What the Crypto are diamond NFTs?
With the recent sale of a 101ct diamond at Sotheby’s being purchased by a Cryptobuyer, we wanted to get our heads around the emerging world of Cryptocurrency and more specifically diamonds being sold as NFTs.
An NFT or non-fungible token, provides digital proof of ownership and thereby receipt of a unique asset. Whilst the token or file, is digital, the assets that the token represents can be both digital and non-digital.
NFTs are built on blockchain, technology that effectively acts as a digital ledger. From mine to consumer, a diamonds form changes from rough to cut, frequently passing through numerous hands and many continents before it gets to the end consumer; therefore, having a digital record of its life story is very helpful. For example, it was recently reported during a meeting of the Kimberley Process, that a number of countries are still using the sale of rough diamonds to fund violence by the ruling authorities, which is still allowed under KP rules, as opposed to the funding of rebel groups, which is not allowed – semantics, but important and not in the spirit of the agreement - therefore, in this instance, surely blockchain technology could offer a better, much more enforceable and transparent solution?
One of the arguments for NFTs is that not only do they embed information within the digital file that acts as property rights, but they also remove the need for ‘middle-men’. However, by removing the middleman, you are also presumably removing pertinent regulations and considerations for what is ‘appropriate’ and ‘transparent’ trading?
“As owners of a fund specialising in fancy-coloured diamonds, our processes are under a huge amount of scrutiny and regulatory processes; and that is fine, that is what we want it to be. Our concern however is that, with all the hype around NFTs there are a number of marketplaces which could, or in some cases already are, selling diamonds and other collectible assets at hugely inflated prices. There appears to be trust in NFTs, but without knowledge of a diamonds worth,” said Mahyar Makhzani, Co-Founder and Joint Managing Director of Amma Group.
As a fund that is required to provide four independent valuations of its diamonds on a quarterly basis, we wanted to understand how a diamond NFTs initial value is established therefore, we decided to look more closely at Opensea, and their NFT platform for diamonds.
Established in 2017, Opensea is a peer-to-peer marketplace for NFTs. In 2020, Opensea launched Icecap, an NFT platform for diamonds. With a stellar leadership team combining extensive knowledge across the diamond and cryptocurrency sectors, this very much looks like a platform that can be trusted, but we wanted to use our in-depth knowledge of diamonds to put their theory to the test.
Icecap has what they call a Value Index, currently in BETA, which guides the seller to a suggested price based on an average wholesale price plus a 1.5 multiplier, to create a theoretical (and presumably realistic) “investor price level.” Icecap then compares the asking price on every diamond listed, to the suggested investor price at that moment in time, to establish which diamond NFTs are selling below or above the proposed value.
This all sounds good and as realistic and transparent as can be, but to be sure we checked the stones listed on Icecap against the prices listed on Rapnet, a B2B Online Diamond Market, present in 100 countries, with over 1 million diamonds listed at a value of $7.1b. As a B2B tool, diamonds are valued at wholesale price on Rapnet. Our findings showed that all stones on Icecap are listed at less than the suggested 1.50 multiple, which is great, until you learn that most stones on Rapnet are currently traded at around 50% below ‘Rap’, therefore making the stones on Icecap, very expensive.
Like with most things there are lots of additional considerations when buying and selling via a ‘new’ platform. Below are a few things we discovered on Icecap:
1. Sellers listing a stone as an NFT, are allowed to include royalty fees, in other words, every time their stone is re-sold, they are allowed to take a percentage of the sale, up to a maximum of 10%.
2. Whilst there are GIA certificates, there are no condition reports, that you would have access to, should you buy via an auction house for example.
3. There is a 1% trading fee for all NFTs on Icecap.
4. There is a fee for taking physical possession of the stone.
5. There is an annual storage fee, if you do not redeem the stone.
6. Should you redeem the stone, there are shipping and insurance considerations.
7. Sales tax will apply, should you take possession of the stone.
“We are certainly not saying that NFTs do not have a place in the diamond world – it’s not our place to say that, but what we are saying is that not everything is always as it may seem and if you are looking to invest in diamonds, there is a lot more than meets the eye. It might be described as akin to buying a beautiful old property, without having the relevant searches done, only to find out later that you overpaid, there’s hole in the roof and you don’t own the freehold” added Philip Baldwin, Co-founder and Joint Managing Director, Amma Group.
In theory, NFTs certainly look like an interesting proposition, but in reality, everybody has to make money and therefore it is not surprising to see that prices are higher than they ordinarily would be.
“There are two things that concern us most: there seems to be trust in a platform and the sellers on that platform, without physically even seeing the diamond; and secondly should this form of trading really take off, diamonds may never see the light of day again, and instead will be kept in a safe and purely traded back and forth, and that would be incredibly sad,” ended Makhzani.
Set up 14 years ago, Amma Group is a fancy coloured diamond fund manager with over 60 years of experience in the diamond and luxury sector. Open only to qualified purchasers and accredited investors, Amma Group believes that something of such high value and with general market opacity should not be traded by people or to people without the knowledge and expertise of fancy coloured diamonds, the necessary buying and selling procedures, transportation, safe keeping, insurance and naturally the financial regulations that must be followed when trading in this asset class.
Sotheby’s 101.38 ct. D colour flawless diamond sells to a cryptobuyer
Diamonds: Navigating An Opaque Market
A diamonds transparency and brilliance are what make it so alluring, yet much of the global diamond industry is hidden behind a veil of mystery.
As an alternative investment fund Amma Group specialises in fancy-coloured diamonds. Working within collectible investments, Amma Groups funds are open to qualified investors.
From mine to retailer, a diamonds journey may take it across numerous continents and through many hands. Mines use the tendering process to sell coloured diamonds, with organisations first being invited, before being requested to make a sealed bid, with the results achieved kept confidential.
Diamond Tenders
Recently announced was Petra Diamonds rough diamond tender of a 39.34 carat, blue type IIb, to be held on 12th July and estimated to be worth $64 million once cut and polished. However, one of the most renowned tender processes was the annual Argyle pink diamond tender. Now depleted the Argyle mine in Australia contributed to over 90% of the world’s pink diamonds.
Closed in 2020, Argyle Pink Diamonds will hold its final tender in September 2021. In their own words, an event widely regarded as the most exclusive diamond sale in the world. Offering between 50 and 70 stones these are Argyle’s largest and most vivid pink, red and violet diamonds, representing less than 0.01 percent of diamonds ever unearthed from the mine. Headlining will be the 3.47ct Eclipse Fancy Intense Pink diamond and notably the largest ever offered at tender.
With the closure of the mine, has come a new venture from an Australian company selling pink diamonds pertaining to be of Argyle origin. Described as the world’s first public tender of secondary market Argyle Pink Diamonds it will be held in July 2021. Open to anyone, the tender will follow the same format of sealed bids, however the catalogue appears to have numerous inconsistencies, namely a lack of Argyle Certificates or in many cases recent GIA certificates. Ordinarily in addition, a tender would be highly regulated with an independent organisation brought into verify the process.
Mahyar Makhzani, Joint Managing Director and Co-Founder of Amma Group commented, “We offer full transparency on the diamond market to our investors; even providing all purchase and sales information. We also never buy a diamond with a GIA certificate older than 6 months. Alas GIA does not provide provenance of a stone, however Argyle Pink Diamonds are always sold with an Argyle Certificate – we would certainly question the validity of any stone claiming to be from Australia without an accompanying certificate of authenticity.”
Diamond Auctions
Buying and selling diamonds at auction offers greater transparency. As a trusted facilitator of the sale, the consumer can feel assured of the diamonds legitimacy and be guided by a price dictated by historical performance. And whilst demand during the sale often results in a price higher than estimated, the bidding process is entirely visible.
Most notable recent sales of coloured diamonds at auction have included the 204 carat Fancy Intense Yellow, named the Dancing Sun diamond which sold for $4.95 million at Christie’s New York in June 2021.
In May 2021, the 15.81ct Sakura diamond, sold for $29.3 million at Christie’s Magnificent Jewels, Hong Kong, setting a world record auction price for a purple-pink diamond.
Cryptocurrency and NFTs
To add a further twist to the story, the key auction houses have recently announced that they will accept cryptocurrency as payment for diamonds. Whilst still transparent, this brings them a step closer to NFTs (non-fungible tokens) which have recently hit the auction artworld by storm. An NFT is created using blockchain technology to facilitate tracking information; tracing the supply chain from diamond mine to manufacturer and retailer, is becoming more commonplace and helps to eliminate conflict diamonds from the market, safeguard livelihoods and minimise the environmental impact of mining operations. But is the world of luxury ready for NFTs to be used as a form of currency? With artwork, over and above the collectability, there is a certain amount of objectivity, whereas with expert knowledge, the accurate valuation of a diamond is possible.
It’s clear that understanding the coloured diamond market is complex and with much of the industry hidden from public view, whether you are a family office, private wealth manager or institutional investor, using a fund manager with diamond industry knowledge is paramount.
“As the fund is so highly regulated, the real opportunity for our investors comes from our ability optimise market value by creating pairs and sets or by re-polishing stones to improve clarity and colour. A great example of this was a 5ct fancy deep pink with a section of deeper colour. After re-polishing, the stone was re-certified as a Fancy Red, the most valuable of coloured diamonds and achieved a gross multiple of 6.6x,” added Philip Baldwin, Joint Managing Director and Co-Founder of Amma Group.
To find out how you can add coloured diamonds as an alternative investment to your wealth portfolio, please click the button below.
The Dancing Sun
The 204.36-carat “Dancing Sun” fancy intense yellow diamond, sold for $4.95 million.
Christies, New York
The Sakura Diamond
An 15.8-carat purple-pink diamond set on a platinum and gold ring, sold for $29.3 million.
Christie’s Hong Kong
Non-Fungible Token Fancy Coloured Diamonds - Really?
After more than 12 months of relative inactivity, fancy coloured diamond prices are on the up according to data from the Fancy Colored Diamond Research Foundation (FCDRF), which shows changes in the wholesale price of all yellow, pink and blue fancy-coloured diamonds, irrespective of specific classifications, such as clarity, cut, tone and colour saturation.
This comes at the same time as the launch of the first public global tender of secondary market Australian Pink Diamonds by yourdiamonds.com, as well as the launch of Icecaps Investment Grade Diamond Non-Fungible Tokens, which are blockchain-based tokens that document ownership of assets.
Coloured diamonds are incredibly rare; approximately 1 in every 10,000 diamonds is considered fancy coloured, as stated by the Gemological Institute of America, the worlds most trusted name in diamond grading and gem identification. However, this poses a problem for the new diamond platform-based launches, as according to WWW International Diamond Consultants, at least 5,000 carats of similar attributes need to be traded to have a reliable gauge for a stones value, which given their scarcity, is impossible for fancy coloured diamonds.
Amma Group, fancy coloured diamond fund managers with over 60 years of experience in the diamond and luxury sector, set up its first fund 13 years ago. Open only to qualified purchasers and accredited investors, Amma Group believes that something of such high value and with general market opacity should not be traded by people or to people without the knowledge and expertise of fancy coloured diamonds, the necessary buying and selling procedures, transportation, safe keeping, insurance and naturally the financial regulations that must be followed when trading in this asset class.
Coloured diamonds range from brown, which is mostly used for industrial purposes, to yellow, through to orange, green, pink, blue, purple and the rarest of all, red. Of these colours, each is further classified by its intensity and depth of colour, the best of which is fancy intense to fancy vivid.
Unlike white, also known as colourless diamonds, whose increased value is attributed to the lack of colour, coloured diamonds attribute their value to the presence of colour, with fancy intense to fancy vivid being the most valuable.
“It takes in-depth knowledge and skill to know what you are dealing with.” said Mahyar Makhzani, Joint Founder and Managing Director of Amma Group. “For example, take a 1 carat Light Pink and a 1 carat Fancy Vivid Pink, assuming all other characteristics are the same, there could be a price differentiation of 100 times.”
Philip Baldwin, Joint Founder and Managing Director of Amma Group added “We only ever buy and sell stones with certification that is no more than 6 months old. Even as experts, seeing a certificate is just part of the story. We also ensure a realistic net asset value ‘NAV’ by gaining valuations from three independent coloured diamond experts on a quarterly basis.”
Fancy coloured diamonds are a natural and therefore exhaustible resource. With scarcity and rarity constantly increasing, prices at auction have shown a steady rise over the last decade and more. This combined with over 60 years of knowledge and skill along with some interesting buying and selling strategies have resulted in Amma Group receiving some notable recommendations with one client saying, “The Coloured Diamond Fund produced impressive returns with the additional attraction that they were not correlated to those of traditional mainstream asset classes.”
Makhzani went on to say “We bought one stone, with a per carat price of $500,000. We thought that if we re-cut and polished it, in other words, reduced its size, we might be able to achieve a better, more intense colour. We did just that; it was re-certified and sold for a per carat price of over $3.5m.”
With the depletion and subsequent closure of the Argyle mine in Australia, which was the source of 90% of the world’s pink diamonds, prices for one of the rarest of coloured diamonds are expected to increase, but as Baldwin ends, “With such opacity in the coloured diamond market, you really have to be knowledgeable about what you are buying and from whom.”
Pink Diamond Colour Scale by Scarcity & Value
The graph shows how scarcity and value are impacted across the colour scale spectrum.
The Argyle Prima© Fancy Red Pear Shaped Diamond
Previously under management by Amma Group
Amma Group Announces Its ESG Intention With Launch of New Partnership
The term conflict diamonds is well known and for a long time now, mines have signed up to the Kimberley process, ensuring diamonds are conflict free. However less well known are the Environmental, Social and Governance (ESG’s) concerns surrounding the industry.
In a desire to only work with organisations that are respectful of the environment, ensure positive social impact and gender equality, within a framework of governance, Amma Group has created a longterm ESG intention.
To team up with partners to create an ecosystem that aims to improve social, economic and environmental factors within the diamond and precious stone industry by 2030.
During the formation of its ESG goal, Amma Group was introduced to The Loudhailer, the African partner for the Global Start Up Awards. The African continent makes up around 40% of all diamond production. In a desire to ensure traceability of our diamonds, Amma Group has partnered with The Loudhailer to support and connect digital futureshapers whose innovations might address the ESG concerns surrounding the diamond mining industry.
“In looking for a partnership, it was important to Amma Group that we worked with an organisation that promoted innovation, self-sufficiency and growth, but also looked to ‘challenge the norms’ - all principles that have helped to shape our organisation”, said Mahyar Makhzani, Managing Director and Co-Founder of Amma Group
“With an ESG intention to work with partners to improve social, economic and environmental factors within the diamond and precious stone industry, Amma Group through is partnership with The Loudhailer is developing a fund structure to further support winners of the African based Global Startup Awards, also providing the business tools needed to succeed. Inevitably these digital disruptors will pave the way in addressing climate change, Environmental, Social and Governance metrics and energy”, said Philip Baldwin, Managing Director and Co-Founder of Amma Group.
