It might sound like excessive risk forgoing, but if you wanted to take a belt-and-braces approach to protecting some of your savings from inflation and the risk of a financial markets crash, you might be looking for an asset that has historical acceptance of combines precious metals with blockchain ownership verification and maybe wrap it in a stablecoin wrapped by a company committed to ethical investing just to be ridiculously safe.
MRHB.Network plans to offer Gold & Silver Standard (GSS) bullion tokens to investors around the world with a razor-thin 0.03% transaction fee. Each token is worth 1 gram of precious metal and investors can buy in increments of 1/18. There is no floor for the first week, so keen but shy gold investors can get wet for as little as $3, based on the metal’s recent price of around $1,660 an ounce ($53 a gram). After that, there will be a $10 minimum purchase, still less than a quarter gram, as opposed to the 10 ounces, which is the smallest common size for bars and physical coins.
The tokens represent physical metals held in a vault owned by GSS, a unit of Ainslee Bullion Group, in Melbourne, Australia, and are stablecoins by definition as they are linked to specific amounts of gold and silver. They differ from most major stablecoins, which are typically pegged to the US dollar. The tiny initial investment and fee makes a small allocation to gold accessible to retail investors. Precious metals exchange-traded funds listed in the US, a generally low-cost investment method, have management fees of around 15 to 40 basis points.
GSS already sells Gold Standard (AUS) and Silver Standard (AGS) tokens in Australia. MHRB will list them on its TijarX, a decentralized exchange for physical commodities that will soon be launched and integrated with the company’s Sahal Wallet.
Based in Dubai, MHRB offers investments that comply with Islamic Sharia law, which includes a well-known prohibition on charging interest. Other elements may also come into play for decentralized finance (DeFi), says CEO Naquib Mohammed, who founded MHRB because he couldn’t find suitable investments for himself.
“I started the company because I couldn’t find any suitable – halal – investments in the DeFi ecosystem for me,” says Mohammed forbes. “I started having conversations with like-minded people and realized there was a gap in the space for solutions and protocols that were consistent with ethical and faith-based principles.” Sharia rules generally protect investors from unscrupulous financial practices that are undetectable or undeliverable are promises. The Sahal wallet filters out tokens and logs that contain interest-based returns or links to gambling, pornography, and other activities deemed unethical.
According to MRHB, the Islamic market offers 1.8 billion potential investors with $3 trillion in assets, and its restrictions on what is permissible – or halal – should appeal to socially conscious and risk-averse asset owners, regardless of their religion.
But just because you can buy a low-cost, blockchain-based gold asset in a stablecoin wrapper that passes an ethics check, does that mean you should?
The traditional appeal of precious metals investing is as a hedge against inflation, i.e. protecting against the devaluation of government-issued — or fiat, as crypto investors like to call it — currencies. In this regard, metals do not have a standout year. While U.S. consumer prices are up 6.2% through August, gold is down nearly 5% to $1,716 an ounce and the metal is down $56 since, bringing its 2022 decline to 8.1% . Silver is down 12.5% for the year. Cryptocurrencies that aren’t stablecoins are having an even worse time, with Bitcoin down 59% over the first nine months of 2022.
If precious metals do not fare well during periods of high inflation, another scenario with hope of outperforming would be a hedge against societal upheaval. There is both good and bad news here. Unlike precious metals investments based on futures contracts or other derivatives, the tokens are 100% backed by bars linked to specific coins on the Ethereum blockchain. So if you can trust 50-year-old Ainslee and the Australian government, there’s a good chance the physical bullion will be there for you when times get tough.
There’s even a delivery option, but one that probably wouldn’t be of much use during an apocalypse, says Khalid Howladar, chairman of MRHB’s Advisory Board. In the Mad Max world, gold has to go through customs, a complex affair in peaceful times. Physical metals are always a tricky investment due to their weight, safety concerns, and the potential need to verify purity.
MHRB executives are aware of the irony of launching bullion crypto vehicles at this point, but they are thinking long-term.
“The reason gold is underperforming is because, as you probably know, everyone has been borrowing money at super-low interest rates for the last 10 years,” says Howladar, former head of Islamic finance at Moody’s Investors Service, “and stocks, Stocks , everything is going through the roof. And now that we’re in a deleveraging situation, whoever you tend to sell is the one who’s least affected.”
Another factor that could weigh on gold is rising interest rates, which increases the attractiveness of short-term interest rates while making funded metals more expensive to own.
Meanwhile, the dollar is rising against other traditional — or fiat, as crypto fans like to call it — currencies, reflecting the U.S.’s position as the strongest major industrial economy. Although the greenback is up around 17% against the euro and 26% against it this year. The yen – has generally strengthened since 2011, the “recent sharp rise reflecting its relative strength as a safe haven versus other fiat currencies,” Howladar notes.
The dollar benefited from “a stronger U.S. economy, pumped by inflationary monetary and fiscal stimulus — particularly during the pandemic — followed by aggressive rate hikes that make holding the dollar more appealing. However, with so much money printing and systemic leverage, there is a reckoning to come.”
It should be noted that gold has proven to be a more effective protection against the deterioration of other currencies. It is up 6.62% against the euro and 14.97% against the yen this year, according to data compiled by the World Gold Council, but broad baskets of commodities have posted gains in the 30% to 40% range. International investors who have opted for precious metals would have been better off investing their money in interest-bearing dollar savings accounts.
Howladar says he believes the greenback will get its balance when the recently industrialized BRIC countries – Brazil, Russia, India and China – start issuing commodity-backed central bank stablecoins, most likely in gold.
“These would provide an alternative and a credible store of value.” Right now, “all other fiat Ponzi schemes expire in dollars because the dollar is the strongest fiat Ponzi scheme,” Howladar said.
As hard-asset stablecoins come to supplant the greenback, gold and bitcoin become attractive alternatives in a low-risk world halted by a zombie apocalypse.