Book Excerpt: Government Once Seized the Public's Gold. Could It Confiscate Crypto? — Barrons.com

In The New Rules of Investing , Mark H. Haefele, global chief investment officer at UBS, repeatedly advises readers to "follow the money" — namely, the growing size of government and its increasing role in the nation's economy. Whether one approves of "top-down interference in free markets" is immaterial, he writes. The point is that investors must understand the financial ramifications of government policy, which confers advantages on some assets and disadvantages others.In the excerpt below, Haefele warns cryptocurrency fans that governments will rein in crypto if it is perceived as a threat to the existing financial order. The book, subtitled "Essential Wealth Strategies for Turbulent Times," and written with Richard C. Morais, will be published Jan. 28.The notion that the global financial order could one day suffer or collapse under the weight of its debt has understandably given rise to a survivalist impulse to do whatever it takes to escape the financial system we have, and perhaps create a new system in the process. That impulse, for good or bad, stands behind the rise of cryptocurrency, but I am highly doubtful that cryptocurrencies will save us.Cryptocurrencies are perceived by officials to be both a threat to the existing financial system and a facilitator of money laundering, which explains why, when Bitcoin fell 50 percent in short order, government officials went out of their way to say, "We told you so." The U.S. secretary of the treasury pointedly warned Americans against "extremely risky" cryptocurrencies lacking "appropriate supervision and regulation."It's not yet clear whether government will ultimately regulate crypto- currencies into submission and make them part of the world financial order, or whether cryptocurrencies will remain an alternative financial asset that rivals and threatens the status quo. Bitcoin has recently staged a comeback since ETFs investing in crypto have been approved and launched. That suggests, after the last wave of crypto frauds were exposed, the new asset class is inching its way toward the regulated mainstream and middle-class respectability. There is of course always a chance that politicians seeking votes will float the idea they might change the official cryptocurrency policy — in some political circles there is talk of the U.S. government stock-piling Bitcoin reserve — but speculating that a country will undermine its own currency monopoly with a sizable effort seems to me like a risky bet.In fact, if cryptocurrencies remain on an alternative path, the sector may eventually face its day of reckoning. I come to this conclusion because of what history teaches us. While governments will tolerate market forces and market pricing to a point, they will not allow market pricing or rival assets to destroy the existing financial system. In the end, nothing is allowed to challenge sovereign rights and sovereign currency.During the Great Depression, for example, gold became too attractive an asset compared to cash, stocks, and bonds. A terrified populace was converting dollars to gold and hoarding the yellow metal, further with- drawing liquidity from the markets. The U.S. government responded by bringing down the hammer on what was then perceived to be a rival asset class threatening the entire financial system.In March 1933, Washington passed the Emergency Banking Act, which gave the U.S. secretary of the treasury the power to force institutions to surrender any gold coins and certificates they might be holding, an act that was then amended and expanded by subsequent executive orders signed by President Roosevelt. Because it was possible for the government to seize their gold stashes, many wealthy Americans spent decades afterward hiding their precious holdings in offshore bank vaults. It was only in 1974 that President Gerald Ford finally repealed President Roosevelt's executive orders and Congress again restored to U.S. citizens their right to own gold.The United States was not the only nation to go hard against its citizens in this way. In 1959, Australia passed a law that allowed it to seize gold from private citizens. In 1966, the UK government banned its citizens from owning more than four gold or silver coins, a law that stayed on the books until 1979.This is not some quaint lesson from the past. It's an enduring principle. In times of trouble governments and the ruling politicians of the day will do extraordinary things to preserve the status quo and prevent the financial system from outright collapse. The lengths to which the U.S. government went to save the financial system during the Global Financial Crisis (2007--2009), after making several blunders, will be dissected at length [subsequently]. But, to my mind, it was Mario Draghi, the former European Central Bank (ECB) president, who best summed up the pervasive world-view of government when it has its back against the wall.In the summer of 2012, as a sovereign debt crisis in Europe brought into question the euro's very survival, Draghi stood up and announced at a global investment conference in London, "The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."We live in the age of "whatever it takes."Whoever thinks that cryptocurrencies will be immune from government intervention and escape a fate similar to gold's, if this new-age coin is perceived to rival and threaten the existing financial order, is deluding themselves. The crypto market globally stood at $1.7 trillion at the end of 2023, liquid enough to appear interesting for investors, but it remains one-fourteenth the size of the U.S. commercial real estate market, another exotic asset class that is more solid and generally not held enough in investors' portfolios. But the larger point I want to make here is that cryptocurrencies as an asset class remain so small that governments could quash them without a major disruption to global markets.Hence my concern for those drawn to crypto: Rather than trying to understand the existing system and learning how to invest accordingly, an increasing number of investors are thinking they can escape the prevailing system through cryptocurrencies — and are at heightened risk of losing their life savings in the process.Adapted from "The New Rules of Investing" by Mark Haefele, with Richard C. Morais, to be published by HarperCollins Leadership, an imprint of HarperCollins Focus, on January 28, 2025. Copyright (c) 2025 Mark Haefele, Richard C. Morais. Printed by arrangement with HarperCollins Focus, a division of HarperCollins Publishers (which, like Barron's , is owned by News Corp).Write to [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.