Journalist and crypto investor Maxim Rubchenko told how cryptocurrencies issued on the basis of real assets are really backed.
Venezuela's plans to launch two state-owned cryptocurrencies, the oil-backed El Petro and another, secured by gold, have sparked a flurry of comments from macroeconomists and political scientists around the world. Some predict that this measure will hammer the final nail in the Venezuelan economy's coffin and lead to the fall of the ruling regime. Others sincerely wish the Venezuelan president success in the cryptocurrency field, noting that this will lead to a radical reduction of U.S. influence in the world because so-called "rogue states" will have the opportunity to circumvent U.S. economic sanctions.
To crypto investors, however, these disputes are of little interest. They are concerned only with whether it is worth buying the new tokens. In other words, what are the potential risks and benefits of investing in Venezuelan cryptocurrencies backed by natural resources?
The answer to this question can be provided by the experience of other similar coins. After all, attempts to issue cryptocurrencies backed by real assets have been undertaken repeatedly. ICO tokens secured by real estate, precious metals (Ethereum LINK, SilverCoin, SilverBACKcoin), diamonds (Carat, SparkleCOIN, Kela, D1), oil (OilCoin, Bilur), water (Baikalika, Clean Water Coin, Aqua Rights), etc. have all been announced and even sold.
As practice shows, most projects of this sort turn out to be scams, that is, the entrepreneurs raise money for non-existent assets. The most striking and well-known example is the case of Maxim Zaslavsky, who offered investors two tokens, the REcoin, allegedly secured by real estate, and the DRC (Diamond Reserve Club), "backed by diamonds." In September of last year, the Securities and Exchange Commission (SEC) put forward charges of fraud against Zaslavsky and his two companies, since the businessman "did not demonstrate any business activity in these areas" and did not even engage in hiring personnel. The regulator demanded that they return all funds raised during the ICO and pay a fine. After this incident, the vast majority of projects related to the issuance of backed cryptocurrencies refrained from conducting any ICOs.
On this background, El Petro looks quite safe, as the Ayacucho oil field with reserves of 5 billion barrels of oil serves as asset backing for the petro. The only problem is that this deposit is not yet being developed, and it is not known when its development will begin. On the other hand, Venezuela has oil in bulk even without Ayacucho as according to OPEC, the country ranks first in the world in reserves of "black gold," which exceed 300 billion barrels. Venezuela, however, is not among the top ten world leaders in oil production and occupies only 11th place, pumping out about 2.2 million barrels per day from its nethers. Nevertheless, this is quite enough to consider El Petro as a backed cryptocurrency.
As for the "gold" cryptocurrency, its parameters have not yet been announced. But they will obviously be modest, as Venezuela occupies only 30th place in the world both in gold production (23 tons per year) and gold reserves of the Central Bank (119 tons). The country, however, has much to offer both in terms of backing and its second cryptocurrency.
Therefore, the main risks of Venezuelan state tokens are connected not so much with the economy as with politics. The positions of President Nicholas Maduro in the country are shaky, and he can be removed from power at any moment. Given that the Venezuelan parliament categorically objected to the introduction of El Petro, in the event of the collapse of the Maduro regime, both national cryptocurrencies will completely depreciate in value.
But investors know that where there are risks, there is profit to be made. Will this principle work in the case of Venezuelan tokens? Let us not forget that today crypto exchanges trade coins backed by gold (Goldmint, DigixDAO), cannabis (Potcoin, CANN, Cannation) and, oddly enough, zirconia (ZRcoin). Most of them still did not bring investors extraordinary (in comparison with other coins) profits. The record yield holder among all backed cryptocurrencies is DigixDAO, whose price was initially tied to the cost of 1 gram of gold. The token started trading two years ago at $30, and today is quoted at $500 or more. The growth of 18 times is not bad at all for a result. If you just forget the fact that Bitcoin, Ether, Ripple, and many other coins have risen by hundreds and thousands of times over the same two years.
Another "gold" token, the Goldmint, which is a newcomer to the market, began trading only on February 9. On the first day, its rates approached $7. But, as is usually the case with new coins, in a couple of days its price fell. For the last two weeks, Goldmint traded at a level of three dollars plus or minus 10 cents.
Among the cannabis tokens, CannabisCoin (CANN) brought the greatest profit to investors, which grew 200 times over three and a half years of trading. Potcoin in four years has risen 33 times in price. Cannation (CNNC) has risen 10 times in almost ten months (from 0.007 dollars in early trading on May 13, 2017, to 0.07 dollars today). As for ZRcoin, its dynamics are quite miserable as the coin began trading in June of last year at $75.5, and today it costs less than $2.
The picture as a whole is grim. But there is an important point of note. January saw the main growth of backed token exchange rates, at about the time when the market of cryptocurrency as a whole fell dramatically. For instance, DigixDAO ended 2017 at around 152 dollars, and by early February, it was worth 409 dollars. CannabisCoin in January cost almost three times more than in December, Cannation cost twice as much, and Potcoin maintained its position. This means that crypto investors consider backed tokens as a protective asset in times of market decline and that people will never stop smoking pot.
Therefore, El Petro can become a good tool for intraday trading during periods of high volatility of oil prices, as well as for medium-term investments during periods of drawdown on the crypto market. Long-term investment in such a coin is hardly reasonable because of its high dependence on the shaky political situation in Venezuela.
As for the future "gold" Venezuelan cryptocurrency, its prospects are rather moot, given that the market already has DigixDAO and Goldmint. In addition, the summer promises to witness the start of trading for Dubai's "gold" token, the OneGram, and the release of the Swiss Tiberius raw material fund's tcoin, secured by precious metals from the stock fund. All these cryptocurrencies allow for investing in gold without the political risks associated with the Maduro regime.