One of the common criticisms and challenges of bitcoin and other cryptocurrencies is their price volatility which renders their consideration as a store of value nearly impossible. Some believe that gold backed cryptocurrencies may hold the key to solve these key challenges.
There are already several cryptocurrencies, otherwise known as altcoins, backed by gold that have been launched. Several of the leading online bullion exchanges have implemented or are also implementing blockchain to create more efficient mechanisms for managing transactions. Each month it seems like there are more and more players joining the fray.
My friends at The Hutch Report have provided me with an analysis of this nascent gold backed cryptocurrency niche along with a review of some the various players in the space. There are already some obvious differences across platforms which will most likely serve to weed out the serious players from those looking to make a quick buck.
This analysis provides an objective review of the strengths, weaknesses, opportunities, and threats as well as a look at 23 gold-backed crypto and digital currencies. A review of some of the exchanges is also thrown in for good measure.
If you are looking for either a "To the moon, Alice" kind of report, or "This bubble will crash" kind of report, you are likely to be disappointed.
Rather, this report analyses the increasing number of cryptocurrencies being backed by gold bullion. Included are research and analysis on 23 different companies and 4 gold exchanges using the blockchain.
I had permission to post the entire article, but it's a massive 46 page PDF and I had a hard time condensing the report. Here is their conclusion.
The marriage of cryptocurrencies and gold enables another alternative to fiat currencies. Although we can’t imagine fiat currencies to be replaced overnight, the promises of gold-backed cryptos do look compelling moving into the future and they are certainly important to follow.
In spite of the strengths of a gold-backed cryptocurrency, there are still many unknowns. In their short history, we already have some that have come and gone. Our research into many of the up and coming gold-backed cryptocurrencies has shown that the information available is not completely clear or transparent and sometimes sketchy at best.
Previous examples of blatant fraud is also a reason to be defensive but not dismissive of the newcomers. There is not enough of a track record with which to have the confidence to make a significant investment although it is worthwhile to look at them from a short-term trading aspect in order to see how well they function and if they are able to deliver on their promises.
The principal strength of the gold exchanges based on the blockchain is that they are being developed by reputable organizations. We don’t lose sight of the fact that these blockchains being used are centralized which means they don’t incorporate many of the advantages of the decentralized model for which cryptocurrencies such as Bitcoin have become known. They are not yet fully operational therefore it is difficult to judge their efficiencies.
Although these new gold backed cryptocurrency and blockchain gold exchanges provide a compelling alternative to the purchase of gold, we would not be jumping in just yet. However, the future looks very exciting and by understanding the current developments in the sector through this report you are provided with a greater advantage as they mature.
At this point, we believe it is prudent to follow the strongest management teams behind these ventures. Among the exchanges Goldmoney, The Royal Mint and the IEX Group, in partnership with Sprott Inc are the strongest. Among the gold backed cryptocurrencies, we will be following BullionCoin.
If you want to hold gold, hold gold. But if you are still itching to get into cryptocurrencies despite (or because of) the massive crypto-rally, then gold backed crypto may be the way to go.
Mike "Mish" Shedlock