A sustainable way for everyone to invest and hedge against inflation

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Several US-listed gold mining companies lost one-fifth of their market value in 2021 as a strengthening dollar made them less attractive and a surge in bond yields hurting demand for the precious metal. Since market risks like the COVID-19 delta variant scare investors, traders and companies, many are focusing on diversifying with hard assets as a safe depository and hedge against inflation.

Step into diamonds, a forgotten natural resource with a market value of $ 1.2 trillion – more than silver and platinum combined. Since last August, diamonds are up 35 percent, which is close to the S&P 500 over the same period, while gold is down 11 percent. The challenge has always been with diamonds. Can investors profitably tap the hidden potential of this gemstone?

That day could have come. Diamond Standard, a New York-based startup, has just launched the first ever regulatory-approved diamond commodity. Its founder, Cormac Kinney, set out to solve the problems that prevented diamonds from being a productive good – the lack of pricing, transparency and liquidity, and high transaction costs. There used to be too much friction for investors to invest in diamonds, but it seems like that is all about to change.

With a background in commerce and computer science and innovation cited in nearly 4,000 US patents, Kinney is the founder of four software startups that were acquired by public companies. As described in a 1999 Forbes article titled “Hot Stuff,” Kinney invented heatmaps, then developed over 100 institutional trading systems, and was one of the first to teach computers to read messages for systematic trading. He used algorithmic sentiment analysis to manage funds for Tudor and Millennium. For the past seven years, at the suggestion of his wife, who is a jewelry designer, Kinney has focused his quantitative skills on diamonds.

“Global investors own at least 15 percent of every precious metal, which indicates a need to catch up in diamonds if they are liquid and transparently priced by the market. We unlocked this potential by developing a regulator-approved, fungible, market-traded commodity that can be transacted with an integrated blockchain token, ”says Kinney.

Over the past 40 years there have been several attempts to bring a diamond investment product to market, usually based on an “index” of wholesale values, and a fund based solely on D Flawless 1-carat diamonds. The fund increased that particular diamond 15x while leaving all other diamonds behind. None of the index products received regulatory approval because the index values ​​were not marketable and investors could not buy and sell at these values.

Diamond Standard is making diamonds available to investors and fund managers for the first time, which are valued daily at market prices. These commodities have already been approved for settlement of futures listed on the CME Globex and options listed on the MIAX Options Exchange, and an ETF is pending SEC approval for listing on the NYSE .

Crack the code

So how does it work? Unlike precious metals, diamonds have a variety with several factors such as carat weight, color, and clarity. And the value of any combination of factors is difficult to predict and often subjective. Diamond Standard created the world’s first regulatory-approved fungible diamond commodity on a coin by ensuring that every coin has the same diamond value.

The diamonds are GIA rated and the certificates and details of the diamond purchase process are transparent and permanently accessible to the coin owner and potential buyers. These GIA-rated diamonds are then re-inspected by another laboratory, the International Gemological Institute (IGI), which assembles the diamonds into the coins.

Using automated market-making and statistical samples, your diamond purchase forces the price determination of around 94 percent of the earthly yield curve of natural diamonds. These diamonds are optimized into sets and combined to form a physical spot material that is traded on the market.

In the first quarter of 2021, Diamond Standard Coin was launched for $ 5,000 per coin. Investors can receive the coin, but if the goods are safely in the safe of a custodian bank, they can be traded immediately and worldwide with an integrated blockchain token.

“Unlike Bitcoin, our Diamond Standard Tokens are backed by a truly rare and natural resource. It cannot be hacked and is not susceptible to the whims of ‘tech bro’ speculation – it is the real market that drives diamond value. “Says Kinney.

A new type of blockchain asset

The digital token with which the Diamond Standard Coin is traded differently than before. It is stored on a wireless computer chip that is sealed in the goods, under the diamonds. Tokenized real assets such as gold, art, and real estate require trust that the asset is actually present or is safe and accessible.

For example, owners actually trade with the key to the coin token via an exchange. It is essentially a safe receipt that authorizes the new owner to get the goods out of the safe. This creates a unique new asset. A physical good that is also a blockchain-based digital asset.

The Diamond Standard Coin inherits the best properties of gold and bitcoin. An inherently scarce market-traded commodity and a trustworthy digital asset that can be transacted instantly and around the world. Many will be keen to keep an eye on this space for future uses of an asset that shuttles seamlessly between the familiar physical world and the burgeoning digital economy.

A commitment to sustainability

Diamond Standard only buys stones from ethical sources and does not use lab-grown diamonds, the price of which has fallen rapidly. The diamonds must meet a government-controlled process for procurement, quality, and value, and the company is enforcing the Kimberly Process to ban conflict diamonds.

To source the diamonds, the Diamond Standard Exchange was established in collaboration with 100 of the world’s largest diamond dealers. However, since no significant diamond mine has been discovered in over 20 years, the company estimates that 75 percent of all diamonds are already in the hands of consumers. Over time, Diamond Standard believes that its greatest suppliers will be individuals who already own diamonds. So they founded Diamond Standard Recycling to buy back diamonds at attractive prices.

“Because we are regulated, our purchasing is transparent and we force our suppliers to be ESG compliant and to adhere to fair working practices and market rules. Not only are we creating a new raw material with price transparency, we are also cleaning up and modernizing the diamond supply chain, ”said Kinney.

An investor’s best friend?

Kinney believes diamond prices will catch up to 400 percent of investor-driven returns from gold and silver in the 15 years since gold and silver ETFs were introduced. Depending on the imbalance between supply and demand, he expects diamond prices to rise even more significantly as investor allocation approaches 15 percent of supply.

Diamond Standard enforces transparency and efficiency in a hesitant market and this is likely to wash out a number of middlemen. Diamonds are a sought-after asset around the world that until then was simply inaccessible to investors. As the pandemic continues and investors need the wealth and hedging benefits of hard assets, diamonds could shine a little brighter.

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