Stock News: Are Gold-Based Crypto Assets Worth It?

bitcoin gold, gold cryptocurrency
Written by Mike Hammer
Yesterday’s action in the US equities markets certainly took everyone by surprise.  Gold, on the other hand, was relatively quiet, 1232 at the close of the US stock market.  And as it’s back there again this morning, let’s look at more interesting news in the crypto world and see what recent events indicate.  To catch you up — cryptos haven’t done well lately; Bitcoin is still stuck in the low 6000’s and Ethereum hovering around 200 (USD).

There were no signs of any more money flowing toward the crypto space during yesterday’s equity drop, seeming to confirm the story that crypto is not generally seen as a new safe-haven asset.  And 2 new pieces of news this morning seem to confirm that.

First, Russia’s Nornickel announced plans surrounding stablecoin (yes, annoyingly lower-cased), a new crypto asset pegged to precious metals prices. Stablecoin is already available on Coinbase so it’s a “real thing” in OG parlance. Nornickel’s CEO also discussed plans for their own crypto exchange, obviously, a much more involved project that he says needs new regulations to be successful.  To this Gold Enthusiast that seems antithetical to the usual rhetoric surrounding alt coins — aren’t they supposed to free people from governmental restrictions?  But hey, it’s a brave new world.

Second, UK’s government blocked the Royal Mint’s plans to release their own digital gold coin, vetoing the idea that the coin would be publicly traded on other digital platforms. Initially, the plan was for RMG (Royal Mint Gold) to trade on CME’s platform, but CME walked away from the deal in 2017. Then, in a very predictable series of events, the British government decided that dealing with relative newbies in the crypto space was too risky for their 1,100-year-old reputation, with the project now on hold.  Or in limbo, sometimes it’s hard to tell the difference.

This all comes about because crypto, being the new kid in the safe-haven world, wanted to muscle their way into gold’s territory.  But there’s nothing behind most crypto’s besides binary ones and zeroes, so in an effort to make crypto more appealing proponents are building coins tied to real things, like gold.  This could go one of two ways: The first would be a success and increase demand for gold because there is no leverage in a direct relationship between a blockchain ID and a chunk of gold.

If it caught on, so-called digital gold could create a huge increase in demand for gold — and that would be good for gold bulls.  The second way is the failure side, with product developers finding ways to leverage gold so that each bit of gold gets “used” more than once.  This could create a situation similar to the US mortgage market, with derivatives on derivatives, which history shows eventually comes crashing down.  So right now this Gold Enthusiast isn’t putting more money toward even gold-based crypto assets, while we see which way the froth blows.

Signed, The Gold Enthusiast

DISCLAIMER: The author has some remnant small holdings of in both Bitcoin and Ethereum, which together amount to a low down payment on a Ford F150 truck. He has no plans on trading these in the next 48 hours – OK, no plans on trading these in the next week.  At least.

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as continuing themes. Mike graduated with a business degree and spent years as a financial advisor, before moving to New York and to pursue a career in IT and education. For more than a decade Mike has been working with the Adam Mesh Trading Group as a stock market and commodities mentor. He’s trained over 200 individuals, spoken at several national conventions, and is a frequent contributor to educational webinars.

Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keeps him in touch with "the student mindset".

Mike focuses on the precious metals markets, the energy industry, and the financial sector. His motto is "Plan your trade, then trade your plan!"

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