Why are gold-backed cryptos gaining momentum?

Highlights

• Gold-backed cryptocurrencies are those assets whose value is underwritten by its equivalent price in gold.
• Unlike the usual cryptos, the gold-backed token's value is derived from the tangible assets and hence, acts as an inflation hedge against severe price fluctuations.
• Gold-backed cryptos seem to have gained the popularity charts as its market cap hit the US$1billion mark for the first time, according to Arcane Research.

The cryptocurrency market of late has been witnessing massive volatility with prices of leading digital currencies such as Bitcoin, Ethereum, Solana etc., all struggling to break the trend. Russia-Ukraine crisis coupled with US President Joe Biden's signing of the executive order on government oversight of cryptocurrency has, in fact, left the market in a state of uncertainty.

Having said that, not all is gloom and doom in the crypto space, as gold-backed tokens have been witnessing massive growth so far in 2022. Gold-backed cryptocurrencies are those assets whose value is underwritten by its equivalent price in gold. Unlike the usual cryptos, the gold-backed token's value is derived from the tangible assets and hence, acts as an inflation hedge against severe price fluctuations.

With the more popular Bitcoin going through a seesaw of rally and downtrend, gold-backed cryptos seem to have gained the popularity charts as its market cap hit the US$1billion mark for the first time, according to Arcane Research. 

Also read: Stacks (STX) crypto on cloud nine after Bitcoin Odyssey announcement

 So, what made it jump? 

According to Arcane Research, one of the reasons for the rise of gold-backed cryptos can also be linked to the increase in precious metals prices, which was up by 11% in 2022. The rallying gold prices may have been attracting investors to gold-backed tokens, which resulted in the increase in the market cap by close to 60% in 2022 alone. 

Gold-backed tokens such as PAX Gold (PAXG) and Tether Gold (XAUT) have registered significant gains this year, with PAXG posting gains of close to 8.9% itself over the past month. XAUT, too, had seen a strong upside, but in comparison to PAXG, it has been less. 

Also read: Qatar 2022 Token (FWC): Why is it gaining attention lately?

According to Arcane Research, while PAX Gold's total market cap rose to US$607 million, Tether Gold's market cap stood at US$211 million.  

Conclusion 

With Bitcoin underperforming, the rallying gold prices have increased interest in the gold-backed cryptos. Though, despite the present underperformance, many of the market participants still prefer Bitcoin for an inflation hedge. 

The growth of gold-backed cryptos is heartening, but it is essential to understand how volatile the crypto markets can get and why it is critical to do the respective market research before getting into any crypto asset class. 

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