Tokenizing Gold In A Nation Obsessed With Gold As An Asset
2020 had recorded 1.7 million Indian crypto users who trade and invest in cryptocurrencies as well as digital assets. Gold, as a digital asset, has been well received by investors.
India, the land of the yellow metal, has always garnered high favour for gold among its citizens. Its importance for Indians can be traced back to cultural, historical, and religious factors. In religious ceremonies, in weddings as gifts, in religious places as donations, gold is seen as a stable and valued entity throughout India. Today, physical gold might still be in fashion, but gold has become increasingly relevant in the digital space due to its high liquidity and long-term impact.
Gold and other precious metals have been looked upon as reliable investments since the time of kingdoms and emperors. People have taken loans against these precious metals and have used them as protection against low economic periods through decades. It could be due to a mere status symbol or could be deeper than that, for starters:
Safe hedge against Inflation According to experts, over the last 30 years, gold has delivered inflation-beating returns. Gold has generated annualized returns of 10% in rupee terms, while the CPI index has compounded 6.3%, over the years.
Gold as a physical asset has enjoyed as much credibility as currency. It is an investment as well as a functional commodity. Due to its long-term reputation as a safe investment, people normally prefer to buy and invest in gold instead of stocks, mutual funds, even fixed deposits, etc.
Gold is an extremely liquid asset. Liquidity refers to an asset that can be easily converted into cash in a short period of time. According to Perth Mint, global manufacturers and distributors of precious coins, physical gold is the most liquid asset worldwide, with a daily turnover of $145 billion in 2019.
Simple to own
Gold is easy to own and normally requires no documentation, fees, and tedious processes to buy, trade, or invest in.
India’s ‘Passion’ for gold India‘s relationship with gold has been sturdy with gold accumulation reaching 25K tonnes in 2017 and three years later, India was still one of the top five biggest importers of gold. But most of this gold is kept safe as an emergency commodity due to its high liquidity and utility functions. Indian Government had launched a Gold Monetisation Scheme in 2015 to mobilise the idle gold lying in households, institutions, corporates, temple trusts, etc, and put it into productive use whilst decreasing gold imports. Yet, India’s March 2021 gold imports had surged to a record high of 160 tonnes.
From physical to digital; Still a valuable asset
Indians have gained considerable investor appetite during the pandemic, with Central Depository Services (India) Ltd crossing 2.5 crore Demat accounts in August 2020. Indians are now exploring different risk-prone markets, including the rapidly accelerating crypto markets. 2020 had recorded 1.7 million Indian crypto users who trade and invest in cryptocurrencies as well as digital assets. Gold, as a digital asset, has been well received by investors.
In traditional finance, gold as a digital asset is in the form of gold exchange-traded funds.
These are exchanges that put money only in gold bullion and gold-producing companies. Gold ETFs provide proportionate ownership of gold without having it on the person. In addition, they also provide similar returns, are easier to resell, are more tax-efficient, and do not allow price disparities to a large extent. But they are redeemable only in cash, are subject to the market conditions, and entail Demat account maintenance costs and charges.
The DeFi space, on the other hand, has paved the way for asset tokenizations wherein gold has found apt usage. The fame of Non-fungible Tokens has made asset tokenization a relevant name in decentralized finance where people are looking into tokenizing real-world assets, such as gold, silver, and other precious metals to gain returns. There are a few crypto industry players that are using this improvement in the DeFi space to bridge the gap between traditional and decentralized financial systems by incorporating physical payment options, like debit cards and digital payment options like UPI, against tokenized gold, silver, and other precious metals. They aim to achieve freedom of choice, ease of use, and financial stability among their users.
Digitising gold and renewing investment habits in India
India has a golden opportunity to integrate traditional and digital assets like gold, silver, and other precious metals into wealth creation and wealth augmentation tools. Currently, Indians have plenty of options in terms of physical and digital assets. If incorporated judiciously, the growing investor appetite, the rapidly moving cryptocurrency sector, and the long-term physical and digital assets can come together to make a highly diversified and efficient portfolio that accelerates wealth creation and encourages financial freedom among investors.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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