Crypto Versus Gold [Global Nuggets Newsletter]
Crypto Versus Gold. It’s A Good Time To Step Back And Assess
It’s been one of the biggest debates in the precious metals industry for years – are you ‘Team Crypto’ or ‘Team Gold’? Many times, I have been referred to as being ‘in the old world’, out of touch and behind the curve in promoting gold as a solid and safe investment. I should buy crypto currencies, I was told, which is the new gold. Back in 2018 I bought a few thousand dollars of Ethereum, and watched in amazement as my investment doubled in a couple of weeks. I sold out quickly, dizzy with the buzz of adrenalin, thrilled with the profit I had made. I never re-invested in crypto but for a moment I experienced the buzz that this new investment channel can bring. We all know that it’s not always been an upwards trajectory. This week, as the details about FTX’s collapse emerge, it’s clear that the cryptocurrency industry needs to clean up its act. It also highlights the massive risks in the crypto channel and puts the spotlight on gold, the more stable but unfashionable investment option.
This is what has emerged over the past week relating to FTX
- On November 11, FTX, a major cryptocurrency exchange, filed for bankruptcy. It had been valued at US$32bn and by the end of the day, assets were virtually worthless. At least a million investors lost their money.
- It has emerged that the founder, Sam Bankman Fried, made a loan to himself of US$1bn sometime before the collapse, and it is alleged that over US$600m disappeared from crypto wallets after bankruptcy was declared (source – The Times, Katie Prescott).
- John Ray, who is overseeing the liquidation of the company is quoted as saying he had ‘never seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information’. Ray worked on the Enron collapse, so he is well qualified in his comments.
Of course, not every crypto business is run in the same way. This week at the G20 in Bali, industry leaders called for a framework of regulations for the crypto market to be established. But there is no denying that sector has been like the wild west, with the collapse of FTX highlighting the fragility of some businesses. Which brings me back to gold. Gold may not give the adrenalin rush that cryptocurrency can give, but it’s a secure store of wealth, it is a tangible physical asset and has historically held it’s value over time. With central banks up 27% on the year on the amount of gold they hold this year, the highest since 1967, there is clearly a strong case still for the yellow metal for both private and institutional investors.