With the ongoing geopolitical tensions battering mainstream cryptocurrencies, it seems investors have found a sweet spot in gold-backed tokens as they try to evade the increasing threat of stagflation.
According to data by crypto analytics firms Arcane Research, gold-backed tokens have recorded massive growth. This week, the two largest gold-backed tokens, PAX Gold (PAXG) and Tether Gold (XAUT) have surpassed the $1 billion market cap mark after surging 60% in 2022.
On Tuesday, PAXG reached $2,070, its highest level in the last three weeks while XAUT rose to $2085, its highest level since November 8 last year. Both tokens’ prices have surged by over 9% this year and have increasingly become collaborated to precious metals. This was seen on Wednesday where the tokens recoiled in tandem with Gold albeit mainstream cryptocurrencies gaining in anticipation of President Biden’s Executive order on digital assets.
The surge, according to Arcane has been a result of investors putting their money into gold-pegged tokens in the hope that as Gold experiences a flight to safety rally, that strength will trickle down to the tokens.
Although gold-backed tokens still account for a very tiny fraction of the entire crypto market, currently at 0.05%, they have surged in price since macro uncertainty started building up following Russia’s invasion of Ukraine. This strength has been anchored on gold which is up roughly 11% this year.
Gold-backed cryptocurrencies, as the term denotes, are cryptocurrencies whose value is pegged to the price of Gold, much like ETFs. This means that every token is backed by one fine troy ounce of gold. These tokens offer a variety of benefits such as easing the hassle associated with handling physical gold as they are stored on the blockchain, making it easier to transact in “liquid gold”.
With ballooning inflation and war-induced economic uncertainties, investors’ traction to the bullion has skyrocketed as they see these tokens as a hedge against these snags. Purchasing virtual gold through these tokens has thus been easier for investors, which explains the sharp rise in market cap.
As reported, gold has emerged strongly during this crypto winter with price running north this month non-stop until it recoiled on Wednesday. That said, it is about 3% away from taking out its highest point in history, a level that could soon be beaten by sending gold-backed tokens north.