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.
Nick Giambruno: A gold-backed crypto needs one foot in the real world and one foot in the digital world. Unfortunately, that real world foot is susceptible to government coercion.
There are plenty of examples of crypto projects and precious metals initiatives thinking they could flout regulations, no matter how ridiculous they may be. What inevitably happens is they end up painting a big, red target on their backs. The government eventually shuts them down.
How could a gold-backed crypto avoid a similar fate today?
Rick Rule: Well, when we began in conjunction with our partners developing our own product, we were very aggressive in communicating what we were doing and soliciting feedback from various regulators in both the United States and Canada.
While in an ideal world that wouldn’t be a requirement, that’s not the world that Sprott, as a regulated entity, inhabits. The consequence is that we didn’t surprise the regulatory authorities with anything, and we didn’t make any claims whatsoever that we were exempt from regulations that would become proposed.
With our product – because it isn’t a token, it’s really a deposit receipt or commodity receipt on the distributed ledger rather than a token – and because we were unsure of the way that the SEC [Securities and Exchange Commission] would regulate the product, we decided to comply with Know Your Customer regulations.
I won’t bore your readers with the arcane details, but it’s important that people understand that this distributed ledger receipt represents actual gold stored by us at the Royal Canadian Mint. It’s redeemable for gold and it’s exchangeable.
We have chosen internally to believe that gold-backed cryptos will ultimately attempt to be regulated by the CFTC or by the SEC or one of the banking regulators, and the consequence is that to participate in our offering, you do need to open an account with a participating financial services firm.
The lesson that we’ve learned managing institutional money, managing ETFs, is that if you are going to play in investment markets and financial services markets, and think you’re going to circumvent regulation, you’re mistaken. That may or may not sit well with all your readers, but it’s the truth, nonetheless.
Nick Giambruno: The value of Bitcoin and other cryptocurrencies can be wildly volatile. This is a problem for anyone looking to use cryptos in the regular course of business.
Gold-backed cryptos, on other hand, should have relatively stable prices. They also allow people to send and receive gold as easily as they send an email.
This should make them appealing to merchants, lenders, businesses, investors, escrow services and the like… anyone who wants to conduct business in gold – but also wants the convenience of cryptocurrencies.
Businesses could use gold-backed cryptos to pay rent, salaries, or other ordinary expenses. The possibilities are enormous. I think that could open a huge new ecosystem.
That’s why I think gold-backed cryptos could create a genuine revolution in finance and why I’m so excited about them in general.
The demand for gold-backed cryptos – which is really the demand for sound and convenient money – is potentially enormous. It can be useful to anyone.
Do you see this evolution in the gold-backed crypto space playing out?
Rick Rule: I absolutely do. If you look at the trading volume and liquidity that gold enjoys today and you add that to that the incredible economic efficiency of the distributed ledger, the ultimate applications that you’re talking about as a transfer mechanism, as a store of wealth, as collateral, an entirely new ecosystem, really are limitless.
Nick Giambruno: Doug and Rick, thank you for your time. If readers would like more information about VaultChain they can send an email to [email protected]
Justin’s note: As the guys discussed, this is a revolutionary way to make money. To see just how much upside gold-backed cryptos have… and how you can start profiting from specific names today… click here.