By Louise Street*
Retail investors were enthusiastic buyers of cryptocurrencies last year. A global study by Hall Partners shows that cryptos were one of the most popular investments in 2021, with 31% of respondents investing in them over the first 10 months of the year.
These investors might be suffering. The crypto universe has been extremely volatile over the past six months, unsettled by a mix of tightening liquidity and negative economic data prints. More recently, the collapse of Luna and TerraUSD caused stablecoin Tether to temporarily decouple from its $1 peg, sparking additional jitters. Bitcoin has halved in value in a little over six months, while the Bloomberg Galaxy Crypto Index has lost almost two-thirds of its value over the same period.
We’ve been here before with Bitcoin. More than once. The crypto behemoth has previously lost 50% of its value on five separate occasions since its inception, so the latest move is not without precedent.
But the research suggests that these investors seem to be aware of the potential pitfalls of investing in cryptos: 32% of investors viewed their crypto investment either as ‘high risk with the potential for high returns’ or as a ‘purely speculative bet’. Mirroring that sentiment, only 6% agreed that cryptocurrencies are ‘a safe investment that I don’t have to worry about’.
Retail investors recognise the different risk profiles of gold and cryptos
% assigning top ranking to each statement*
*See footnote 1 for survey details. See footnote 2 for details regarding the specific survey question.
Source: Hall & Partners, World Gold Council
Attitudes towards gold among these investors are contrastingly different – they recognise its safe-haven, inflation hedging qualities. One third of investors view their gold investment as either ‘a store of value (to protect my wealth)’, a way to ‘protect against inflation’ or as ‘a safe investment that I don’t have to worry about’.
Which may explain why even more investors bought gold than crypto last year. According to the research, 44% invested in gold in the first 10 months of 2021, with bars and coins among the most popular options. That’s reflected in our Gold Demand Trends data, which showed 2021 bar and coin investment reaching an eight-year high.
Of those investors who bought cryptos in 2021, just over half also made an investment in gold. Assuming they still hold both assets, that group could be forgiven for feeling smug. At the time of writing, gold is one of the best performing assets since the start of 2021.
While a gold investment may not have made stellar returns over that time, it’s at least likely still to be in the black, fulfilling that role of being a store of wealth and a safe worry-free investment. And giving those investors who hold it more dry powder to invest elsewhere.
Louise Street is a senior markets analyst at the World Gold Council. The original is here and includes the Footnotes.
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11 Comments
Some in the crypto community are using Pax Gold, which is essentially a "stablecoin" backed by actual gold and is equivalent to its actual spot price.
https://www.axios.com/2022/04/05/cryptos-gold-is-increasingly-actual-go…
Interesting. Unfortunately, despite the mention of serial numbered bars, the shadow of Ray Smith lingers for those old enough to learn that lesson. It looks like a good system, it’s just not me, as I use Gold and Silver as a hedge against financial meltdown. I like to play with the physical.
Interesting. Unfortunately, despite the mention of serial numbered bars, the shadow of Ray Smith lingers for those old enough to learn that lesson. It looks like a good system, it’s just not me, as I use Gold and Silver as a hedge against financial meltdown. I like to play with the physical.
I don't own Pax. I own Peth Mint Gold Tokens (PMGT). So if you don't trust Pax (which is audited), it's an alternative.
I also own gold (PMGOLD which is different to PMGT) and silver and miners, but no physical at present. I need mobility.
I'd also like to have the physical but buying in NZ where the gold dealers play the forex and I've come across nothing less than a premium of about 5% on the gold price. I also avoid the main local smelter as I don't feel they are well enough known. Buying something like PAMP suisse is also too much of a premium. One or two of the gold dealers have woken up and now accept USD as payment.
Bullion vault seems to be a better option than even Perth Mint and others without the need to hold the physical. Ongoing storage costs of course but are low.
... there are some superb junior gold mining companies listed on the ASX ... their operations can be on any continent , not just Australia ... and , they give you much much greater leverage than holding physical gold yourself , if the gold price goes up ...
The countercyclical is , if the gold price goes down significantly , they go kaput !
Gold appeals to the older generation and to generations past.
Did W Buffet say that bitcoin is "rat poison".
Crypto have evolved since, grown to become a world currency.
Yes, crypto might crash when the world economy crashes. And gold might hold its value.
Somewhere in my brain, its hard to compare gold and silver vs bitcoin or vs US FANG.
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