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July
29
2025
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Is True Value in Crypto or Gold?
As we noted in a recent comment in The Institutional Risk Analyst, the best returns in crypto at present are found investing in the stocks of some of the enablers. The fact that these new companies may or may not be stable businesses long term does not matter in the speculative environment that currently governs Wall Street. We are particularly fascinated by the idea that a crypto firm can generate enough revenue to survive as a bank. Robinhood Markets, for example, is up almost 500% in the past year, proving that there is a lot more leverage for investors in the facilitators of speculation in crypto and stable coins than in the tokens themselves. Crypto laden “special purpose acquisition companies” (SPACs) and various new, “Level 2” token games linked to existing crypto “markets” are the hot ticket today. But the larger query, beyond the issues raised by bitcoin and substitutes, is the question about the nature of money. In my new book, “Inflated: Money, Debt and the American Dream,” author James Rickards notes that Americans “no longer know what money is” and have replaced “money with moneyness.” He then describes why money is one of the foundations of civilization. “Money is not the point of civilization and it’s far from the most important feature,” Rickards argues. “Still, it’s part of the bedrock and performs crucial roles. Money is an advance on barter. Money is an alternative to violence. Money facilitates commerce and investment, and acts as a store of wealth. Money is among the institutions, along with law, religion, and the family, that enable civilizations to be civil and avoid a Hobbesian war of all against all.” Despite the fact that President Trump wants to make America the crypto capital of the world, and even threatens to open retirement accounts to these speculative notions, the rest of the world is migrating away from dollars back to the only true form of money that is not some form of debt, namely gold. Perhaps the most significant trend is the increasing purchases of gold by global central banks. On July 1st, 2025, Basel III banking regulations officially reclassified physical gold as a Tier 1 asset, specifically a high-quality liquid asset (HQLA). This means that U.S. banks can now count physical gold at 100% of its market value towards their core capital reserves. Previously, gold was considered a Tier 3 asset, requiring banks to discount its value. But what is the proper discount rate for crypto and stable coins? A stable coin is a ridiculously expensive prepaid gift card. A stable coin, for example, backed by fiat dollars, does not change your fundamental economic and financial risk from holding dollar assets. You basically pay for the privilege of using a stable coin. The public mania around stable coins is the latest evidence that humans are incapable of making rational decisions when they are part of a crowd. Long-term, we should view stable coins as marketing tools for large advertisers to acquire and retain customers. A stable coin backed by yen or swiss francs, for example, is a very different proposition in terms of managing dollar risk, but such instruments also may fall afoul of state and federal securities laws. So how do individuals and countries protect themselves from the slow but inevitable decline of the dollar as the world’s primary money? Owning gold or at least having exposure to the price of gold are perhaps the best options, The physical metal is independent of the fortunes of state put, yet as we learned in the 1930s, gold is vulnerable to confiscation. More important to the analysis, however may be that fact that so few investors have yet to rebalance their portfolio to reflect the opportunity presented as gold resumes its role as the world’s primary reserve asset.How much is the current allocation to gold by global investors? “My rough guess, excluding central banks and physical gold in private hands, would be maybe 1% of portfolios globally and perhaps half of that amount for US investors,” notes Henry Smith, Director and Investment Manager, The Keep Fund Ltd. a Bahamas SMART Fund investing in the precious metals complex. “In your grandfather’s day, a trust portfolio would be 10% minimum in gold. We’re headed back there. That means we’re headed to five digit gold and three digit silver.” Other mainstream analysts agree with Smyth’s prognostication. “Earlier this year, we examined the structural shift in gold’s demand and geopolitically influenced pricing drivers fueling its rebasing higher, ultimately posing the question if $4,000/oz is in the cards,” said Natasha Kaneva, head of Global Commodities Strategy at J.P. Morgan, in a June 2025 research note. “To answer the question — yes, we think it is, particularly now with recession probabilities and ongoing trade and tariff risks. We remain deeply convinced of a continued structural bull case for gold and raise our price targets accordingly,” Kaneva added. The reason JPMorgan is right and, indeed still too cautious on their gold outlook is that the usage of gold as a reserve asset, legal tender in contracts and collateral for financial transactions is growing, yet this is a gradual process. The narrowing of the market for US Treasury collateral as central banks reduce their purchases in favor of gold is still not top of mind – yet – for US investors, but higher interest rates for LT Treasury paper will end that lethargy. One of the chief reasons to be bullish on gold and negative on the dollar is that there is so little deliverable gold available. A lack of deliverable gold supply can create upward pressure on prices, but other factors like demand fluctuations, market sentiment, and the role of gold as a financial asset significantly influence its short-term price. Even with limited physical supply, demand and overall market conditions can moderate price increases. “De-dollarization — a theme among foreign reserve managers and investment institutions who are typically slow to act — is a misnomer as it’s highly unlikely anyone is seriously considering of fully divesting themselves of US assets, argues Simon White of Bloomberg. “But the evolution of events this year has led many foreign investors to consider reducing their exposure to the US which had already grown imprudently large. This will take time to show up in the data.” Editor’s note: find more of Chris’ writing at his website, The Institutional Risk Analyst. Chris is also a frequent guest on financial shows and podcasts. Search him up on Youtube and you’ll find plenty of great content.
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Richard Christopher Whalen is an investment banker and author who lives in New York. He is Chairman of