Investor attention turns to diamonds ahead of digital exchange launch
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(Kitco News) - Investors are piling into alternative assets to preserve their wealth and purchasing power as inflation concerns continue to dominate the marketplace, according to some analysts and economists.
While investors jumped into alternative assets like bitcoin and gold, some analysts think that diamonds could attract some attention as a new company creates a standardized value in the diamond market.
Announced in late 2020, Diamond Standard, created by fintech entrepreneur Cormac Kinney, is moving forward with its Diamond Standard Coin. The coin is a collection of physical diamonds, traded digitally as a token on the INX trading platform. The company will launch its initial public commodity offering on Feb. 16.
The diamond coin contains 4.5 carats of diamonds and a computer chip that utilizes blockchain technology, enabling authenticity, remote audit, and internet transactions.
Diamond Standard noted that this is the first time a diamond commodity will be digitally traded on a U.S.-based trading platform.
Following next week's launch, the company said that it plans to launch an ETF on the NYSE under the ticker DIAM, and list diamond futures on the CME Globex through the MGEX.
The company noted that the diamond market is valued at more than $1.2 trillion, more than silver and platinum markets combined. However, investment demand for diamonds has been nearly nonexistent.
Marc Chandler, managing director at Bannockburn Global Forex, said that he expects Diamond Standard to open up the diamond market for investors as it solves the biggest problem: standardizing value.
"Until now, the lack of standardization and other challenges have kept investment at around 1% of natural diamonds," he said in a recent note.
"They have standardized natural diamonds, stepping up as the world's first market maker, forcing the industry to discover the value of millions of diamond varieties regularly," he added.
Chandler added that a diamond commodity is more attractive as an alternative compared to bitcoin because of the market's long history as a store of value.
"[Bitcoin] is a speculative vehicle, and the fact that it draws some institutional investors or even some companies does not change this fact," he said. "There is no intrinsic value."
Looking at the diamond coin, Chandler added, "It is not crypto this or cyber that. It is a real tangible asset, actual physical diamonds, of which one can take delivery."
Paul Zimnisky, an independent global diamond industry analyst, said in an email to Kitco News, that Diamond Standard's digital marketplace is so far the best attempt to make diamonds a mainstream investable asset.
However, he added that the biggest hurdle would be for the company to generate enough liquidity to create a sustainable marketplace.
"Getting large institutional investors on board is a key starting point. Liquidity begets more liquidity and generates more mainstream interest," he said. "If the product is successful in generating mainstream interest, especially by large institutional investors, it could certainly impact the diamond market."