe investors necessarily have to choose between the two.

“Our answer is therefore not one asset but the pairing: gold for the shock, Bitcoin for the slow burn.”

How much Bitcoin should a portfolio hold?

Butterfill does not share the Bitcoin-maximalist view that investors should concentrate most of their capital in BTC. CoinShares research found that historically, an allocation of around 4% to Bitcoin in a traditional 60/40 portfolio maximized risk-adjusted returns.

That is large enough for Bitcoin’s potential upside to make a meaningful difference, but small enough to prevent its volatility from dominating overall portfolio performance.

“Size the position assuming a drawdown of 80% can happen, because historically it has, and only hold what you can carry through that.”

Butterfill also stresses the importance of systematic rebalancing. Trimming the position after strong gains and adding after declines can help turn Bitcoin’s volatility into an advantage.

“Dalio's instinct is directionally right, while the maximalist position ignores basic portfolio construction, since a 100% allocation offers no diversification at all.”

Crypto security is a process

Hacks and infrastructure failures remain another challenge for the industry. Butterfill notes that many major losses today stem not from problems with blockchain protocols themselves, but from compromised keys, firmware flaws and other operational failures.

For that reason, key generation and software for crypto storage devices should be treated as critical infrastructure. Independent audits, verifiable entropy and the use of multiple independently designed devices for large self-custody holdings should become standard practice.

“Security in this industry is a process, never a product.”

At the same time, regulated custody, insurance and fund products must continue to develop so investors can choose which risks they are willing to carry.

How Satoshi might view banks embracing blockchain

Technology designed as an alternative to financial intermediaries is increasingly being adopted by banks themselves, including through stablecoins, tokenized deposits and public blockchain infrastructure.

Butterfill acknowledges the irony, given that Satoshi Nakamoto famously embedded a headline about bank bailouts in Bitcoin’s genesis block.

In his view, however, the more important point is that Bitcoin itself has not changed. Users can still transfer and hold value without intermediaries, even as intermediaries have returned because most people prefer convenience.

“Intermediaries returned because most people prefer convenience, and the difference from 2008 is that exit now exists, which is the point of the design.”

Butterfill sees banks adopting blockchain technology as validation rather than a rejection of Bitcoin’s underlying engineering.

“Banks adopting the technology is the strongest possible validation of the engineering, a concession that the legacy rails were inadequate.”

What Bitcoin needs for its next move higher

Despite its recent recovery, Bitcoin has struggled to make a sustained break above $80,000. Butterfill links this primarily to U.S. monetary policy and inflation risks.

One of the key factors is the Iran conflict. Higher oil and energy prices could push inflation higher and strengthen expectations for tighter Federal Reserve policy, a scenario Butterfill believes would initially be negative for BTC.

The second factor is the U.S. government bond market. Elevated Treasury yields and rising debt have intensified concerns about the sustainability of U.S. public finances. If confidence in U.S. government debt deteriorates significantly, demand for alternative assets could rise sharply.

“A genuine loss of confidence in US government debt remains a tail scenario, but it would be exceptionally supportive for both gold and Bitcoin as investors seek alternatives to sovereign assets.”

According to Butterfill, Bitcoin now needs one of two scenarios to move convincingly above $80,000.

“For Bitcoin to move convincingly through US$80,000, we think one of two things needs to happen: a meaningful resolution of the Iran conflict that lowers inflation and rate expectations, or a further deterioration in confidence in US sovereign debt that accelerates demand for non-sovereign stores of value.”

Until one of these catalysts emerges, Butterfill expects Bitcoin to remain within a relatively limited range, without a decisive move in either direction.