Even as the cryptocurrency boom continues to inspire more initial coin offerings, some investors remain unconvinced by the long-term potential of the digital currency market. Investing in the cryptocurrency market is nothing compared to forex trading, although the two are acceptably grouped together as part of the global currency market.
Fiat currency prices rely on quantifiable driving factors like economic growth, interest rates, and inflation. Cryptocurrencies are driven by the notion that they could one day replace fiat currencies or by merely their ability to make the transfer of money cheaper and more efficient. This has been boosted by the growth of the digital world where online transactions are rapidly taking over from the traditional brick-and-mortar methods of trade.
The Democratisation of Financial Markets Using Blockchain
The concept of using decentralised ledgers in the blockchain network has been welcomed to the global financial markets under the tag name “democratisation of the financial markets”. Therefore, while several cryptocurrencies cannot boast to have any backing from income assets, there seems to be something that has gotten some investors excited about the future.
But could things get better by luring staunch income asset investors to the market? Perhaps. And that is why some market analysts believe this could hold the key to the success of the cryptocurrency market. Asset-backed altcoins have caught the attention of some income-oriented investors who now believe that there is some real value to drive the price of the various asset-backed cryptos.
Over the last several months, we have witnessed gold-backed cryptocurrencies hit the market rolling, as have diamond-backed cryptos. And now, there are some who have mooted the idea of having an oil-backed cryptocurrency while others want to turn their eyes to the metals industry. So, it’s all beginning to knit up together nicely for the sceptical investor.
Cryptocurrency Everywhere, Even in Africa
New cryptocurrency ideas are widening the addressable market for cryptocurrency startups with bitcoin, which is pretty much the pioneer, leading the way across the globe. One thing to note though is that while the top 3-5 cryptocurrencies have already been embraced in several parts of the world, most asset-backed cryptos are yet to reach this crucial milestone.
For instance, trading bitcoin has now been localised across the globe. While the decentralised blockchain architecture remains vital for the market, global markets are now quoting the price of bitcoin in their local currencies in a bid to helping it to gain traction.
Just a quick highlight in West Africa – cryptocurrency traders can buy bitcoin in Nigeria using their local currency, Naira. Obviously, this saves them the cost of currency translation into USD or other top global currencies. This aspect of direct translation from bitcoin to local currencies has helped in penetrating exotic markets.
However, the thing is, it is perhaps simpler to do this for cryptocurrencies that are not backed by income assets like gold or diamonds. This is because, for asset-backed cryptos, every altcoin issued has a stated amount worth of the asset backing it. For instance, as pointed out a few weeks back, Sparkle Coin, which is backed by diamonds, has every coin issued backed by $5 worth of GIA Certified diamonds stored with top diamond dealers. It is a tough challenge for the issuer to issue millions of coins with each backed by a certain value of certified diamonds, as is the case above.
This means that the number of coins in circulation for an asset-backed crypto is likely to be lower than that of other cryptocurrencies.
Tokenise Everything: Metals, Oil, Real Estate
Nonetheless, when you look at the types of assets that companies could use to back up their altcoins, then you find that there are some that could work out very well. Gold, of course, is a good example while there are those looking to tokenise various metals including copper and silver, as well as, real estate.
Things might not be as tricky as they may at first appear because we already have some of these assets well represented in the stock market in the form of oil stocks, silver stocks and even real estate. So, linking these altcoins to real asset prices won’t be difficult. This could make it a lot easier to come up with tokenised units of such metals and assets than it is for assets like diamonds. But still, the tokens are expected to be limited in number than what the likes of bitcoin have in circulation.
For instance, Ethereum LINK trading name, Link Platform (LNK), which is a silver-backed crypto is an excellent example, in this case. It has only 34,047 units in total supply with a current circulating supply of just 16,415. This compares dismally to the gold-backed GoldMint (MNTP), which has a total supply of over 9.6 million units and over 1.7 million in circulating supply.
Therefore, in the end, it could really depend on the type of asset that backs the cryptocurrency. If the asset behind the altcoin is abundant and easily tokenised, then these types of asset-backed cryptos could easily follow in the footsteps of the likes of bitcoin and Ether in gaining traction across the world.
Taming Crypto Volatility to Improve Trading and Market Stability
This could eventually give the cryptocurrency market the required stability that has eluded it over the last few years. The level of volatility in the market has made it so hard for ordinary traders to join while the high prices of some of the cryptocurrencies like Bitcoin and Ethereum have also been a stumbling block.
Nonetheless, things could get a lot easier going forward as technological advances in the field of machine learning and artificial intelligence continue to inspire the introduction of new trading tools. In the forex market, new traders often use a trade simulator to learn the ropes while trying out different trading strategies. However, recent developments in AI and machine learning have triggered the emergence of smart trading robots that are capable of learning from their own experiences without further programming input.
Top hedge funds are already using them in what has now become the rise of quant funds. Some of these trading systems have already proven to be super smart than the ordinary human traders and if things progress at the current rate, not even the volatile cryptocurrency market will stand in their way. Again, with asset-backed cryptocurrencies, things could be a lot easier because of the more predictable price of the income asset that each altcoin is pegged to.
For instance, Tiberius Group, which announced the launch of a metal’s backed altcoin dubbed T-Coin, indicated that the price will be pegged to the prevailing market price of copper plus a stated premium. This already makes the price of T-Coin a lot more predictable, hence less volatile than what we have witnessed in the cryptocurrency market. This could bring stability in the long-term thereby setting certain cryptocurrencies well for the future to eventually replace fiat currencies.
In summary, asset-backed cryptocurrencies could bring in a new class of investors who have proven to be relatively resistant to the allure of the current players. Some legendary investors like Warren Buffett have not held back from pointing out potential drawbacks of the cryptocurrency market comparing the likes of bitcoin to a money order.
One of Buffett’s arguments has been that bitcoin lacks intrinsic value and its price is hardly justifiable based on its potential future to replace fiat currencies. However, with asset-backed altcoins, perhaps some altcoins might now boast some genuine value that can be quantifiable based on the market price of the income asset. This could be what the future holds for the cryptocurrency market.
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