Crypto versus Coins: Lessons from 2022

Investors trying to safeguard their assets should avoid new and risky bets such as cryptocurrencies. Good old fashioned bullion is a far better bet.

• Amit Bhandari

Crypto enthusiasts have long promoted cryptocoins as a currency which is not controlled by a central government, and is therefore a better store of value compared to fiat currencies. Cryptos were also supposed to be more secure from fraud and tampering compared to traditional currencies. During 2022, both these assumptions were tested as BTC fell by almost 60% and the crypto exchange FTX carried out an old fashioned fraud on its investors. 2022 proved to be the Annus Horribilis for crypto currency investors – with a 60% fall in BTC and the bankruptcy of FTX. An ‘asset’ which can fall by 60% cannot be a store of value. When a marketplace is so unregulated that dishonest promoters like Sam Bankman-Fried can siphon off investor’s assets, the asset is anything but safe.

For investors trying to safeguard their assets against volatility and uncertainty, it is time to look to the past instead – bullion. Gold and silver were widely used as currencies worldwide prior to World War I. Countries gradually started to replace precious metals with fiat currency after WW-I, and by 1960s, their use had stopped almost worldwide.

These coins were minted in large quantities and continue to remain in existence. For instance, silver coins such as the Morgan Dollar, British Crowns and Indian Rupees were all produced in hundreds of millions. Rare pieces aside, many of these can be purchased for some premium over their silver value. However, the stock of coins that exists is fixed – more coins cannot be minted. The large numbers along with the precious metal content makes them a good long term store of value.

Moreover, as an asset class, these have a much longer life compared to other ‘liquid’ assets such as equity or debt. For instance, while the stock market is a good way to bet on a growing economy, companies have a finite life. Few listed companies last fifty years, and the oldest listed company in the world is less than 200 years old[1]. In contrast, silver and gold coins from 1700s and 1800s are easy to find in large numbers and they continue to hold value a good 200+ years after they were produced. The only asset other than bullion which can hold value over such a period is land, which is immovable.

[1] https://www.investopedia.com/financial-edge/0711/5-of-the-worlds-oldest-companies.aspx#:~:text=In%201824%20New%20York%20Gas,listed%20stock%20on%20the%20NYSE.