What is the real state of health of the diamond market?

What is the real state of health of the diamond market?

Sometimes we see on social networks heated comparisons between Bitmonds collectors and traditional physical diamond enthusiasts.

History shows how every great innovation is initially understood by only a portion of the public and criticized by the rest. How then it is used by a growing number of people, up to the point of asking why it didn’t happen before.

Why? It is human nature to resist the change. And this natural nature is greater in times of economic instability.

We decided to express our thoughts in an article.

The first thing is that the two worlds are not necessarily mutually exclusive.

Bitmonds do not intend to replace physical diamonds, but to propose a technological alternative in response to the need of the modern collector.

We will talk about the state of health of the physical diamond market, reporting objective data and verifiable sources. Enjoy the reading!

Is a diamond still forever?

diamante da laboratorioFor many years the diamond market has been going through a crisis that seems endless.

2019 was the last of many years characterized by an excess of supply compared to low demand, setting a further decline of 16% in the average price of rough diamonds. Despite a drop in production following the closure of old mines and only partial compensation with the opening of new ones.

Political instability in historic markets such as Hong Kong had an impact, but the real problem seems to be an objective drop in demand, which has led to saturation of retailers’ warehouses.

A giant like De Beers closed 2019 with the worst result of the last 20 years, with profits down by 87%.

Due to Covid, 2020 seems to settle on even worse results, with the second quarter seeing a decline in sales of 94% compared to the already non-exciting data of the previous year.

At the moment there is a market only for gems of the highest quality and at lower values ​​than in the past. Some are wondering if a crisis of this magnitude will wipe out the diamond industry.

Unlike gold, which is considered a haven asset, diamonds are seen as a luxury good. During times of economic uncertainty they have always been one of the first things to suffer a drop in sales.

But if this partly explains the more recent drop in demand, it does not explain the trend of recent years.

The truth is that the customer has changed profoundly, expressing different needs. More modern and in step with the times.

An example? Fluorescence has always been considered a negative attribute for a gem, while today the younger ones look for fluorescent diamonds to show them during the nights in clubs or discos.

To these issues is also added a greater social awareness of having no guarantees that we are not buying a Bloody Diamonds. What is behind this name?

Lives in exchange for stones

minatori diamantiEvery day we are flooded with news about migratory flows from Central Africa, often avoiding the main question: how are the wars that lead to the creation of a dictatorial regime financed?

Diamond-rich territories are free zones, where it is impossible to develop any business.

The lands are expropriated and the only possibility that remains for the local population is the garimpo, the irregular extraction of diamonds to be sold on the black market.

There have been some attempts at intervention, such as the introduction of the Kymberly Process (the passport that allows valuables to enter the international market).

De Beers has also promoted a project for the traceability of gems with Blockchain technology, a noble attempt (partly dictated by direct interest) but which does not seem to represent an effective solution, because it does not consider the human factor in the supply chain.

According to a report by Partnership Organization Africa Canada (CAP), obtaining the Kimberly Process certificate is easily bypassed by making Cameroon appear as the country of origin, rather than the war-torn regions of Central Africa. Thanks to a criminal traffic of stones and certificates.

As we explained in this article introducing the Blockchain for tracking does not help if the certified source is not reliable or manipulable.

A diamond with a million years or a week?

As we have described in the previous lines, the customer interested in gems is changing today. We are witnessing a generational change, as described by Bruce Cleaver, CEO of De Beers, during the launch of their satellite company Lightbox Jewels:

“We will offer Millennials a laboratory product that they have told us they want but cannot find: cheap jewelry and trendy, which may not be forever, but perfect for this moment.

In other words, less quality is demanded at a lower price and we will sell a large number of synthetic diamonds.

The market now seems to prefer perception to have something precious.

According to Morgan Stanley, the penetration of synthetic diamonds will reach 15% of the market by the end of 2020, despite the high energy consumption of the production process.

We are talking about stones with a sales value of about $ 800 per carat, compared to $ 16,000 for the equivalent natural diamond of the highest quality.

If the second-hand market of natural diamonds is very complex and not very profitable for an inexperienced private individual, in the case of synthetic diamonds we can think that it will be almost zero, since the concept of scarcity of the good is totally eliminated.

Will those who have the possibility to invest in a natural diamond still be able to feel comfortable? The answer is no.

With the tools available in normal jewelers it is practically impossible to distinguish a synthetic diamond from a natural one. The risk of fraud has now become very high.

OK, let’s try to summarize

Avoiding opinions and staying on objective facts:

  • The value of physical diamonds has been falling for years, due to a sharp drop in demand.
  • The risk of buying a bloody diamond is high, financingthe wars responsible for the main migratory flows from Central Africa.
  • Those who until today have made their business withnatural diamonds, for the future focus on synthetic diamonds dedicated to the new Millennial audience.
  • The diamonds created in the laboratory no longer guarantee rarity or uniqueness, which represent the real element of value, as they are reproducible. They will only be the perception of an instant.
  • The risk of buying a synthetic diamond instead of a natural one is very high

Now let’s turn everything around

Although, in this first phase of the project, the main competitors are in the collecting market or in hype fashion, the Bitmonds:

  • Are an ethical purchase
  • Are a product dedicated to the public of the future, digital and alwaysmoving
  • Have elements of rarity and uniqueness certified by registration on the blockchain
  • Are not falsifiable, a fake could not use the site’s features

For intellectual honesty it is fair to point out that like physical diamonds and non-primary assets in general, Bitmonds also suffer during periods of economic crisis like the one we are experiencing in 2020. But these are the times when it is easier for some to do good business!

The valuable innovative elements that have been introduced into the project will remain even after the overcoming of this delicate historical moment.

What side of the audience are you on? If you are with us, share this article!

 

Sources:

metallirari.com: https://www.metallirari.com/diamanti-nel-2020-ce-una-luce-in-fondo-al-tunnel/
https://www.metallirari.com/mercato-diamanti-tempi-coronavirus-disastro/
Il Sole 24 Ore: https://www.ilsole24ore.com/art/diamanti-crisi-per-de-beers-peggior-risultato-fine-monopolio-AC8YbsKB?refresh_ce=1
Reuters: https://www.reuters.com/article/us-anglo-debeers-blockchain/de-beers-tracks-diamonds-through-supply-chain-using-blockchain-idUSKBN1IB1CY
Impact: https://impacttransform.org/en/non-profit-announces-departure-from-conflict-diamonds-certification-scheme/
Business Insider: https://www.businessinsider.com/millennials-demand-ethical-diamonds-inspire-de-beers-2018-5?IR=T
Morgan Stanley: https://www.morganstanley.com/ideas/diamond-market-lab-grown-disruption