As global tensions intensify, demand for gold-backed stablecoins increases
In the face of persistent geopolitical tensions and rising inflation, gold-backed stablecoins have gained popularity, outperforming the total expansion of the cryptocurrency industry.
Gold prices have increased 4.67 per cent year to date, reaching a multi-month high. Thus, the amount of gold-backed stablecoins, which are digital tokens backed by genuine gold, will increase.
According to Kaiko, the two biggest gold-backed stablecoins in terms of trading volume are Tether Gold (XAUT), which has a market capitalization of $200 million, and PAX Gold (PAXG), which has a market capitalization of $420 million. Fascinatingly, PAX Gold trading volumes have almost quadrupled since September, whereas Tether Gold trading volumes have shown a slight surge.
Gold as a guarantor of security in troubled times
In general, USD-pegged stablecoins continue to outperform gold-backed stablecoins in terms of market size and trading volume, with just a few exchanges offering gold-backed stablecoins. Nonetheless, this novel investment vehicle seems to be more known to conventional investors. As a consequence, many investors in traditional financial markets see gold as a hedge against inflation and a safe haven during times of geopolitical turmoil.
“Many investors are interested in investing in the volatile crypto asset class, and gold-backed tokens offer some protection against volatility,” said Edward Moya, senior market analyst at foreign exchange brokerage Oanda. “Gold-backed tokens may continue to see the massive appeal as gold’s outlook for the year improves.”
Due to the fact that the gold tokens are linked to the price of the precious metal, the increasing market capitalization just reflects an increase in the total number of tokens outstanding:
“You are referring to the launch of gold-backed coins,” Mati Greenspan, CEO of Quantum Economics and a former eToro senior analyst, said. “If they want to issue them, they will.” He continued: “Gold-backed tokens provide a minimal reward for investors because of the low volatility of the price,” Greenspan said.
While commodity-backed tokens have grown in popularity, the overall market value of gold tokens – roughly $800 million – is still dwarfed by Bitcoin’s $833 billion.
Additionally, gold’s price rise has been sluggish in recent years in comparison to numerous cryptocurrencies, whose values have been inflated by many multiples.