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As bitcoin loses some of its luster as digital gold, some cryptocurrency investors are apparently seeing the value of tokens backed by the physical version of the yellow metal.
According to data compiled by Arcane Research, the total market capitalization of gold-backed tokens has increased 30-fold since the start of 2020, reflecting an increase in demand.
Market capitalization of gold-backed cryptocurrencies.
Source: Arcane Research
In particular, pax gold (PAXG), a token launched in September 2019 by New York-based stablecoins issuer Paxos under the Ethereum blockchains standard ERC-20, has seen strong growth in recent months. Its market cap has overtaken that of tether gold (XAUT), another gold-backed cryptocurrency from Tether, the dominant issuer of stablecoin.
Tether gold debuted in January 2020, and the two gold-backed stablecoins were in a tight race until May, when pax gold was listed on the Indian exchange Wazirx, which is a unit of the giant Binance cryptocurrency exchange.
India is home to the world’s largest gold trade, Arcane Research said. This could be the main explanation for the growing demand for pax gold.
But according to Carl Vogel, senior product manager at Paxos, the recent success of pax gold is due to growing demand from investors and traders looking to hedge the risks associated with rising inflation and the highly volatile market for gold. cryptography.
The Bureau of Labor Statistics reported Thursday that consumer prices in the United States rose about 5% in the 12 months through May, the fastest pace since August 2008, as the economy reopens restrictions related to coronaviruses and that stimulus funds continue to flow. in consumer purchases and financial markets.
Many investors have invested money in bitcoin over the past year, convinced that it could serve as a hedge against inflation, a type of “digital gold” so to speak. But the price of bitcoin has fallen over the past two months, changing hands to $ 36,525 at the time of publication, well below the all-time high of nearly $ 65,000 reached in April.
Gold futures have climbed about 4% over the past month and are currently trading at around $ 1,896 an ounce.
If you are an institutional fund manager, when the market starts to get volatile and the crypto market starts to get volatile, you may need to allocate your portfolio to compensate for this to make sure you hit certain risk thresholds. Vogel said in an interview with CoinDesk. Therefore, gold tends to be, in times of high volatility, a very natural asset class and ideal for diversification.
Binance accounts for the bulk of PAXG’s trading volume, according to data from CoinGecko.
Paxos and Tether said they see increasing demand from institutional investors for gold-backed stablecoins.
Over the past six months, according to Vogel, there have been more institutional investors buying Pax Gold directly from Paxos for large orders.
Tether gold may appeal to institutional investors in the digital token space looking to gain exposure to gold, Paolo Ardoino, chief technology officer at Tether, told CoinDesk via a spokesperson. People may prefer the digital version of physical gold instead of physical gold itself due to its portability.
Both PAXG and XAUT claim to be backed by a fine troy ounce of a 400 ounce London Good Delivery gold bar. The gold backing each PAXG is stored in Brinks vaults, and yet Tether has stated that the underlying gold for XAUT is stored in an unnamed Swiss vault.
Tether gold is also issued on the Tron blockchain as a TRC20 token.
The Tethers US dollar linked stablecoin, USDT, is the most popular and successful stablecoin in the world despite its lack of transparency in almost everything.
It makes sense that some cryptocurrency investors are looking to readjust their portfolios and increase their exposure to gold, said Vetle Lunde, analyst at Arcane Research.
Gold-backed tokens are very handy tools for investors who want to invest in crypto and gold, Lunde said. Gold tokens are listed on some of the most liquid crypto marketplaces including Binance as well as rival exchanges such as FTX, Bitfinex and Kraken, he noted.
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