The cryptocurrency market has proven to be one of the most volatile markets to invest in over the last few months. Just to pick a few, the price of Bitcoin has rallied to close to $20,000 per coin and back to just over $10,000 in under two months. The price of Ethereum and several other cryptocurrencies have also fluctuated massively during this period helping to boost the total market capitalization of the crypto market to over $800 billion before dropping to below $500 billion.
Analysts have attributed this fluctuation to the fact most cryptocurrencies including Bitcoin cannot be deemed to be value-assets because they do not generate any income. In fact, some analysts believe that most people that have opted to invest in the cryptocurrency market have done so only for the purposes of speculation. And as we all know speculation goes hand in hand with volatility.
But could this change in the near-term future?
According to the latest developments in the market, things could switch pretty quickly as we have already noticed. Investors have proven to be rather flexible lately and this is a plus for new inventions in the global financial markets.
Following the ‘success’ of various cryptocurrencies some players in the market have taken the initiative to try to disrupt the market in a different way. And in a sense, you could say that they are fully justified to try and bring something with a difference to what we already have in the cryptocurrency market. Asset-backed cryptocurrencies are slowly becoming a popular prospect in the market as more investors try to identify products that can benefit from both income assets and the hype surrounding the cryptocurrency market.
Over the last several months, gold-backed cryptocurrencies like GoldMint have been launched, and a few days ago, Venezuela announced plans to launch an Oil-backed cryptocurrency. The hype has also spread to the metals industry with Switzerland-based metals company Tiberius Group announcing plans to launch what will be the first metals-backed cryptocurrency TCoin in the foreseeable future.
It is becoming that type of a market where everything goes. And some analysts actually believe that this could end up helping the industries involved, be it the metals industry, the oil industry, or the gold market etc.
Most cryptocurrencies run on the blockchain technology, a master ledger that records and stores all transactions and activity, validating ownership of all units of the currency at any given point in time. Analysts believe that this technology could not only help bring some of the most highly illiquid markets to the crypto world but also help provide a secure way of trading these markets in a decentralized framework of block chains.
One of the most interesting prospects that could benefit highly from this is the diamonds market, which is highly illiquid in nature and inaccessibility to ordinary investors. It is, therefore, susceptible to fraud and manipulation as correctly pointed out by some industry insiders who have warned about buying diamonds blindly, as there are several fake players involved. And in the spirit of tokenizing the market behind a highly encrypted wall of the blockchain technology, some startups have already moved in fast to announce various diamond-backed cryptocurrencies, with some ICOs planned for some time this year.
Sparkle Coin and Pink Coin are among the first ones to announce plans in this respect and others are expected to follow soon. There have also been reports of Real Estate backed cryptocurrencies, with ATLANT.io, in this case, leading the race while other players like SALT Lending have sought to disrupt the credit market.
So, how exactly will asset-backed cryptocurrencies reduce volatility in the cryptocurrency market?
Well, proponents of asset-backed cryptocurrencies claim that unlike other cryptocurrencies, these cryptocurrencies actually have some real value attached to them. It’s not just about speculation on what they could become in a few years’ time but rather, every coin is backed by a certain value of the real asset backing it.
For instance, in the case of the diamond-backed Sparkle Coin, every coin issued during the ICO will be backed by $5.00 worth of diamonds stored with top certified diamond dealers.
In the case of TCoin, which was announced by Tiberius Group a few days ago, the company said that the price of each TCoin will include a certain premium on the prevailing price of the given metal. So, for instance, if TCoin is backed by copper, then one TCoin will trade at the price of copper plus a premium.
The fluctuation of the TCoin price will, therefore, depend on the fluctuation of copper prices. The company said that investors could use TCoin to hedge against other investments in the metals industry.
Conclusion
It is all beginning to make sense for asset-backed cryptocurrencies. And it looks as if they could play a major role in stemming down volatility in what has been one of the most volatile markets in the global financial markets recently.