Gold and Blockchain: A Budding Financial Romance at the Perfect Time

Gold and Blockchain: A Budding Financial Romance at the Perfect Time

A renewed demand for gold amid shaky money and bond markets is perfect timing for blockchain to bring transparency to holding and trading.

If you’ve been following Peter Schiff for his prediction of the 2008 financial collapse or strictly because of his affinity for gold, then you’re probably aware that he is not a fan of Bitcoin (BTC), but would he be interested in gold-backed smart contracts?

The United States Federal Reserve cut interest rates by another quarter-point on Sept. 18 following the European Central Bank’s Sept. 12 announcement on its negative interest rates and decision to re-introduce quantitative easing. With negative-yielding bonds looking like a shaky refuge from the storm looming on the horizon, prominent investors such as Ray Dalio, Paul Tudor Jones and Stan Druckenmiller have been suggesting gold as a safe haven from what has been called a world war of currencies, with China and Russia appearing particularly keen to weaken the U.S. dollar’s political hegemony. 

Meanwhile, central banks around the world have been on the largest gold-buying spree since Nixon took the dollar off the gold standard in 1971 — but what about everyone else? How does one go about purchasing gold?

Although the easiest way to invest in gold today is through gold futures, exchange-traded funds or mining stocks, gold is usually bought under the assumption that it will act as a hedge against broad economic instability. If the institution that is trading or issuing these contracts becomes insolvent (such as Bear Stearns during the 2008 financial crisis), the value of their investors’ gold contracts subsequently disappears.

Many financial advisors suggest purchasing gold bullion instead of so-called “paper” gold because the physical metal itself is not inextricably tied to the financial system. However, owning gold bullion comes with its fair share of inconveniences: physical gold is bulky and cumbersome, it’s not easily divisible nor is it easy to transport. The insurance required for transport is expensive and so are the costs of transforming a kilo of gold into smaller, more liquid chunks. In addition, many people do not want to store large quantities of gold at home, which results in having to find a vault or custodian that is trustworthy.

How do you know that the gold held in a vault is real and not counterfeit and that the people managing your gold aren’t exploiting their contract? It’s no one’s liability, as there’s no centralized authority for gold. If you take your gold to someone for appraisal, you really have to trust them not to swap your coins or undervalue them like with JPMorgan’s precious metals desk, or when we learned that there are millions of dollars in counterfeit gold circulating, some of which was also found in JPMorgan’s vaults.

While blockchain technology has been touted as a panacea for problems that are outside of its scope, transparent accounting for contracts is one function that it performs to a tee. PAX Gold (PAXG) — recently cleared by New York’s Department of Financial Services — as well as Digix Gold Tokens (DIGX) from Singapore and OneGram (OGC) are all digital representations of gold that is tied to physical gold optionally held by a bank or third party, but the record of gold ownership will always show how much an individual owns, and that cannot be negated.

To create a gold smart contract — first, a bullion exchange or mint certifies that a piece of gold held in its vault has a guaranteed purity of 99.9%. This certificate is then insured against the plethora of damages or liabilities that could ensue (such as being counterfeit), virtually guaranteeing that the certified value of gold will be backed in the event of any unforeseen events. These assurances are then programmed into a smart contract that is published on a public digital ledger. Since this process is encoded and executed using cryptography, the contents of the agreement remain private, thereby enabling the owner to independently verify and prove their legal title to ownership using public internet infrastructure without disclosing their personal information. 

Instead of representing gold as a derivative, a gold smart contract is, in effect, a digital legally-bound title. By using a public network, a tangible asset like gold becomes untethered from its physical constraints and can enjoy the versatility afforded by digital assets such as being movable, divisible and tradeable with drastically less overhead. If a customer wanted to retrieve their physical gold bars or coins, they simply present their proof of title (using their private cryptographic keys) at the institution that is holding their gold, such as a bullion exchange or mint.

Related: Is Bitcoin a Store of Value? Experts on BTC as Digital Gold

The marriage of blockchain technology’s open truthfulness with gold’s alluring scarcity makes for a highly transparent, secure and liquid financial instrument with which to hedge against currency depreciation, allowing average consumers and retail investors to hold onto the value of their savings. Going out and finding a buyer for physical gold can be arduous and time-consuming, but tokenizing gold under a legal smart contract increases its portability, giving the vendor immediate access to a worldwide market, which drastically increases its liquidity. 

By leveraging blockchain technology, gold can be traded on cryptocurrency exchanges, opening new markets for the gold industry. As precious metals and cryptocurrencies share a common vision of hard money, the synthesis of these markets has the potential to create a powerful economic counter-force should currency devaluation continue unabated.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk. You should conduct your own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Rob Odell is the vice president of product and marketing at SALT, the pioneer of crypto-backed loans, where he is responsible for managing the product and marketing teams, gathering insight into business problems, obtaining user feedback, and turning stakeholder ideas into products and features. Prior to his role at SALT, Rob held product manager roles at Skookum and Search Scientists. Rob has been a Bitcoin believer since 2013 after being introduced to it by a Bali-based coffee roaster selling his beans for Bitcoin.

Dutch Central Bank: World Will Need Gold if Entire System Collapses

Dutch Central Bank: World Will Need Gold if Entire System Collapses

The Dutch central bank raised eyebrows by admitting fiat could fail and society would then need actual sound money to survive.

Fiat money will become inferior to gold in the event of a total collapse of the world’s financial system, one of Europe’s central banks has said.

Gold will rescue the economy from “collapse”

In comments which have caught critics of fiat by surprise, the Dutch Central Bank, known as De Nederlandse Bank (DNB), said gold would be indispensable in the event of a fiat meltdown.

Retweeted on social media on Oct. 13, a statement from the bank’s website describes gold as “the trust anchor for the financial system.” 

“If the entire system collapses, the gold stock provides a collateral to start over. Gold gives confidence in the power of the central bank’s balance sheet. That gives a safe feeling,” it continues.

Sound arguments

While it is known that central banks have begun buying up gold since the 2008 financial crisis, it is the DNB’s phrasing that has excited Bitcoin (BTC) proponents in particular. 

As a form of sound money with the highest stock-to-flow ratio of any commodity, gold previously ensured the sound functioning of economies before governments uncoupled their national currencies from its backing over the last century. 

Since then, as Saifedean Ammous noted in his popular book, “The Bitcoin Standard,” telltale signs of decay have plagued most countries’ economies.

Central banks, notionally in charge of fiat currencies, use interventions to manipulate their supply artificially, something which is all but impossible to do with gold due to its stock-to-flow ratio. 

This championing of the precious metal’s qualities over paper money thus did not go unnoticed among Bitcoin figures.

“It’s an established central bank! Speaks to the times we live in,” Gabor Gurbacs, digital asset manager at VanEck, tweeted in response to DNB.

He continued:

“I firmly believe that private/non-sovereign moneys have a place in our world. Private moneys should be allowed to compete in the free market with central bank moneys.”

Novogratz: Current economic climate bullish for decentralized “digital gold”

Later, serial investor Mike Novogratz struck a similar tone, telling CNN that both gold and Bitcoin, as sound money, would benefit from current fiat trends.

“We’ve got geopolitical uncertainty, we’ve got negative rates; it’s all bullish for gold and bullish for Bitcoin,” he said in an interview on Oct. 11.

Not everyone agrees, however. As Cointelegraph reported, Apple CEO Tim Cook claimed earlier this month that only governments should control money.

He was speaking within the context of the ongoing difficulties Facebook is encountering with the release of its planned digital currency, Libra. Apple, he said, would not seek to follow its lead.

Around the same time, Germany’s finance minister likewise said that states should be in control of monetary activities.

Past utterances from the DNB meanwhile have dismissed cryptocurrencies, claiming they do not fulfill the functions of money at all.

VanEck: 4 Reasons Why Bitcoin Improves Investment Portfolio Upside

VanEck: 4 Reasons Why Bitcoin Improves Investment Portfolio Upside

VanEck’s new research “The Investment Case for Bitcoin” argues that exposure to BTC greatly increases a portfolio’s return.

Major United States investment management firm VanEck has listed four reasons why Bitcoin (BTC) improves an investment portfolio upside.

On Oct. 8, VanEck released research titled “The Investment Case for Bitcoin,” aiming to determine what role the cryptocurrency can play in an investment portfolio. According to VanEck, a firm that attempted to list a Bitcoin-based exchange-traded fund (ETF) with U.S. regulators in 2018, Bitcoin’s combination of “durability, scarcity, privacy, and its nature as a bearer asset all contribute to it holding monetary value.”

1. Monetary value instead of intrinsic value

As VanEck often refers to bitcoin as “digital gold,” the asset manager argues that Bitcoin is a potential store of value. While Bitcoin critics usually point out a major narrative that Bitcoin has no intrinsic value as a primary argument for its failure, VanEck urged to draw a clear distinction between the terms intrinsic value (IV) and monetary value (MV). According to the firm, Bitcoin actually has MV just like gold or silver, artwork or U.S. dollars.

In the full research presentation, VanEck stressed that nothing ever “backs” MV:

“MV is inherently a bet that an object will retain value or increase in value in the future. Items with MV are items that store value and can be seen as claims on future IV. This may make people uncomfortable but it has been true since the dawn of civilization.”

Intrinsic value goods vs monetary value goods. Source: VanEck

Intrinsic value goods vs monetary value goods. Source: VanEck

2. Low correlation to traditional assets

According to VanEck, Bitcoin may also potentially increase portfolio diversification due to low correlation to traditional asset classes such as gold, bonds and broad market equity indices.

To prove the point, the firm provided a table on Bitcoin’s correlation with major market indices such as S&P 500, oil, real estate, measuring the correlation level on a scale from -1 to 1. The firm was analyzed correlation from February 2012 to July 2019.

Correlation of Bitcoin to traditional markets. Source: VanEck

Correlation of Bitcoin to traditional markets. Source: VanEck

3. Scarcity strengthened by halvings

In the report, VanEck also cited Bitcoin’s scarcity or limited supply as a major reason for the asset’s success. Bitcoin halvings, defined as a 50% block reward cut to Bitcoin production rate, are programmed to occur roughly every four years, VanEck explained, noting that each halving event has eventually led to growth of Bitcoin’s price.

The next Bitcoin’s halving is scheduled for May 2020. As such, famous Bitcoin bull and programmer John McAfee recently cited Bitcoin’s scarcity as a primary reason for Bitcoin to hit $1 million per coin in 2020.

Bitcoin halvings and price. Source: VanEck

Bitcoin halvings and price. Source: VanEck

4. Growing adoption

As part of the growing adoption of Bitcoin VanEck cited the fact that Bitcoin transactions exceed 400,000 permissionless transactions a day, while Bitcoin on-chain transactions amount to a notable portion of SWIFT transactions. The firm also noted that existing crypto exchanges are healthy and not going away, citing the position of companies Bitfinex and Binance.

In mid-September, the Chicago Board Options Exchange’s BZX Equity Exchange withdrew its VanEck/SolidX Bitcoin ETF proposal from consideration before the U.S. Securities and Exchange Commission.

Perth Mint, InfiGold Launch Gold-Backed Token on Public Blockchain

Perth Mint, InfiGold Launch Gold-Backed Token on Public Blockchain

Australia’s largest precious metal refinery, the Perth Mint, and InfiGold, a fintech startup that digitizes precious metals, have jointly launched a gold-backed digital token.

Australia’s largest precious metal refinery, the Perth Mint, and InfiGold, a fintech startup focused on precious metals digitization, have jointly launched a gold-backed digital token.

The new ERC-20 token is dubbed Perth Mint Gold Token (PMGT) and pegged 1:1 with GoldPass certificates issued by the Perth Mint, according to a press release shared with Cointelegraph on Oct. 11. GoldPass lets investors purchase, sell and transfer physical gold through digital certificates, where each certificate is 100% backed by Perth Mint gold stored in its network of central bank grade vaults.

The “first” government-backed digital gold token on a public ledger

The release claims PMGT to be the first digital gold token on a public blockchain backed by government-guaranteed gold, explaining:

“The real-time liquidity of PMGT is provided by market makers and enabled via The Perth Mint GoldPass platform where users can sell back to The Perth Mint, or take delivery of their holdings by exchanging their GoldPass certificates for a range of the Mint’s gold products, including LBMA London Good Delivery (LGD) bars. Subject to final regulatory consultation, this will make PMGT directly tradable against traditional gold products, including gold ETFs, CME gold futures, and physical XAU.”

Richard Hayes, CEO of the Perth Mint, called the digitization of gold through a public ledger “a natural progression for the global commodity markets,” further suggesting that such a process will promote gold as a mainstream asset and increase its accessibility, among other things.

Increasing interest in gold-backed crypto

As Cointelegraph reported recently, stablecoin operator Paxos launched PAX Gold (PAXG), a gold-backed Ethereum (ETH) token, claiming that it is “the first crypto-asset redeemable for physical gold.” Each PAXG token will reportedly be backed by one fine troy ounce of London Good Delivery gold stored in professional vault facilities in London.

In late May, Russia’s central bank, the Bank of Russia, said that it may be interested in creating a gold-pegged cryptocurrency for conducting mutual settlements with global jurisdictions.

B2C2 Launches New Gold Derivative Priced and Settled in Bitcoin

B2C2 Launches New Gold Derivative Priced and Settled in Bitcoin

OTC trading platform B2C2 launches what it calls the first product for gold trading using Bitcoin for pricing and settlement.

Over-the-counter (OTC) trading platform B2C2 has created what it calls the first product for gold trading using Bitcoin (BTC) for pricing and settlement.

Macro players eye new BTC gold product

Speaking to industry news outlet The Block on Oct. 10, the company’s CEO Max Boonen stated that the move comes on the back of increasing demand from large-volume traders.

“Clients trade an ounce of gold priced in bitcoin, and the derivative is settled in bitcoin,” he explained — adding that one ounce (roughly $1,507) is the minimum possible trade quantity.

Boonen also pointed out the market’s desire for a Bitcoin-based gold derivative:

“The clients we are seeing demand from are those who have their own user base of traders and macro hedge funds.”

Spotlight on Bitcoin contracts

As Cointelegraph reported previously, gold has seen a renaissance this year as cryptocurrencies such as Bitcoin also showed increasing strength. A heated debate subsequently ensued, with gold proponent Peter Schiff claiming that the precious metal would ultimately outperform Bitcoin.

Meanwhile, B2C2’s product is conspicuous for using Bitcoin as the settlement asset. Last month, that trend continued with the launch of Bakkt’s physical Bitcoin futures, payouts for which will likewise occur exclusively in BTC.

In July, B2C2’s former managing director joined major cryptocurrency exchange Kraken to lead its new Bitcoin futures operation.

State-Backed German Bank Says Bitcoin Will Leap to $90,000 in 2020

State-Backed German Bank Says Bitcoin Will Leap to $90,000 in 2020

German bank BayernLB has published its latest report on Bitcoin vs gold and thinks BTC is about to take a big leap forward in 2020.

The German bank BayernLB has published a report on Bitcoin (BTC) vs gold in which it predicts a big leap for BTC in 2020.

Bitcoin outshining gold?

On Oct. 1 the Munich-based bank BayernLB published its latest research report that seems to suggest that the forthcoming Bitcoin halving effect hasn’t yet been priced into its current price of around $8,300.

The German bank explains that gold has had to earn its high stock-to-flow ratio “the hard way  over the course of millennia.” Bitcoin, on the other hand, will most likely succeed to obtain a similar stock-to-flow ratio to that of gold in the coming year, the report predicts.

Senior FX analyst at the Bayerische Landesbank and author of the research report Manuel Andersch, identities the stock-to-flow ratio of an asset as a way to quantify the “hardness” of the asset. Andersch said:

“Historically speaking, it has invariably been the commodity with the highest stock-to-flow ratio at that juncture which has been used as money because this enabled the best value transfer over time.”

The stock-to-flow ratio of a commodity such as gold is the amount of the asset that is held in reserves, divided by the amount of the asset produced annually.

The author concludes the report by looking at Bitcoin’s future price, by saying that Bitcoin’s stock-to-flow ratio is certain to drastically increase in May 2020, adding:

“If the May 2020 stock-to-flow ratio for Bitcoin is factored into the model, a vertiginous price of around USD 90,000 emerges. This would imply that the forthcoming halving effect has hardly been priced into the current Bitcoin price of approximately USD 8,000.”

Gold bug pounces on Bitcoin price drop

Clearly not everyone will agree with BayernLB’s price prediction. Cointelegraph previously reported that gold bug Peter Schiff returned to bashing Bitcoin as it fell from $9,700 to a low of $7,990 in hours. The Bitcoin critic claimed the shedding of $1,800 was just the start, saying:

“Bitcoin has finally broken below the support line of the large descending triangle it has been carving out for months. This is a very bearish technical pattern, and it confirms that a major top has been established. The risk is high for a rapid descent down to $4,000 or lower!”

‘I’d Rather Have Bananas’: Tech Billionaire Mark Cuban on Bitcoin

‘I’d Rather Have Bananas’: Tech Billionaire Mark Cuban on Bitcoin

“I’d rather have bananas,” says billionaire technology investor Mark Cuban about gold and Bitcoin.

Billionaire technology investor Mark Cuban said that he would be happier owning bananas than Bitcoin (BTC).

Cuban made his remarks in a video Q&A published on YouTube by technology news outlet Wired on Sept. 27.

During the Q&A session, he answered to a Twitter user asking why Cuban hates crypto if he is “into providing opportunity for people to grow their net worth.” 

First, Cuban seemingly suggested that the issue he has with Bitcoin is that its price is determined by the market’s demand for it:

“Here’s the thing about crypto, particularly Bitcoin: Bitcoin is worth what somebody will pay for it.”

BTC has no intrinsic value

Cuban then argued that Bitcoin has no intrinsic value. To better explain his thoughts on the matter, he compared the crypto asset to artwork, comic books and baseball cards:

“Did you ever see someone who collected baseball cards? And they were really, really, really proud of their baseball cards because they kept saying they were going to go up in price? Comic books — same thing, even artwork. There’s no real intrinsic value, you can’t eat a baseball card […] Your artwork might look good on the wall but not much you can do with it. Bitcoin — there’s even less you can do with it: at least I can look at my baseball card […] I can look at artwork.”

Bitcoin is like gold, it’s like a religion

Cuban then raised the concern that Bitcoin is too complicated for the average person, given the great number of options for its storage and theft prevention needs. This is where he notes that Bitcoin, often called digital gold, is actually really like gold:

“I say it’s like gold. Gold is a religion: people who are really into gold — they’ll tell you that there’s a bad depression and things go to hell in a handbasket, if you own gold then you’ll be okay. No, you won’t! You carry around a gold bar — someone’s gonna hit your ass, knock you out and steal your gold bar and it’s gonna happen again and again and again. I’d rather have bananas, I can eat bananas. Crypto… Not so much.”

This idea is in line with what Cuban said in August when he noted that Bitcoin is fundamentally similar to gold and defined them both as collectibles.

Cuban did admit that he is not “against cryptocurrencies” — however, he warned investors to be very careful as, at best, they’re stored value.

As Cointelegraph reported in July, Cuban defined Facebook’s Libra stablecoin as a big mistake. He noted that “globally and in countries where there isn’t a lot of rules of law, or a lot of government stability, or currency stability, then it could be dangerous.”

Peter Schiff: Bitcoin Price Now at ‘High Risk’ of $4,000 or Lower

Peter Schiff: Bitcoin Price Now at ‘High Risk’ of $4,000 or Lower

The largest cryptocurrency shedding $1,800 provided ample fodder for the gold bug, but his taunts did not go according to plan.

Bitcoin (BTC) price is heading to $4,000 after breaking support to trigger a sudden bear market, says one of its most prominent critics.

Gold bug pounces on Bitcoin price drop

In a tweet on Sept. 24, gold bug Peter Schiff returned to bashing Bitcoin as it fell from $9,700 to a low of $7,990 in hours. 

Subsequently correcting to circle $8,500, the recovery was not enough for Schiff, who claimed the shedding of $1,800 was just the start.

“Bitcoin has finally broken below the support line of the large descending triangle it has been carving out for months. This is a very a bearish technical pattern, and it confirms that a major top has been established,” he wrote.

Schiff continued:

“The risk is high for a rapid descent down to $4,000 or lower!”

Schiff appears to suggest $4K is support

Bitcoin proponents are used to Schiff’s criticism. In recent months, several spats have seen the gold investor attempt to prove Bitcoin’s inferiority, especially in relation to the precious metal. 

Responding, some noted the irony of Schiff implying $4,000 was now support for Bitcoin. Others added that the figure was still several times higher than the gold price. 

According to Schiff in a previous prediction, gold should ultimately reach $5,000, while Bitcoin, he alleges, will never break $50,000. 

A previous 7% price drop in August sparked claims Bitcoin had already failed its test as a safe haven asset.

Former Overstock CEO Sells His Entire 13% Stake in the Firm for $90M

Former Overstock CEO Sells His Entire 13% Stake in the Firm for $90M

Patrick Byrne, who resigned as CEO of Overstock last month, has sold his 13% stake in the firm for $90 million to move to gold and crypto trading.

Former Overstock CEO Patrick Byrne has sold his 13% stake in the firm for $90 million to move to gold and crypto trading.

Byrne, who resigned from Overstock on Aug. 22, cashed out nearly 4.8 million Overstock (OSTK) shares, which accounts for more than 13% of the company, American financial publication MarketWatch reported on Sept. 19.

According to a filing with the United States Securities and Exchange Commission (SEC), the former CEO was selling his shares at lower and lower prices over the past three days, ranging from $21.84 on Sept. 16 to $16.32 on Sept. 18.

“Counter-cyclical to the economy”

Following the filing, Byrne published a public letter titled “A Message to My Former Colleagues at Overstock,” in which he revealed his plans to stop trading anything else except the three assets that are “counter-cyclical to the economy,” including gold, silver and “two flavors of crypto.”

In the blog post, Byrne explained his choice to trade gold and silver because they are stored outside of the U.S., while it will be safe for him to have the assets stored in Switzerland and some other locations that are out of reach of the “Deep State.” Concerning crypto, Byrne wrote:

“The crypto is stored in the place where all crypto is stored: in mathematical mist, behind long keys held only in the memory of someone who is quite good at storing such things in memory.”

20% drop in OSTK

Overstock saw its shares hitting a 52-week high last week amid the upcoming special dividend planned for next week, according to MarketWatch. But Byrne’s cashing out caused a notable slip of OSTK shares, which reportedly dropped 21% on Sept. 16, 11% on Sept. 17 and 8% on Wednesday. At press time, OSTK is down 3.5%, trading at $15.60.

Recently, Overstock’s interim CEO insisted that Byrne’s exit from the company has nothing to do with an ongoing regulatory investigation by the SEC, which was first revealed in December 2017. Still, Byrne’s move appears to have affected Overstock as one of the key corporate investors in blockchain subsidiary tZERO backed out from the investment four days after Byrne announced his resignation.

Crypto Not Competitive With Gold: Barrick Gold Exec

Crypto Not Competitive With Gold: Barrick Gold Exec

Cryptocurrencies are not a competitor to gold, according to North America COO of Barrick Gold, Catherine Raw.

Catherine Raw, the North America COO of the largest gold mining firm in the world, Barrick Gold, said that she does not think cryptocurrencies are competitive with gold, Fortune reported on Sept. 18.

Raw made her remarks yesterday at Fortune’s Most Powerful Women International Summit, where she stated:

“The very tangible nature of gold is what keeps a special place for it. So it will always have value, whatever the price is, I don’t know, but it will not be zero. Whereas cryptocurrency could be zero — that’s the difference.”

The report points out that — so long as gold is being used for jewelry and electronics — it is guaranteed to have some value. That said, Raw also admits that “the phenomenon of cryptocurrency is here to stay.” 

Hopes to bring young investors back to gold

Raw hopes that the gold industry will be able to win back young investors between the ages of 20 and 40 that ended up preferring crypto assets to gold. Raw admitted that currently, parties buying gold are mostly the Indian and Chinese markets, institutions and central banks.

She added that among young investors, there is an impression that the only people buying gold are “old fogies who are buying it because they’re scared of the world.” She said:

“What I would like is actually to see gold harness that. […] I think the gold industry has got its head in the sand by not taking advantage of a changing demographic. […] My ambition over time is actually to see how as a gold industry we can harness that younger demographic.”

Earlier this month, Turkey’s Istanbul Clearing, Settlement and Custody Bank (Takasbank) announced a blockchain-based platform for trading gold. Takasbank’s new project aims to enable people to transfer physical gold stored at the Borsa Istanbul Stock Exchange.