Thursday, February 8, 2018

Forget the currency idea, unbacked cryptos are the new stocks while gold backed cryptos are the new bonds

With more and more businesses and platforms ditching the idea of cryptocurrencies like Bitcoin replacing sovereign fiat currencies as a medium of exchange in commerce, an interesting paradigm is forming that might equate to these virtual securities to two other major markets.

And by this we mean the stock and bond markets.

Since most cryptocurrency trading is done by speculative investors, then even the traders believe that cryptocurrencies as a whole are more like stocks and equities than they are as a currency.  But on the flip side of this are the growing number of gold and resource backed cryptos that in an incident that occurred last week, may be acting in the fashion of an alternative bond market.

99 of top 100 cryptocurrencies fall in price with only one actually gaining value being a gold backed crypto.
In the last 24 hours, the cryptocurrency market has been devalued by $100bn as concerns over regulation and price manipulation on the major exchange, Bitfinex, started a rout on Thursday morning. This has been reflected in major cryptocurrencies, like bitcoin, ethereum and ripple tanking in price.  
However, as the market route began DGD was the only coin out of the top 100 coins to actually increase in value. On Thursday afternoon, DGD reached a record high of $295.39 and by Friday morning the coin was trading at highs of $433.72, a 54% increase compared to the coin’s value at the beginning of Wednesday. – Market Mogul
In fact one of the more interesting functions that one gold backed cryptocurrency company is in the process of providing is a means to store ones wealth in gold, then be able to move it seamlessly onto an exchange where they can conduct trades in any crypto, then move it back into the security that gold provides through their cryptocurrency model.

This functionality is virtually the same thing that occurs daily in the security markets of most nations, where traders often move their cash into short-term bonds when they sell a stock or equity since bonds are considered liquid assets.

Additionally, gold backed cryptocurrencies will eventually be tied to other factors besides the price of gold which will over time provide a yield function that is not inherent in the owning of physical gold, but is standard in the owning of an interest bearing bond.

Just as ICO's are slowly replacing IPO's as a way to grow capital for a company, and even perhaps replace municipal bonds for cities to do the same thing, cryptocurrencies may soon be separated into two distinct markets, with the unbacked ones like Bitcoin mirroring stocks, and the gold backed ones mirroring bonds.


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