As an ardent student of the global financial markets, I’ve remained fascinated by how evolving technology is turning the industry on its proverbial head – particularly due to innovations that have come to market in just the past 10 years.
Below is a great infographic published by the World Economic Forum in a 2015 report which illustrates that virtually every sector in the financial services industry is now being disrupted and, in many cases, transformed by fintech.
Financial institutions which once relied on relatively static, highly profitable business models now find themselves competing with – and losing market share to – fintech products, services and, indeed, new financial ecosystems, which are collectively redefining the financial landscape. Some notable examples include peer-to-peer lending; online payment systems such as PayPal, Google Wallet and Apple Pay; crowdfunding; robo-advisors; and the latest new rage: digital payment rails such as cryptocurrencies and distributed ledger technologies.
Out of all the fintech innovations I’ve carefully studied, it is the latter — cryptocurrencies and distributed ledger technologies (DLTs) — that has most captivated my attention and appealed to my investing sensibilities.
It is important to note, however, that I have not been one of those investors who threw caution to the wind and jumped on the cryptocurrency bandwagon when the market boom was originally ignited with Bitcoin. Rather, I started reading everything I could get my hands on that would help me to understand and appreciate the complexities of this worldwide phenomenon and satisfy my need to balance risk and reward. As a result, I remained on the sidelines for the most part and watched and learned. But, now I’m getting into the game in a big way.
As of this writing, there are over 1600 cryptocurrencies on the market – some boasting market values of billions of dollars, while others are virtually worthless. You have to wonder: How was each of their values ascertained? Is a specific coin currently overbought or is it oversold? Unlike a company, a cryptocurrency doesn’t earn revenue by producing products or offering services, nor does it employ people. And, unlike a stock, there are no fundamental metrics to accurately assess an altcoins fair market value, much less its promise of long-term stability and growth potential. Or is there?
I’ve determined that asset-backed altcoins make the most sense. Altcoins backed by fiat currencies rely on too many uncontrollable factors, such as economic growth, interest rates and inflation. While there are now diamond-backed cryptos, oil-backed cryptos, contract-backed cryptos and even real estate-backed cryptos, a gold-backed crypto could offer the greatest possible level of long term stability. After all, gold has been viewed as a safe-haven asset for millennia. By using a physical precious metal, like gold, to back something up on a distributed ledger, the altcoin’s intrinsic value is retained, unlike Bitcoin or Ethereum, which really have no intrinsic value.
From my vantage point, betting on the right gold-backed cryptocurrencies is a potential win-win-win. It represents the best investment strategy for an investor, like me, who wants to capitalize on the accelerating cryptocurrency phenom, secure his or her downside and enjoy what could be a windfall on the upside.