Cryptocurrencies are notoriously volatile. Their values fluctuate on a nearly daily basis, either for better or worse. Solving this problem will be challenging. According to Kinesis CEO Thomas Coughlin, pegging these currencies to precious metals is the only way forward. Especially the use of gold will play a big role in this process.
Pegging Cryptocurrency to Gold
On paper, it can make sense to peg popular cryptocurrencies to the value of gold. Both forms of money are scarce and often position themselves as a store of value. Reducing overall volatility in the cryptocurrency world is something many people want to see addressed. That is much easier said than done. No cryptocurrency is backed by precious metals or other commodities at this stage.
Changing that narrative is a rather unusual approach. Kinesis CEO Thomas Coughlin sees a lot of merit in this concept. His company will launch new cryptocurrencies pegged to precious metals in November of 2018. Introducing metals-backed stablecoins to the market may attract some initial interest. For speculators, however, they may not necessarily be all that appealing due to their relatively stable price nature.
Similar to cryptocurrencies, gold and other precious metals fluctuate in value as well. While this happens on a smaller scale compared to Bitcoin, pegging a cryptocurrency to gold may not have the desired effect. There appears to be a renewed interest in gold due to an ongoing financial recession. The nature of transferring cryptocurrencies can make precious metals more accessible in the process.
Similar Projects Already Exist
The concept of cryptocurrencies linked to precious metals is nothing new. Numerous companies have tried their hand at such efforts. DigixDAO is perhaps one of the more prominent examples. Its native token represents physical bullion in small quantities. So far, there has not been a great interest in this project. DigixDAO Maintains a $71.4m market cap at this stage. As such, it hardly makes any major impact on the industry.
One has to wonder if there is even a demand for such currencies. It is far less complicated to obtain gold – in any form – compared to cryptocurrencies. While digital currencies make it easier to transfer value, it may not boost overall interest in gold or other precious metals. For those looking for a store of value, the new currencies to be introduced by Kinesis may have some merit.
For the time being, cryptocurrencies are seemingly in a good place. Technical upgrades and regulatory advancements pave the way for a broader ecosystem. Investors have begun paying more attention to Bitcoin and altcoins over the years. At the same time, it appears the interest in gold and other metals is stagnating a bit. Both industries have their own merit and drawbacks. A bridge between the two can be appealing, but not necessarily to everyone.
Should cryptocurrencies be pegged to gold? Let us know in the comments below.
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