Could diamond ‘coins’ be traded as easily as gold?
- Published: Oct 15, 2020, 9 AM
What’s a coin? It’s usually a flat piece of metal — typically round — issued by a governmental agency that has authority to issue money.
Alternately, the term “coin” is used more generally as either “metal money” or “something resembling a coin especially in shape,” according to Merriam-Webster’s Dictionary.
In more contemporary definitions, it can also refer to a unit of cryptocurrency, with Merriam-Webster citing Joseph “Jay” Clayton III, chairman of the U.S. Securities and Exchange Commission, who advised, “I also caution market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions.”
The concept of what constitutes a “coin” is expansive, and within this is a new firm that aims to open the diamond market to investors through standardized coins that contain investment-grade diamonds. Diamond Standard is looking to create the equivalent of a gold bar, and set a benchmark for valuing stones that, like rare coins, can have a challenging barrier to entry, with complex quality grading. Like with many coins, small differences in quality among similar-looking diamonds can mean large differences in price.
In its promotional materials Diamond Standard writes, “Diamonds, a $1.2 trillion natural resource, are finally available to investors as a liquid commodity. Every Diamond Standard Coin contains the same total scarcity of natural diamonds. So, they’re fungible. You can trade them quickly and easily, just like gold bars.”
Customers can buy them and have them delivered, or they can be held by approved custodians.
The coin contains diamonds that are graded by Gemological Institute of America.
A recent article by Amrith Ramkumar in the Wall Street Journal explained the firm’s process: “Diamond Standard plans to sell 5,000 coins each worth $5,000. The company will then use an automated process to bid on millions of diamonds and adjust its bids until it can buy a sample of about 50,000 to 60,000. That bidding process will include many big diamond vendors, creating the first global diamond exchange.”
Vendors must ensure that no conflict diamonds, used to finance wars, are involved, and geographical information about the diamonds purchased by the firm is put in a public database. A computer program then selects a comparable distribution of 11 to 12 diamonds that go into each coin. “Each coin also carries a computer chip that makes it a digital asset using blockchain — the technology that supports the digital currency bitcoin — letting holders buy and sell on digital exchanges,” Ramkumar explains, and the top of the plastic coins are transparent to display the diamonds.
The firm explains in its press materials, “Each Diamond Standard Coin contains a statistically calibrated set of natural diamonds. They add up to the same aggregate geological scarcity, so the Coins all trade at the same market price. The commodity is brilliant. Inside is a wireless computer chip, that lets you audit, authenticate and trade your coin.”
As Bitcoin continues to enjoy wide popularity with investors, Diamond Standard hopes that its “digital diamond” coin will enjoy a similar embrace from the market. The firm’s founder and CEO Cormac Kinney made clear that the preferred terminology for these is “coins,” correcting Fox Business Network host Liz Claman in a recent interview, who called the round plastic holder with diamonds a token. He explained that with these coins, “we’ve made an efficient commodity, just like gold.”
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