The cryptocurrency market continues to pullback carrying last year’s momentum into 2019. This is the exact opposite of what happened between the latter stages of 2017 to the start of 2018. As such, some investors are wondering whether it’s all done and dusted for the crypto industry. However, this market has been one of the most exciting over the last few years and it would be premature for anyone to call it a day for cryptocurrency investments.
In fact, just as the uncertainty about the long-term future of the market continues to cloud the cryptocurrency industry, startups are beginning to raise their game by creating niche products that target specific segments of various industries. Most importantly, startups are looking to create cryptocurrency products that are backed by value-rich assets like real estate, crude oil, and precious metals.
This has created an interesting angle for companies looking to invest in the commodities market and that want to tap into the disruptive force of blockchain technology. As such, we now have cryptocurrencies that are backed by gold, silver, crude oil, copper and diamonds. While in most cases the reason behind the creation of cryptocurrencies that are backed by pure assets is to try to create some form of intrinsic value, other cryptocurrencies are being created to try to decentralize rigid markets while at the same time helping to improve the security of transactions.
Time To Put Diamonds In The Blockchain?
One good example, in this case, is the creation of diamond-backed crypto, which most investors view as a good avenue to invest in the highly illiquid diamonds market. Decentralization of the diamonds market using blockchain is helping to simplify the intricate nature of diamond investments while at the same time improving the security of transactions. Top technology companies led by the likes of IBM (NYSE:IBM) have created blockchains to help track and verify diamonds thereby streamlining the diamonds supply chain.
Last year, IBM launched TrustChain, a blockchain ledger created in cooperation with several diamond retailers and manufacturers to help verify and track diamonds from mine to the jeweler. Earlier in the year, the world’s largest diamonds dealer, De Beer’s, alongside five other companies operating in the diamonds market also launched Tracr, another blockchain system that will help to verify and track high-value diamonds from mine to the jeweler. Ideally, digitizing the whole process using a blockchain system will help to decentralize the diamonds market thereby making it more accessible to financial market traders.
But this is still going to need to overcome some crucial hurdles. Last year, diamond-backed crypto CARAT coin partnered with the Israel diamonds exchange in a bid to taking the diamond crypto mainstream. However, that partnership was cut short after a few months with the Israel diamonds exchange citing failure by Carats.io, the organization behind CARAT coin, to obtain a diamond trading license from Israel’s diamond regulator.
CARAT coin was created to ease the financing difficulties engulfing the diamonds market. Over the last few years, banks have been reluctant to issue loans to diamond buyers. CARAT, which later partnered with New York-based Celcius Network was launched to try to solve this problem. It allows users to receive loans and earn interest on their diamond investments. Carats.io has indicated that its CARAT coin could also help to reduce volatility in the diamond market.
Venezuela’s Petro Coin And Where Does That Leave Other Governments On Blockchain?
Now, even national governments are joining the bandwagon of digital currencies. Latin America and the Caribbean are heading the queue, with the likes of Bahamas and Venezuela embracing blockchain. Venezuela’s Petro coin, in particular, has been the most interesting over the last few quarters. Since making it public that it was looking to launch an oil-backed cryptocurrency, Venezuela has received all sorts of critics. Not for the sake of launching Petro, but for the purpose it was created for.
Venezuela’s local currency Bolivar has been on a dire state since oil prices plunged from $115 per barrel to just $35 in 2014. The country’s leadership made some critical economic mistakes when they tied their local currency to the price of oil. Venezuela’s economy is highly dependent (about 98%) on oil, which also explains why they decided to pin the Bolivar to oil prices. However, as it turned out, that wasn’t the smartest decision and the local currency has since suffered. In a bid to stimulate it, the country decided to launch Petro coin, which has since been criticized in the cryptocurrency industry with some analysts touting it as a bad thing for the success of blockchain technology.
But Is Iran Eager To Go One Better Than Venezuela?
That has not stopped more governments from investing in blockchain technology. Last week, the Islamic Republic of Iran became the latest country to launch a government cryptocurrency when it launched PayMon, a gold-backed cryptocurrency. According to a report published by the Financial Tribune, Iran launched the gold-backed cryptocurrency in cooperation with four banks, namely, the Parsian Bank, the Bank Pasargad, Bank Melli Iran, and Bank Mellat. This move was taken following international sanctions.
The report also said that “an over-the-counter (OTC) cryptocurrency exchange called Iran Fara Bourse is expected to adopt PayMon.” PayMon will primarily be used to tokenize the financial institutions' assets and properties. A total of 1 billion PayMon tokens are set to be issued initially.
Now, for starters, this might sound like a similar idea that drove Venezuela to launch Petro coin, but unlike Petro coin, which is oil-backed, gold-backed cryptocurrencies are common in the market. Furthermore, while it may have lost its title as a store of value, the yellow metal has for centuries been one of the most trusted safe havens.
When financial markets spiral into turmoil, some investors whisk a good percentage of their investments by selling high-risk assets and diverting some of the money into gold investments. And with Iran staring in the face of international sanctions, perhaps it would be correct to infer that one of the expected consequences of the sanctions could be a major decline in foreign investments. This will likely hurt the country’s GDP, which means that it might be a good time to seek the safe haven of gold investments. This could involve among other things, tying some assets to gold using the gold-backed crypto, PayMon, the Persian word of ‘covenant’.
Conclusion
In summary, the commodities market plays a crucial role in the global financial markets. Most economies in the world are driven by commodities, which range from oil and gas commodities, agricultural commodities, precious metals (gold, silver, and palladium, etc), gems (diamonds, Rubi, and white sapphire, etc), and rare earth metals, among others. And over the last few years, blockchain and cryptocurrencies have emerged as the most disruptive technological advances of the decade.
As such, it makes sense to national governments and mainstream financial institutions to try to leverage the opportunity presented by fusing commodities with crypto to generate market synergies that will create compelling value propositions to investors.
Author disclosure: This is a personal opinion. It is not investment advice of any kind and investors should do further research before choosing to invest in any of the assets discussed in this article.