First of all, I would like to congratulate you on having the foresight and technological ability to secure an investment in Digix DAO during the hours-long crowd sale. Thanks to the successful ICO procedures facilitated by the Digix Global team, there are high levels of interest in DGD tokens leading up to the platform's launch. On April 28th, the actions of DGD token holders will begin to reflect in the overall value of the DAO. With that in mind, I ask you to consider the long-term value of the DAO when assessing profit-taking opportunities in the coming months.
In the infant days of this corporate governance experiment, it will be tempting to sell large portions of your investment at 10x, 20x, and perhaps even 30x valuations, but remember these transactions will be forever known by other members of the DAO community. For the first time in the history of venture capitalism, ownership data is public knowledge and available for audit on a blockchain.
Imagine organizing future ventures such as the p2p lending platforms, decentralized exchanges, or virtual nations mentioned in the most recent Progress Update. Founders could potentially devise DGD reputation systems which consider the token age of DGD in a wallet, as well as the quantity. Such a system may become necessary, as a top 50 ICO investor could dump his/her DGD tokens at a substantial gain yet hold the Proposal Badges to influence the community in the future. In other words, there may one day be additional value in holding ICO tokens over DGD tokens purchased in the secondary market.
As DigixDAO builds the industry standard in digital gold platforms, the DAO community must continuously focus on productive efforts to enhance the architecture of the global DGX market and maximize daily DGX transaction volumes, all to the benefit of DGD holders. As DGX gains widespread popularity and traction, DGD tokens could one day become the most attractive asset to own in the global financial system.
On April 28th, remember to keep thinking long term.
I would like to take a second today to discuss a developing trend in metals future markets that I find very disturbing. I will use Gold Futures (GLD) as an example, but this situation presents itself in silver, platinum and palladium markets to differing degrees of severity.
A "future contract" is defined as a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. In today's market, there is a growing disparity between the amount of gold being traded via these future contracts and the physical store of gold backing the transactions.
Of the 415,220 gold futures contracts open on COMEX as of year end, 279,966 are set to expire in February (almost 70% of the total). This represents transactions for 27,996,600 troy ounces of gold settling in one month alone. Obviously this number is dynamic, meaning that as the February exercise date draws near, the vast majority of these contracts will be closed. This is due to traders utilizing gold futures as a hedge against various market risks with no intention of ever receiving physical gold.
Due to the use of gold futures as derivatives by traders, a historic average of around 1% of all open contracts are physically delivered. To meet these deliveries, COMEX holds both "registered" and "eligible" physical gold stock. Eligible gold is any physical gold held at one of the COMEX-approved warehouses (HSCB Bank, Brinks Inc., Scotia Mocatta Depository). This gold is eligible for the settlement of gold future contracts, however it isn't set aside for that purpose. In other words, stores of 'eligible' gold may be intended for a purpose completely unrelated to settlement of future contracts open on the exchange. It is highly unlikely that 100% of eligible gold would be available for settlement in a crisis. Registered gold at COMEX is eligible gold that has been specifically delivered onto the exchange for settlement. See the below graph.
As you can see, levels of "registered" gold in COMEX vaults have been diving ever since Germany made its first gold repatriation request in 2013. As of 12/31/15 there are only 275,915 troy ounces of registered gold on hand at COMEX. Backed by 6,137,571 ounces of "eligible" gold at member banks, this totals roughly 6.5 million troy ounces of gold available for delivery in the best case scenario. However since eligible gold can still be utilized as collateral for other debt, it's highly unlikely it will be available for settlement in a crisis.
Under current conditions, gold futures are utilized by traders as a hedge against market risk. They do not anticipate delivery on these contracts and close them before the exercise date.
There is currently 1 ounce of "registered" gold on hand for every 150 ounces traded via open future contracts. Even if only 1% of the currently open February contracts deliver, the delivery would be equal to the entire registered reserve at COMEX. I am not saying that delivery on gold futures will default in February, but the chance of deliveries on gold future contracts exceeding the amount of "registered" gold reserves in any one month is increasing.
If conditions ever warrant a change of sentiment with regards to the delivery of physical metal, this market is sure to see a "run on the bank" scenario as parties default on delivery under their contracts.
If you are an individual investor interested in owning gold, make sure to acquire physical coin and bullion, not a piece of paper.
Tyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry.
ALL CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. TFL HOLDINGS ASSUMES ALL INFORMATION TO BE TRUTHFUL AND RELIABLE; HOWEVER, THE CONTENT ON THIS SITE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, COMMODITIES, OPTIONS, BONDS, FUTURES, OR BULLION. ACTIONS YOU UNDERTAKE AS A CONSEQUENCE OF ANY ANALYSIS, OPINION OR ADVERTISEMENT ON THIS SITE ARE YOUR SOLE RESPONSIBILITY.