These are heady times indeed for bitcoin and its peers. Everyone from Elon Musk to Rob Gronkowski is in the game. Volatility reigns. It’s a market where $50,000 once seemed to be a mythical price level. Seems like just a minute ago that price was in the rearview mirror.
Celebrities and volatility aside, price is simply a characteristic. What bitcoin and its brethren really are — well, that’s another matter. Is it an asset class? A currency? An investment vehicle? PYMNTS recently posed those questions to an executive who is used to investing in precious metals. Ken Lewis, CEO of APMEX, runs a company that has traditionally traded in precious metals, mainly silver and gold. His perspective is more grounded than most these days: He believes cryptos will likely become a widespread payment mechanism, and right now they represent a valid part of portfolio construction and management.
Caveat emptor, however.
Three years ago, BitPay, the largest global blockchain payments provider, announced that APMEX’s OneGold, billed as a marketplace to securely and conveniently buy, sell and redeem digital gold and other precious metals, would accept bitcoin and bitcoin cash.
“We saw a massive amount of business,” recalled Lewis, as people shifted out of bitcoin, raised cash and were having physical gold and silver shipped to their homes. “Many people just decided to use BitPay and buy metal to get out of their bitcoin investment.”
But the decision to add crypto as a payment method was not a sure thing, he noted. Though the investors who would consider alternative investments (like precious metals) would be the same people who would consider delving into crypto, he said, “our biggest hesitation, like any other retailer at the time, was that we were worried that crypto was really more for the dark web — an unsavory mechanism for money laundering.”
Getting there, and enabling cryptos to be used as payment for precious metal transactions, took a solid 12 months of boardroom debates, said Lewis.
The Idea Of Digital Gold
Lewis noted that bitcoin may be a form of digital currency, but it’s not digital gold. He told PYMNTS that OneGold, backed 100 percent by gold, actually enables precious metals to be rendered into a tradeable digital form, where buyers and sellers don’t take delivery of the tangible metals themselves.
In terms of the mechanics of the transactions themselves, APMEX never takes an actual position in crypto. Lewis said BitPay converts the crypto to cash: In his words, the partnership is “a win-win for everybody.” The use of crypto as a payment mechanism for gold has gone up by a factor of at least four times through the past few months, he said.
Gold, of course, can be volatile itself, with ebbs and flows that can see several hundreds of dollars shaved or added in a year — per ounce. In the age of COVID, the yellow metal has been a safe haven. The massive amount of debt the U.S. has printed over the last few years and the recent $1.9 trillion stimulus package may also send investors into gold.
A Place In The Portfolio
Right now, said Lewis, “crypto has a place in an investment portfolio. But I do think you have to be very careful in what crypto you buy.” As he told PYMNTS, it’s important that investors examine the company they’re dealing with — and that the crypto they’re buying and selling is a (relatively) proven product.
And eventually, he believes cryptos will be well-suited for a variety of transactions. Cryptos can provide a way to take profits or trade on exchanges, too, with a liquidity that is elusive when trading in (tangible) precious metals. Lewis pointed to cryptos backed by stablecoins as his own preferred crypto class, as there is something of value underpinning the crypto’s pricing.
“Countries are evaluating crypto options and digital currency options around the world right now. The [technological] backbone of crypto is well-engineered,” Lewis said. “I think it could one day replace credit card systems and other options as a mechanism to go buy your milk, for example, if you want to.” But in order for bitcoin and its brethren to be used in everyday commerce, he said, it will be critical to get the fees tied to transactions down to zero.
As to whether crypto represents a “legitimate” asset class, Lewis said the definition may be arguable, but “cryptos are here to stay. I don’t think they are going anywhere … I personally believe regulation is going to be good for crypto.” Institutional buying will add legitimacy to the sector, he said, and companies are adding bitcoin to their balance sheets.
More mainstream acceptance might also create some foundation of relative pricing stability. As Lewis noted, “my gut tells me that crypto is not going to see a massive pullback. It’s just got too much following now. It’s got too much press, too.”
But in a nod to portfolio construction, he said, “my personal opinion is: You own 5 to 10 percent gold and silver, and it’s a portfolio strategy … I would never go all-in on crypto. I never go all-in on any assets. I want diversity, and I think as a diversification strategy, you can’t go wrong in gold and silver.”