New Trust to Offer Investors More Access to Diamond Market
The developer of the world's first standard diamond-investment product is launching a $50 million investment trust to make trading the precious stones more accessible to professional investors, the company said.
Diamond Standard Co., a startup working to enable investors to hold diamonds in their portfolios, plans to create the Diamond Standard Trust in January.
The investment firm Horizon Kinetics LLC is co-sponsoring the Diamond Standard Trust and will offer it to clients and other professional investors. Horizon has also invested in Diamond Standard.
After several months, Diamond Standard hopes the trust will be available to trade on OTC Markets Group Inc., which operates the main marketplace for swapping smaller securities over the counter.
The investment trust will be backed by Diamond Standard's standardized coins and bars. Each one of them holds inside a carefully selected sample of diamonds meant to represent the broader diamond market so that each bar and coin is interchangeable.
Through its products, Diamond Standard has created what it says is the equivalent of a standard gold bar for the notoriously complicated diamond market.
Chief executive Cormac Kinney compared the new trust to the roughly $40 billion Grayscale Bitcoin Trust, a popular way for traders to bet on the price of bitcoin without actually holding the digital currency.
"This is the inflection point," he said. "It opens it up to a dramatically larger client base."
New York-based Diamond Standard initially sold $25 million of its coins in an offering that ended in May.
The initial offering let the company buy a large sample of diamonds and create a comparable distribution of several stones upon which all future products will be based.
The company also launched an index of characteristics such as weight, color and clarity that is represented in each coin and bar.
The bars are similar to the coins but are larger. Diamond Standard's process is regulated by the Bermuda Monetary Authority.
The firm then announced additional $50 million sales of coins in July and September. Each coin also carries a computer chip that makes it a digital asset using blockchain -- the technology that supports bitcoin -- letting holders buy and sell on digital exchanges.
By the end of December, Diamond Standard will no longer sell its coins directly to investors through its website. They will only be available through the new trust.
Diamond prices have rebounded from a coronavirus-driven slump, helping lift prices for Diamond Standard's coins as well. The coins were priced at $5,000 in the initial offering but have risen more than 15%.
Some investors have favored commodities such as gold in recent months because they believe their prices will increase alongside inflation. Many use funds, such as the SPDR Gold Shares, to wager on the precious metal without actually holding it or directly trading futures contracts.
While investor demand for Diamond Standard coins has been strong, Mr. Kinney said trading has been sporadic, in part because many buyers simply want to buy and hold the coins rather than frequently swap them as a speculative moneymaking tool.
One of the goals of launching the trust is eventually to let more investors trade the product through brokerages and investment advisers that allow clients to buy and sell over-the-counter securities, he said.
The firm's investment products also are intended to support diamond prices by creating a new source of demand.
Diamond Standard is working to launch by next summer diamond futures contracts that would be underpinned by its coins.
After those contracts create nationally available pricing, the firm hopes to upgrade the trust to an exchange-traded fund that would be more accessible to any investor through the New York Stock Exchange, Mr. Kinney said.
Unlike the trust, the ETF would have to be approved by the Securities and Exchange Commission.
As is the case with other investment trusts, higher trading costs and limited accessibility initially could be a challenge for the new diamond product.
Grayscale recently filed paperwork with the SEC to convert its trust into a bitcoin spot ETF. The move followed the approval of the first bitcoin futures ETF.