Danny J. C.
Gold, Wheat, Coal, Coffee, Energy
Investing in commodities, such as coal, gold or oil, can be difficult for investors. A major reason for this is that unlike stocks and bonds, commodities are not readily transferable and easily accessible to the average investor. Further, the complex way in which they trade through the futures and options markets can be a hurdle. In other words, an investor can't just buy a barrel of oil....
Gold is more accessible to the average person, since its purchase gold bullion (gold in its physical form), from a dealer or, in some cases, from a bank can be easily facilitated.
A solution are exchange traded funds (ETF) that mirror the movements of the underlying commodities, giving investors direct investment opportunities. However, not every commodity has an ETF. For example, gold - each share of the ETF represents one-tenth of an ounce of gold, so if gold is currently USD1,300 an ounce, the gold ETF will trade at $130 per share. This investment product is one of the easiest and least expensive ways to access the gold market. To note, an ETF that tracks a specific industry or sector such as an oil services ETF can be prone to high volatility, representing underlying risks associated. Liquidity to that extend also place a role to consider.
To conclude traditional investing in ie. gold may has its challenges, but getting more and more attractive (top asset class 2018):
And some more deep-dive into the commodity market:
Blockchain has the potential to revolutionize how commodities are mined/ harvested, delivered, funded and traded. A gold nugget for instance travels a long way along its supply chain, from mine to end consumer. Legal frameworks, regional regulations, manufacturing and retail, each of which might have its own ledger system, cost and potential security flaws.
Blockchains' decentralization guarantees tamperproof and complete transparency along the supply chain. This provision of trust and increase of efficiency is not to underestimate.
IBM just helped to launch a diamond and jewelry blockchain consortium, that will track and authenticate diamonds, metals and jewelry from all over the world.
Furthermore, the opportunities through fractional ownership of assets, by tokenization for Commodity or Security Token (Cryptocurrencies), a broader investor base can be reach. Coin offerings allow companies to transform the ownership of assets or other rights into Blockchain-enabled virtual, tradable tokens. These can be sold upfront to finance investments. Also, liquidity on secondary market trading could allow to cash out returns within a short period of time of investment. Worthwhile to mention, that commodities and assets are deemed to be less volatile investment means, hence crypto hedge/ backed by, are less speculative investment than other digital assets.
Commodities i.e.. gold, coal, crops, cotton or coffee backed by physical reserves, future production, and harvest/ mining rights, commodity-backed blockchain tokens are expected to have a profound impact on the world’s financial, blockchain, and digital currency sectors.
Funding mining operations can also be a challenge. A project could offer commodity-backed token with profit/ revenue share models, or simply pledge the price i.e.. to one ounce gold against the token and sell during fundraise at discount. A project could also provide a buy/ sell platform for farmers to be able trade borderless, bankless via Blockchain and Crypto, solving currency challenges, fight inflation while empowering agriculture and trade in emerging markets.
Sources: Reuters, Investopia, BCG, IWSFinTech