Investors Flock to Tokenized Diamond as Crypto Banking Crisis Props Hard Assets
Sales of tokenized diamonds surged 300% last weekend, when three banks collapsed and investors scrambled to sell their USDC stablecoins.
The collapse of three prominent U.S. banks over the weekend led to market volatility and a lot of uncertainties as to where investors could stash their cash. Gold, the age-old safe haven, saw a boost in prices by about 5% since last week, and another asset that caught investors' attention was diamond – digitized diamond.
Diamond Standard, a blockchain company that tokenized and standardized the diamond market to allow investors buy the previously hard-to-invest-in gemstone, said it saw a large spike in its marketplace after the banks started to shut down.
During periods of market uncertainty investors often flee to hard assets, such as cash, commodities and real estate to protect investments from volatility.
“[Sales] of diamond coins and other products increased substantially since Friday on the back of Silicon Valley Bank and Signature Bank being shut down by regulators, USDC breaking its [dollar] peg and amid fears of contagion spreading to other banks and to digital assets,” said Cormac Kinney, founder and CEO of Diamond Standard.
The company gathers physical diamonds together in a "coin" of standardized value that's stored in a vault. Each holds eight to nine diamonds. The diamond-embedded tokens are digitized through an Ethereum-based digital coin, bitcarbon, which is tradable on different exchanges.
Trading volume of the tokenized diamond jumped almost 300% during the weekend as investors scrambled to find a haven, said Kinney. Most of the clients who wanted to buy tokenized diamonds wanted to get out of stablecoins, he said.
Most of the clients that bought into Diamond Standard’s coins were long-only, meaning they wanted to buy and hold the asset to diversify their portfolios while participating in the upside, Kinney said.
“Our investors, who very often have gold in their portfolios, sees diamonds as something that is uncorrelated to other assets,” providing them an opportunity for diversification and hedging, he said. Kinney noted that the price of diamonds is still playing catch-up with other precious metals, opening doors for investors to participate in the appreciation.
Most of the buyers are existing customers, which include individuals, family offices and some smaller hedge funds, Kinney noted. During the chaotic weekend, Diamond Standard Spot Market, a peer-to-peer marketplace with a centralized limit order book, remained open 24/7 and handled a jump in volumes, the company said.
Kinney, a software entrepreneur and developer of market heat maps, started Diamond Standard in 2018 with a goal to open up the $1.2 trillion diamond market to a wider group of investors.
The firm's patented technology is designed to create a more transparent system allowing investors to track supply chains and subsequent ownership of the world’s ultimate bling more easily and efficiently. The company also standardized the value of diamonds by creating a uniform system through blockchain technology.
Kinney said his company primarily banks with Signature Bank, though it has relationships with other banks. While the weekend’s events had been worrisome at the time, he says the company is still using Signature Bridge Bank – a new interim entity that will be temporarily run by the Federal Deposit Insurance Corporation (FDIC) – which has transferred all of the deposits and majority of the assets of former Signature Bank.
“We are using Signature Bridge Bank. That’s the safest bank in the world right right now,” Kinney said.
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