Why are gold-backed cryptos gaining momentum?

March 12, 2022 09:42 PM AEDT | By Manu Shankar
Follow us on Google News:

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. 

Risk Disclosure: Trading in cryptocurrencies involves high risks, including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory, or political events. The laws that apply to crypto products (and how a particular crypto product is regulated) may change. Before deciding to trade in financial instruments or cryptocurrencies, you should be fully informed of the risks and costs associated with trading in the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Kalkine Media cannot and does not represent or guarantee that any of the information/data available here is accurate, reliable, current, complete, or appropriate for your needs. Kalkine Media will not accept liability for any loss or damage as a result of your trading or your reliance on the information shared on this website.


Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Limited, Company No. 12643132 (Kalkine Media, we or us) and is available for personal and non-commercial use only. Kalkine Media is an appointed representative of Kalkine Limited, who is authorized and regulated by the FCA (FRN: 579414). The non-personalised advice given by Kalkine Media through its Content does not in any way endorse or recommend individuals, investment products or services suitable for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a qualified financial planner and/or adviser. No liability is accepted by Kalkine Media or Kalkine Limited and/or any of its employees/officers, for any investment loss, or any other loss or detriment experienced by you for any investment decision, whether consequent to, or in any way related to this Content, the provision of which is a regulated activity. Kalkine Media does not intend to exclude any liability which is not permitted to be excluded under applicable law or regulation. Some of the Content on this website may be sponsored/non-sponsored, as applicable. However, on the date of publication of any such Content, none of the employees and/or associates of Kalkine Media hold positions in any of the stocks covered by Kalkine Media through its Content. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music/video that may be used in the Content are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music or video used in the Content unless stated otherwise. The images/music/video that may be used in the Content are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated or was found to be necessary.



Top LSE Listed Companies