(Kitco News) – Inflation and jurisdictional risks are serving as powerful examples of the value of alternative assets like gold and Bitcoin, and the ability to borrow against these non-yielding assets could make them even more attractive in the coming years, according to Adam Leeds, CEO of digital-asset-backed lending platform Ledn – which is launching Tether Gold-backed loans in the coming weeks.
Leeds said that since COVID, not only seasoned investors but also average people have been enrolled in a crash course on the impacts of inflation on prices and on wealth preservation.
“Everyone, including those who are far from being sophisticated investors, is talking about inflation and how to combat it,” he said. The investing community is obviously a section of that. But it's interesting to see how important that is for everyday people as well.”
Leeds said the motivation behind Ledn was finding ways to create opportunities for investment that are not at the mercy of local government.
“I used to be investing in energy infrastructure for most of my career,” he said. “I spent about 12 years investing in primarily renewable power. And when you invest in renewable power, because the assets are physical, they're tied to a local geo. I'm Canadian, so I was investing a lot in Canada, and we tried to invest in similar projects in places like the Caribbean that had far better energy resources for solar and wind, but the property rights and the jurisdictional risk was just far greater than investing in places that had less resources.”
“The main thesis of what we tried to do with Ledn is standardize rates and terms of service regardless of where individual investors are in the world,” he said. “And, moving on to gold, and the reason we have tokenized gold, is really the next evolution of that.”
Leeds pointed out that because gold is physical, it has no choice but to be jurisdictional as well.
“What we really like about tokenized gold – and specifically XAUT [loans] that we're launching in partnership with Tether – is for the first time it takes gold and converts it into something that's the same for everyone globally,” he said. “The idea is how to create the best standards for it. Swiss vaults are the global standard for gold, so put physical gold in a Swiss vault, and then give everyone the same claim on that physical gold. And then, because it's digital and because it has a scale, it doesn't really matter if you're collateralizing one ounce or 100 tons of gold. It's the same scalability, same metrics.”
“Then you pair onto that the financing rates and financing terms,” he explained. “You can make that exactly the same because of the fact that it is the exact same token. Again, the physicality of it doesn't matter, because it's all in the same place.”
Leeds said the company is trying to port the advantages of Bitcoin over to gold, and his hope is that tokenized gold acts as a kind of “gateway drug” for people who are more hesitant to invest in the digital assets space because of Bitcoin’s relative volatility.
“Tokenized gold is an in-between, where you're saying, ‘Okay, I understand gold; I know that gold is more stable, but I don't really know how to buy physical gold, or I don't feel safe holding physical gold.’ Maybe I'm in a country like Colombia where I'm worried about property rights, or I'm worried about the security of physical gold. Now I can hold it like I'm holding Bitcoin, and frankly, no one has to know I have it, because it's just a digital ledger and a claim on gold in a really safe place,” he said. “It's really about that open access and standardization.”
Leeds said that both Bitcoin and gold solve the problem of geographical concentration: Most people’s wealth is way too concentrated in the place where they earn that wealth.
“If you're American, you probably have 99% of your assets in the U.S.,” he said. “If you're Canadian, it's probably the same, maybe a little bit of U.S. dollar exposure. That's the thing we're trying to really solve with Ledn is how we transform a person to a bit more of a global investor.”
Turning to Bitcoin’s price performance, Leeds echoed the recent views on gold’s resilience when he spoke about the digital currency.
“I've been surprised about how well Bitcoin has held up with the recent rate changes,” he said. “But at the same time, I think most investors, especially retail, are really looking for Bitcoin to overperform and, in the event that it's moving sideways, it really struggles to attract attention.”
In the absence of 20% monthly price swings, Leeds said investors have spent the last 12 months moving into AI, or SpaceX or other, more risk-on plays.
“Gold is the opposite,” he added. “The past 18 months was a little bit different in gold because gold had a pretty crazy run-up, but generally speaking, gold remains the safe haven, the place where you're going to store wealth, but not maybe hit the 25% annualized returns that you can do with Bitcoin.”
Looking ahead, Leeds said that he expects both oil and gold to begin performing better once higher inflation becomes firmly entrenched and the Federal Reserve shifts from a policy centered on rate hikes to one focused on quantitative easing and currency devaluation.
“All of the information is showing that the US economy should crack, that there's going to be more pain, but the information that keeps coming out isn't showing that,” he said. “I think everyone's watching the administrative policies, thinking, ‘How can this show go on?’ But it just keeps chugging along, to everyone's surprise.”
“I continue to believe that eventually things will have to come back in order, and there will be higher inflation,” Leeds said. “There's going to be a need for more quantitative easing, so I'm pretty bullish on the Bitcoin price, six months from now when that does eventually reflect in the numbers.”
As far as investor interest in these two alternative assets, Leeds said he sees a future where tokenized gold and Bitcoin are used in tandem in order to benefit from their non-correlation.
“We can see a situation where you're cross-collateralizing loans,” he said. “What we may have in the future is the ability to say, ‘Okay, I'm going to take a million-dollar loan, and I'm going to collateralize that with a million dollars of Bitcoin and a million dollars of digital gold.’ That way you're providing extra protection from liquidation, because again, history is showing that they're not generally moving in the same direction, so when gold's having a bad day, Bitcoin may not, and vice versa. And there's obviously less volatility in gold, so that's really important.”
The other interesting development Ledn is seeing is increasing interest in gold and Bitcoin on the part of small businesses.
“Small businesses are really increasingly thinking about holding Bitcoin treasury,” he said. “Perhaps in the future, we can work with them to hold digital gold treasury as well, because everybody is scared of holding dollars right now. There's such a massive education effort on what inflation is, how you're effectively losing 5%, maybe 6% a year on real inflation. Forget the print; what is it actually, when you go to see prices in the real world? You don't want to hold a million dollars. You effectively want to short the dollar by borrowing it, and you want to hold something hard like Bitcoin or gold.”
“This is a real issue,” Leeds said. “Wealth preservation, and how to just not go backwards, is a very privileged problem to have, but a real one for those that have come into a significant amount of wealth.”
Leeds said Ledn doesn’t favor investment schemes that focus on staking and gaining yield from Bitcoin; similarly, he likes the idea of using non-yielding gold as collateral for cash.
“If used responsibly, it is an asset that historically has increased in value significantly, so therefore just like real estate, it's a good asset to use as collateral and borrow a currency that's inflating like U.S. dollars against,” he said. “We want to create a concept where investors are putting up their gold and using it to borrow, spending their borrowing on expenses, maybe other investments that are generating higher yields. But borrowing responsibly at respectable [loan-to-value ratios] so that they can continue to grow their wealth and that asset without selling it.”
Leeds said Ledn’s tokenized gold loans are scheduled to be launched before the end of the year. “Look for an announcement in November or December.”
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