What are commodities?
Before we can get into whether or not cryptocurrencies are commodities, we need to understand what commodities are. A regular commodity is a good or service that is sold on exchanges. They tend to have complete or partial substantial fungibility (unlike unique items like collectibles, which are non-fungible). That means commodities like gold bars are considered to be the same regardless of who produced them. Of course, the quality may vary from item to item. However, in market terms, it is nearly uniform for all manufacturers. The most representative examples of commodities are rare-earth elements and precious metals such as gold, silver, and platinum. Other examples include raw products such as oil, gas, and coal. But commodities can also be food such as coffee beans, wheat, potato, sugar, and cattle. In other words, commodities are typically the raw materials used by manufacturers of other items.
What are the characteristics of commodities?
Commodities have no manufacturers on the market that has a brand to promote. All the companies essentially look the same and do not vary significantly. The price of commodities is set based on supply and demand, as well as market changes. In order to ensure market uniformity, it is important that commodities are categorized. Every commodity thus needs to have something in common for every unit. That can be weight, density, size and so on. That’s why some not all things can be considered commodities. Diamonds, for example, are not considered commodities. The chartacyeristics of commodities are used to determien the pric points.
How are commodities traded?
Commodities have traditionally been used to signify the ownership of a certain amount of capital. Although countries have used raw materials in the past, most of these commodities have been surpassed by gold in popularity. Loans between nations are often dependent on how much gold a particlar country has in their reserves. In other words, commodities work as a guarantee for the loan. Gold has thus assisted countries to keep their economics and currencies afloat.
Are cryptocurrencies a commodity?
Unlike traditional fiat currencies, like USD and GBP, most cryptocurrencies do not have any backing. Most of the cryptocurrencies are not connected to any commodity. The price of cryptocurrencies are 100% dependent on what the people think they’re worth. From the very start, cryptocurrencies utilized a system for fiat money as a basis and changed it a bit by implementing decentralization and privacy measures. The value depends upon the community that uses a cryptocurrency. If the number of users is huge, goods can be sold by using a given cryptocurrency. If it is safe and stable enough, the cryptocurrency will have value even if there’s nothing else to back up the value of it.
Should you invest in commodities?
Commodities are no longer the most sought-after thing in today’s modern economy. However, that doesn’t mean they aren’t still a great financial instrument. One of the benefits of commodities is that they aren’t as affected by international recessions and inflations. Cryptocurrencies are constantly under fire from critics who claim that they are a fad and a bubble waiting to burst. However, with the rise of stablecoins, that is set to change.