Lear Capital Explains Why Some Investors Pay Close Attention to the Length of an Asset’s Track Record

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While newer asset classes — such as the cryptocurrency market — may seem to offer an opportunity for potentially sizable returns, without long-term performance data, some investors may be hesitant to focus heavily on those items, according to Kevin DeMeritt, founder and chairman of Lear Capital.

Precious metals like gold, on the other hand, have been bought and sold for thousands of years.

“The crypto market has a tremendous amount of benefit for people all over the world,” Kevin DeMeritt says. “It can help you get away from the government printing money. The one thing I caution people on is it doesn’t have a track record like gold does.”

Crypto’s Early Chapters

Cryptocurrency has generated a significant amount of interest in recent years. Instead of relying on the traditional processes a bank would use — which can involve the individuals who work for the financial institution handling recordkeeping and management responsibilities — the blockchain technology-based systems automatically log transactions in a centralized digital ledger that acts as a database.

After undergoing a verification process, information from each new transaction is connected to previous transactions and stored like a link in a chain. This could help prevent the data from being tampered with because to change new information, the other blocks in the chain would also need to be accessed and altered.

Because data originates from a single source and can be viewed by multiple parties, but can’t be manipulated, crypto systems may also help reduce the risk of duplication and inaccurate transaction information being generated.

The crypto market has, in past instances, produced substantial returns. Bitcoin, arguably the most well-known type of cryptocurrency, produced a return of 23.9% in the fourth quarter of 2017, for example, which is considerably higher than the approximately 10% average annual return the stock market is estimated to offer.

The market’s performance, though, hasn’t always been as encouraging. In November 2022, crypto trading platform FTX filed for bankruptcy, following cryptocurrency exchange Binance announcing it planned to cash in $580 million worth of FTX’s crypto token — which, according to CNN Business, prompted a number of customers to try to liquidate their crypto investments with other firms, similar to a run on a bank. Some crypto firms suspended withdrawals as a result.

In November 2023, as CNBC reported, a jury found FTX founder Sam Bankman-Fried guilty of seven criminal counts in a federal trial that took place after the Securities and Exchange Commission charged him in connection with orchestrating a scheme to defraud equity investors who had invested in the crypto platform by concealing FTX funds’ diversion to a separate, privately held crypto hedge fund — which was also given a line of credit backed by the platform’s customers.

Other federal agencies have highlighted concerns about the crypto market, including the White House, which released a series of reports in 2022 on volatile pricing, misrepresented crypto features and other issues in the industry. FBI statistics suggest digital asset scam-related losses increased by 600% from 2020 to 2021 alone.

The collective value of all cryptocurrency, which totaled $3 trillion in 2021, had, by August 2023, declined to just over $1 trillion, according to Bankrate. As of December 2023, Forbes reported crypto prices remained low compared to their all-time high points.

Gold prices, on the other hand, are higher than they were at the start of 2021. After reaching a record level of more than $2,100 an ounce on Dec. 3, prices remained above $2,000 an ounce through Dec. 8.

Crypto market upsets, Kevin DeMeritt says, can make physical assets look more appealing to investors.

“A lot of these bankruptcies, along with the crypto banks having to be bailed out, are going to make some investors leery,” the Lear Capital founder says. “Gold and silver will be a beneficiary.”

Precious Metals’ Possible Value Proposition

Gold prices have generally remained consistent — or increased — during the past 200 years, according to National Mining Association records.

Silver, too, has performed steadily over time. The nonprofit Silver Institute reports that in 1963, prices for the precious metal reached $1.29 for 1 ounce. Silver, on average, was $20.19 per ounce in 2010; in November 2023, LBMA records show its average value was more than $23 an ounce.

At certain times, the two precious metals have experienced marked increases. Gold, for instance, doubled in value during and after the 2008 housing crisis, according to Lear Capital’s recent “$3,200 Gold: How the Debt Trap Could Get Us There” report. The price of gold, which had been $665 per ounce in August 2007, rose to $1,346 by October 2010.

“Gold has outproduced the stock market,” Kevin DeMeritt says. “The misconception that gold can’t produce profits for people, and it’s just more of a safety-type asset, is completely incorrect. Younger people, especially, have this misconception about gold. They get excited about cryptocurrency — when in reality, gold has done extremely well.”

Crypto might eventually show the same staying power as gold and silver; Lear Capital’s Kevin DeMeritt says it’s most likely too soon to tell, though.

“Gold, with a 5,000-year track record, and crypto with 12 years — you’re just going to get a lot more track record out of gold,” he says. “We keep hearing [crypto] is digital gold, and it may be. But no one wants to wake up, and you just can’t sell a type of crypto coin.”

Some investors are, however, showing a growing interest in precious metals’ robust performance history and ability to potentially offset losses from other assets, Kevin DeMeritt says.

“We’re starting to see younger people come into the 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. “If you’re going to own some cryptocurrency as an inflation hedge, make it part of a diversified portfolio of precious metals, and maybe a couple of other things. Don’t put all your eggs in one basket.”