Back to the list

Why Are Investors Seeking Out Digitized Bullion on the Blockchain?

Brett Chatz

Blockchain technology has facilitated a paradigm shift in the way financial transactions and value propositions are processed. Cryptocurrency exploded onto the scene with the Bitcoin White Paper proposed by Satoshi Nakamoto on October 31, 2008. Dubbed, ‘Bitcoin: A Peer-To-Peer Electronic Cash System’, this groundbreaking alternative to traditional currency piqued the interest of contrarian investors the world over.

The raison d'être for Bitcoin’s creation was multifold. The rationale was to develop an alternative to fiat currency which is not controlled by the establishment – fiscal and monetary authorities. The thinking is that decentralization, anonymity, independence, transparency, and security, et al will ensure that individuals have control over their finances, not governments. From an ideological perspective, it's ingenious.

22-08-2019 17:41:16  |   Investments
Practically, there are many challenges facing the crypto industry, not least of which is increasing regulation, taxation, and volatility. To many investors, traders, and users, crypto price swings are a major source of concern. That most of the 2440+ cryptocurrencies operating across 19,849 markets are not backed by tangible assets, fiat currency, commodities, or central bank reserves is quietly disconcerting.

It means that there is nothing to peg value, resulting in whipsaw price activity from one day to the next. Naturally, this does not inspire confidence among many casual traders and users.

How to Maintain Value with Cryptocurrency Holdings?

The problem, or rather the challenge is how to own blockchain-based cryptocurrency that maintains real value, possibly even appreciates based on fundamental elements. For the most part, this proves to be an insuperable challenge. Consider that the crypto market, despite thousands of altcoin, is dominated by Bitcoin at 68.6% (mid-August 2019) with a market capitalization of $203.371 billion. That all other cryptocurrency makes up just 31.4% of the market with a market capitalization of $93 billion is evidence enough that Bitcoin remains the darling of the crypto world.

22-08-2019 14:35:39  |   News
Investors and traders clearly want the best of both worlds. They want a cryptocurrency that offers independence from central bank authority and government agencies, rapid transactions processing, value propositions, and the ability to seamlessly manage asset holdings in real time. Increasing government oversight at cryptocurrency exchanges may certainly temper expectations to a degree, but there are hybrid systems emerging to provide users with all the benefits of blockchain-based cryptocurrency with the stability of a globally recognized commodity backing it up.

Gold is one such commodity which has enjoyed universal popularity over time. It wasn't until the Gold Standard was abandoned that currencies were allowed to float against one another, based on supply and demand considerations. By pegging a cryptocurrency to gold holdings, users get to unwrap a powerful new investment opportunity. The concept requires the digitization of gold and silver assets on the blockchain. Kinesis is one such company doing precisely that. The parity value proposition between this cryptocurrency and gold means that price movements a.k.a. value moves in concert with a tangible asset that everybody understands.

Gold has a particularly important place in the global economy. It is considered a safe-haven asset when equities markets sour. Gold is the go-to commodity which appreciates during uncertain times. Evidence of this correlation is widespread, including inverse relationships between stock market volatility (VIX) and the gold price, or the long-term correlation between stock market downturns and rising gold prices. Naturally, this commodity (dollar-denominated) is affected by the strength of the USD, as evidenced by gold prices and the DXY (US dollar index).

A Store of Value and a Medium of Exchange

Kinesis is currently offering digital currencies in the form of gold and silver (KAU and KAG). This cryptocurrency backed by gold serves multiple purposes such as a store of value, and a medium of exchange. In other words, it is entirely possible to purchase gold or silver, digitize it on the blockchain, and own a totally liquid asset which can be used to pay for things, send funds to others, or cashed out for the actual commodity at any time. Considered the future of money, this cryptocurrency is wholly backed by physical stores of gold and silver in land-based asset holdings all over the world.

The Kinesis currency is priced according to actual gold prices, with 1 unit of KAU equivalent to 1 g of gold, and 1 unit of KAG equivalent to 1 ounce of silver. Since it is fully redeemable for the actual bullion, there is no guesswork about price volatility. Audited vaults, physical redemption, and assurances from industry-leading authorities mean that this blockchain-based crypto currency is in a league of its own. Among the many benefits of this type of cryptocurrency are: intrinsic value, low volatility, universal acceptance, high liquidity, guaranteed confidentiality, no storage fees, yield bearing, low transaction fees, and rapid transaction speed.

This universal virtual currency brings all the benefits of gold (price stability) and crypto (rapid transactions processing, anonymity, high liquidity, acceptance) to the fore. Cryptocurrency enthusiasts have been pushing for something different; something that will not erode away overnight. The value proposition of a gold-backed crypto token now has a large and growing share of proponents around the world.

About the author:
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise for the globally renowned spread betting company –InterTrader.

Image source: Pixabay

Back to the list