o3 BLOG | Investing
The future of blockchain and what it means for the gold market in 2022
The popularity of cryptocurrency is drawing some investors toward the idea that blockchain technology has the potential to fundamentally change the way the mining industry and connected supply chains operate. Is this true? It’s hard to say. Some say the benefits of blockchain technology outweigh the risks, but this has yet to be determined, especially in the metals and mining industry. That said, companies are beginning to digitize the value proposition of gold, one of the world’s oldest, most stable currencies. Blockchain technology enables financial leverage, liquidity, and monetized physical gold holdings.
Gold has acted as a reliable hedge against inflation, and many seasoned investors refer to it as portfolio insurance. Savvy investors know that gold maintains its value over the long term and provides a safety net against inflation and market fluctuations. It provides diversification in your portfolio and is tried and true. However, blockchain technology comes when investors are looking for new safe havens for their money. Likely to attract recreational investors looking to “go big or go home” with their investments, cautious investors are mostly unwilling to take those chances.
For more cautious investors, gold-backed tokens combine the structure of gold investments with the upside potential of the crypto world. Some experts believe that it could bridge the gap between recreational and cautious investors, who are skittish about investing in the world of cryptocurrency investing, those who dislike fiat currency, and those who are looking for more secure investments.
An example of this is Asia Broadband (OTC: AABB). The company sold its primary mining operations in the Guerrero gold belt in Mexico for $82 million. The sale produced $30 million in gold bullion, supporting the company’s tokens. The company says it will continue to target gold mineral properties to back continuing token sales strategically. Still, if token demand exceeds the company’s supply of gold, bullion is available from third-party sources and can be purchased using the proceeds from token sales.
Moreover, the AABBG token’s minimum price is maintained at the current spot price of gold, which reduces the purchaser’s investment risk. If gold prices continue to increase by over $2,000 to $3,000 an ounce over the next 24 months, the token price could rise based on a limited supply of tokens and other factors. Furthermore, companies like Asia Broadband are beginning to develop their own propriety exchange, which will allow users to complete quick two-way exchanges of their tokens for significant cryptocurrencies such as Bitcoin, Ethereum and Litecoin.
It’s important to note that gold is held by central banks, large government institutions and pension funds. By contrast, global policymakers are still exploring the security and feasibility of blockchain technology and cryptocurrency. While gold can sometimes experience volatility over short periods, its value remains stable over the long term. Furthermore, investors turn to gold when fiat currencies fall to maintain purchasing power. Despite minor fluctuations in gold prices, it’s still recognized as the superior investment product, given its performance against inflation and protective qualities compared to crypto. And it’s likely to continue as Bitcoin, and other cryptocurrencies remain volatile alternative assets, mainly because of their erratic price behaviour and government hesitancy surrounding their security.
The reasons many investors prefer precious metals, such as gold over crypto include long-term price stability, secure storage, custodian oversight, recognized industrial utility, and proven ability to hedge against inflation and falling markets. These benefits make it hard to believe that gold will ever lose its lustre for individual retirement and institutional investors. Historically, gold has proven its worth and long-term buying power — and while digital assets have gained traction over the past few years, we do not have the same historical data to make accurate projections.
Another thing to keep on your radar is that regulatory protocol surrounding crypto is becoming more stringent. The U.S. Treasury recently announced that any crypto transfer exceeding $10,000 must be re-posted to the IRS. This regulatory blow could very well be the straw that will make you think twice as far as crypto goes, as more institutional investors are dropping bitcoin and returning to their safe place — gold.
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