by Doug Casey, Casey Research:
Justin’s note: Yesterday, Doug Casey, Rick Rule, and Nick Giambruno showed us the massive potential of gold-backed cryptos. If you missed it, catch up here.
Today, in part two of their discussion, the guys take a closer look at this new digital asset…
Nick Giambruno: Doug, I personally believe there will never be a gold-backed crypto that can completely stand in for gold. There is simply no substitute for owning physical gold that you can readily hold in your hand.
However, owning large amounts of physical gold presents its own challenges. It’s hard to store securely, move long distances, and break down into smaller amounts. A gold-backed crypto can help address these drawbacks.
That said, any gold-backed crypto will inevitably have some counterparty risk. Physical gold in your direct possession does not.
Instead of being a substitute for owning physical gold in your own possession, I believe gold-backed cryptos are a complementary tool for individuals all around the world to access sound money.
What’s your take?
Doug Casey: I agree, Nick. You want both. The reasons why cryptos are catching on in the developed world are pretty obvious. We don’t need to go on about that here. I think the real future for cryptos, and this is especially true of gold-backed cryptos, is going to be in the Third World, because 75% of the people on the planet have to use toilet paper currencies – like the Zambian kwacha, the Argentine peso, or the Venezuelan bolívar – that have little value within their countries of issuance and no value at all outside of the borders.
Third World people tend to understand gold. It’s tangible, it’s more understandable than just the idea of a cryptocurrency. If they see a crypto that represents gold, in addition to its other advantages, it’s likely to catch fire. People in Third World countries desperately need a currency that allows them to save and transfer wealth reliably. Something of real value, as opposed to just some locally issued government toilet paper. Cryptos in general, and gold-backed cryptos in particular, are a wonderful innovation not just for us but for the impoverished 75% of the world’s people who live in blocked currency countries.
Nick Giambruno: Exactly… why would anyone abandon their wealth to a constantly depreciating government fiat currency, sitting in an insolvent fractional reserve bank when they can easily save a gold-backed crypto?
On that note, how does a gold-backed crypto help one with political diversification? Is it a new tool in the toolkit?
Doug Casey: I want to emphasize, especially for Americans, that it’s not just a question of what you have and what you’re doing in the market, but where you’re keeping these things. Everyone, not just Americans, should try to have half of their gold, cash, and investments outside of their countries of citizenship and/or residence. You don’t want all of your assets within easy reach of whatever government considers you its milk cow.
Nick Giambruno: Rick, what features does a gold-backed crypto need to be credible… redemption, reputable partners, auditability?
Rick Rule: The answer to your question is, “yes, all of that is important.”
The first thing is that there will be and there have been numerous crypto scams where the promoters of the crypto either caused or paid to cause rapid price escalation in a token that had no intrinsic value, and whose price ultimately fell to its intrinsic value, which is zero.
It’s important that investments are made in the architecture of the distributed ledger product, and in the maintenance of the distributed ledger product.
The distributed ledger does not – contrary to popular opinion – maintain itself.
Bitcoin is an example. That whole process is sustained by miners who are rewarded with Bitcoin. In the absence of something like that, a system crashes.
I think it’s important that crypto gold be redeemable and be audited.
In the case of Sprott, I think one of the reasons why we were chosen as a partner is because we already manage well over $4 billion in exchange-traded gold products, and we have 20 years of experience with people who want to trade their certificates for physical precious metals and get delivery. We do it every day.
Doug will hate me for this, but our gold is stored at the Royal Canadian Mint. We joke that our security is provided by NATO.
So I would suggest you examine the architecture of the system, the reliability of the sponsors, and the redeemability and security of the gold behind gold-backed cryptos very carefully.
One of the things that’s given me personally great comfort is that of the three-dozen some odd entrants to the market that we’re aware of, we are the ones that have had the broadest adoption from the gold mining community.
So if you look at our shareholders registered – Goldcorp, Wheaton Precious Metals, Iamgold, Agnico Eagle – we’ve already done transactions where Goldcorp transferred 3,000 ounces of gold to us in return for ledgers because it saved them hundreds of thousands of dollars in transaction fees.