Bitcoin may be a distant alternative to safe havens, but CoinShares Group is betting that trading a digital gold asset linked to the token may provide investors with a sense of security.
The launch of the product, called DGLD, included US$20-million of the digital metal tied to an offset of bitcoin’s blockchain, with each token representing a 10th of a troy ounce. One ounce of gold for immediate delivery on Tuesday cost $1 483.61, or about a sixth the price of one bitcoin. Bullion often serves investors as a hedge against instability.
“As the stablecoin starts to become more popular, we’ve seen numerous attempts to create gold-backed coins,” Meltem Demirors, chief investment officer at CoinShares, which manages roughly $700-million of assets, said in an interview on Monday. To capture some of that market share, the London-based company decided to “create a coin that could functionally act as a stablecoin, but be backed by something physical, gold”, she said.
Some investors draw parallels between cryptocurrencies and hard assets like gold that offer no yield, partly because low-yield environments can boost the appeal of both and given both are free from ties to a sovereign entity, raising their appeal as havens from macro uncertainty. CoinShares’ product will compete with more than a dozen gold-backed or linked cryptocurrencies.
Still, with US monetary policy easing possibly on hold and as global bond yields pare declines this year, investors are eyeing a slow-growth bet for the metal. Meanwhile, bitcoin payment volume growth has slowed to about 3% this year from 15% in 2018. And even highly liquid stablecoins such as tether have drawn increased scrutiny.
The gold token is set to begin trading on the Blockchain Luxembourg and MKS platforms in several weeks following final regulatory approvals. — Reported by Justina Vasquez, (c) 2019 Bloomberg LP