In recent months, Bitcoin and other popular cryptocurrencies have had volatile prices – as of 19th May 2018, Bitcoin has fallen from its peak of $20,078 in December 2017 to $8,186. This is primarily due to the fact that Bitcoin is not asset-backed – meaning its value is dictated purely by the supply and demand of the coin in the market and is not reflected by the value of a tangible asset. Pure exposure to market forces means that the currency is volatile, and there is high risk involved with investing in currently popular cryptocurrencies like Bitcoin.
A popular trading strategy is diversification. Diversification is the concept of investing in multiple different areas, industries, or stocks to minimise the risk posed by any one stock or market. Just as you would diversify a stock portfolio to minimise the impact of a single stock that has fallen in price, and spread the risk of losing your investment over various industries, the same principle applies to a cryptocurrency portfolio. To minimise the impact of volatile cryptocurrencies, cryptocurrency investors are now looking to more stable alternatives.
Introducing the CARAT token
Diamonds have traditionally been a stable commodity – the price of diamonds do not experience the large fluctuations that stocks, or popular cryptocurrencies experience. The CARAT token is a digital currency that underpins Carats.io’s blockchain solution – it allows traders to transfer value in the diamonds, finance and crypto market without the barriers associated with the current market, allowing them to trade in the diamond market with a reliable, stable, and asset-backed digital currency without having to overcome the barriers typically associated with the market. Just as the U.S dollar once had intrinsic value pegged to the supply of gold, CARAT tokens are pegged to real, GIA (Gemological Institute of America) certified diamonds, which grant them intrinsic value, and the stability of the diamond market.
The CARAT token is also very liquid, and the value of the token can be exchanged relatively quickly. Carats.io purchases GIA certified diamonds from authorized diamond dealers. Carats.io calculates the value of the diamond reserves and cash equivalents on a daily basis, then uses that value to issue tokens in accordance with that value. These tokens can then be used to redeem the value of the diamonds, or diamonds themselves.