Gold has recently seen an uptick in value as investors search for hedges against a potential world recession. The precious metal is rightfully seen as a safe haven in turbulent times and when the US Federal Reserve applies aggressive monetary policy. Add the fog of trade war to that, China’s slowing growth and President Trump calling for rates of 0 or less and the perfect storm might be upon the world’s economy.
The price action of gold clearly shows — investors are rushing into bullion investments. As the world prepares to embrace a looming recession, after a decade of rising equity and bond prices, precious metal markets have rocketed, while digital assets have also seen a significant inflow. According to RBC Data, $9.7 billion was invested in metals through exchange-traded securities in June 2019 alone. Gold is trading near a 6-year high.
Most turn to gold ETFs, vehicles for the sought-after commodity in the form of securities. But an even more flexible method of investing in gold is emerging in the form of blockchain tokens. The novel investing approach is gathering steam since these tokens offer real ownership of a tangible investment like gold with the speed and security of distributed ledger technology.
At Nexo, we have been hard at work to allow users to use tokenized gold as collateral so that clients can borrow against it for as little as $500.
Unlike dealing with physical gold or ETFs, these transactions are instant, cheap and accessible to everyone, regardless of whether they have an account with Charles Schwab.
Nexo is also introducing the most profitable gold interest-bearing accounts which yield an unprecedented 8% interest rate.
This comes less than a year since Nexo offered the same high-yield crypto interest products on stablecoins and fiat currencies.
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But tokenized gold is just the beginning of a revolutionary shift towards asset tokenization. In the midst of today’s confusion and the world’s recent turbulent economic history, Innovative FinTech companies like Nexo can combat at least some of the predicaments of savvy investors. Low-interest rates and dangerous monetary policies have done much to facilitate that and at Nexo, we are conscious of the bigger picture and try to derive maximum benefits to the blockchain community and beyond.
The Problem with Helicopter Money
To borrow from Milton Friedman, helicopter money, a more descriptive way of characterizing the concept of quantаtive easing, inherently brings a plethora of problems and in 2019 we appear to be at a juncture.
The problem comes when trying to fight a recession while interest rates keep falling. Even former fed chairman Alan Greenspan proposed that it was only a “matter of time” before the United States sees negative interest rates. With rates bottomed out, the Fed will not have much leverage to drive investor confidence and buyout the market.
If one would like to see the future, we need not look further than Japan, where ultra-low rate put traditional investments at risk. As the world population ages, consumers tend to shift towards increasing their savings and lowering their consumption. This will at some point inevitably result in a blow to traditional markets.
With interest rates at dangerously low levels, central banks are left one recourse: printing more money which is throwing gas into the fire. For instance, when Venezuela’s struggling economy sparked hyperinflation, the government decided to print cash.
The result was astronomical numbers of bolivars (the national currency) in circulation. Last year, President Nicolas Maduro raised the minimum wage by 3000%, then relaunched the currency after cutting off 5 zeroes. 200,000 bolivars became 2 overnight. This rendered the currency virtually worthless. As of this writing, one US dollar equals 20,482 new Venezuelan bolivars.
Faced with these realities, it is up to innovative finance companies like Nexo to offer alternative products that unlock the power of novel technologies and offer clever means to hedge against the possible onset of a downturn.
Tokenization of Everything
We like to think of ourselves as an already proven pioneer of the FinTech space. Nexo is placing itself at the forefront of a shift towards investments and savings in cryptocurrencies and tokenized assets which will offer investors protection from situations like those in Venezuela. And this shift has already started.
Last year, ‘Mighty Ducks’ actor
Brock Pierce purchased a home in Amsterdam worth $1.2 million using the world’s first mortgage collateralized with crypto through Nexo.
Once a beautiful mid-century chapel, the restored building is now turned into an avant-garde home for Mr. Pierce through and instant crypto credit line from Nexo. This move allowed Mr. Pierce to hold on to his BTC, access the value of his crypto without selling, get exposure to real-estate and essentially remain dollar-neutral or even short the greenback.
With Nexo adding tokenized gold as a collateral option, the same concept is now being offered en mass.
Our collaborations with PAX Gold, a token that represents legal title to physical, vaulted gold, approved by the State of New York and Trovio which offers investors to buy, sell and hold physical gold stored at The Perth Mint are among the first moves in what soon will be a reality across all asset classes.
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Some analysts predict a TOE or ‘Tokenization of Everything’ and at Nexo, we are big proponents of this concept, convinced that its benefit are imminently upon us.
Tokens can represent anything — stocks, bonds, commodities, currencies, identities, fine art, real-estate — and then be divided into smaller pieces and transferred worldwide at virtually no cost.
This concept is already seeing mainstream adoption and this trend will continue to do so in the years to come. It might very well be as revolutionary as the internet boom of the early 2000s as suggested by a recent report by Deloitte.
All Eggs, Many Baskets
As more and more companies tokenize the various asset classes, those can easily be grouped into baskets and managed in a diversified manner. Furthermore, with smart contracts and automatic rebalancing, baskets of tokens offer automatic diversification and insights from AI to make the process even more efficient.
While not all might have the stomach to invest in Bitcoin given its inherent volatility, tokens backed by real assets offer all the advantages of the blockchain system with less fluctuations. And since by definition distributed ledger technology is immutable, it is extremely difficult for it to be misused as a conduit of foul play. Likewise, a decentralized market will guarantee fair prices, liquidity and access to even the remotest corners of the world.
And Nexo is there to provide the necessary banking solutions in the brave new tokenized world.