Lear Capital Explains Why Some Investors are Shifting Their Focus From Crypto to Gold

Cryptocurrency has become a popular buzzword in recent years, yet a number of investors are still expressing an interest in physical precious metal assets such as gold, which historically has remained stable or increased in price during economically challenging periods, says Kevin DeMeritt, founder and chairman of precious metals firm Lear Capital.

When interest rates rose in the 1970s, for instance, the price of gold increased more than 500%, DeMeritt says.

“The crypto market has a tremendous amount of benefits for people all over the world,” he states. “It can help you get away from the government printing money. [But] gold has a 5,000-year track record, [compared to] crypto’s 12-year track record. You’re going to get a lot more predictability out of gold than you will with everything that’s going on in [the] crypto [market] at this particular point.”

Current Crypto Conditions 

Due to the nature of the cryptocurrency market, where transactions are recorded automatically on a digital ledger that isn’t owned or updated by any specific organization or individual, the involved parties can remain fairly anonymous if they use a pseudonym in transactions — presenting an opportunity for misrepresentation and deceit.

The U.S. Securities and Exchange Commission warns crypto asset investments and services may not be compliant with applicable federal and other laws — and called crypto-related investments potentially “speculative, risky, and volatile.”

Several recent high-profile incidents have raised questions about the market. In December 2022, the SEC charged the FTX trading platform’s CEO in connection with “orchestrating a scheme to defraud equity investors,” alleging customers’ funds had been diverted to a privately held crypto hedge fund.

In March of this year, crypto industry bank Silvergate Capital announced it would be closing, despite a $4.3 billion infusion from the Federal Home Loan Bank of San Francisco months beforehand.

Crypto prices have also shown significant fluctuations. In the last quarter of 2017, for instance, bitcoin returns totaled nearly 24%; by 2021, its price had reached $65,000 — yet the cryptocurrency’s price declined to less than $17,000 by the end of 2022.

The crypto market also hasn’t appeared to be as inflation-adverse as some industry members had anticipated. When the Federal Reserve began to raise interest rates in 2022, NPR reported some crypto prices declined.

A number of crypto converts are now looking at other types of investments, according to Kevin DeMeritt.

“The uncertainty in the market over-regulation and the impact that will have leaves a lot of investors nervous about how certain coins are going to be treated, and ultimately the liquidity they’ll have,” the Lear Capital founder says. “We keep hearing bitcoin is the digital gold, and it may be — but a lot of these recent bankruptcies in the crypto markets, along with the crypto banks having to be bailed out, are going to make some investors leery.” 

Investors Eye Gold, Silver, and Other Metals

 Although, in recent years, the interest in cryptocurrency has been particularly significant among millennials and members of Generation Z — research indicates more than a quarter (29%) of high-net-worth members of those generations prefer crypto to investments like stocks — increasingly, Kevin DeMeritt says, younger investors are entering the physical precious metals market. 

“They put a lot of faith in crypto, and it’s had a lot of volatility, so they want to diversify from digital to real gold,” he says. “It might not be their entire portfolio. [They might say,] ‘I’m going to take 30% or 50% of my crypto and move that over’ — which is great. They’re diversifying. [Young investors and retirees] are the two groups we’re probably seeing the most activity [from], at this particular point.”

For decades, physical precious metal assets have offered a consistent line-up of advantages, ranging from liquidity to general price stability, according to Kevin DeMeritt.

Gold is often seen as a pretty good hedge against inflation, and tends to rise when the purchasing power of the dollar declines,” he says. “Gold is used as a safe haven during recessions, market volatility, war; when investors are worried about the economy — like we’re seeing now with bank failures or the war in Ukraine — usually you get more people turning to gold, which can drive up its price.”

Central banks, too, have expressed an increased interest in gold. As the demand for the precious metal hit a high point last year that it hadn’t reached since 1950, central banks purchased 152% more than in 2021 — a new record, according to the World Gold Council.

“Central banks purchased a quarter of all of the gold pulled out of the ground last year,” Lear Capital’s Kevin DeMeritt explains. “If that continues, as [a] recession takes hold [and] we start to see more of these financial instabilities happen around the country — and probably around the world — demand from central banks could intensify, along with demand from institutional and individual investors. You might just wake up to $3,500 [or] $3,700 gold [prices] in the next 24 [to] 36 months.”

Some investors, DeMeritt says, appreciate being able to tangibly hold gold, silver, or platinum assets.

“We’re already starting to see some people [who] own crypto move over to gold because they don’t have to put it [in] some digital wallet and go through that whole process,” Kevin DeMeritt says. “They actually physically can [possess gold].”

Investors who are considering cryptocurrency may want to avoid focusing solely on that option. As with many other types of investments, Lear Capital suggests individuals adopt a broader asset approach.

“If you’re going to own some cryptocurrency as an inflation hedge, that’s fine,” Kevin DeMeritt says. “Make it part of a diversified portfolio of precious metals, cryptocurrency, and maybe a couple of other things that are good hedges, as well. Don’t put all your eggs in one basket. I would say the same thing with gold — don’t just buy gold; try to find other things that will help you with inflation.”

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