Gold coins, a new version of stable coins are emerging as the first choice for crypto trading
A budding class of crypto that feasts on risk is overtaking the broader market paralyzed by war and inflation.
Coins backed by gold are new forms of “stablecoins”, usually pegged to the dollar to reduce volatility. The biggest, Pax Gold or PaxG, jumped 7.4 percent in 2022, while main rival Tether Gold jumped 8 percent.
In contrast, bitcoin is down more than 13 percent and ether is down 20 percent.
“One of the main concerns people who are new to crypto are that it’s not supported by anything. It just comes up on one screen,” said Everett Millman, chief market analyst at Gainesville Coins. “So attaching them or attaching them to a real-world object, it makes some sense.”
The traditional hedge against geopolitical turmoil and inflation, gold’s reach is surprising. However, the demand for gold-backed cryptocurrencies is new.
Stablecoins, a rapidly growing breed of crypto, have emerged as a common medium of exchange, often used by merchants to transfer funds. It is easier to swap major stablecoins for bitcoin or other crypto, for example, than it is to swap traditional money such as the US dollar for bitcoin.
According to Tether’s Chief Technology Officer Paolo Ardoino, Tether Gold has been enthused by large investors, including “whales” with $1 million or more in cryptocurrency, using the token to convert a portion of their holdings into gold. for.
“Many of our investors were already involved in crypto, but were not interested in holding their entire assets in crypto or dollars, and were seeking more inflation-resistant assets such as gold,” he said.
Yet currently gold-backed coins are still a distinct novelty in the crypto market – PaxG and Tether Gold are barely more than two years old – with thin liquidity and little certainty about their long-term fate.
PAXG’s market cap has nearly doubled to $627 million this year, while Tether Gold is up 9 percent to more than $209 million. Compared to the latter’s eight-year-old brother, dollar-pegged Tether – the world’s largest stablecoin – has a market cap of more than $83 billion.
According to data from CoinMarketCap, daily PAX Gold trading volume in the past month ranged between $10 million and $520 million, compared to ether volume that fluctuated between $8.7 billion and $25 billion in April. Dollar-linked Tether’s 24-hour volume ranged from $35 billion to $92 billion.
all that glitters?
Skeptics argue that Paxos, and PaxG, developed by Tether Gold, have merely risen to the coat-tails of a broader crowd seeking gold; In fact they have tracked the price of physical gold, which is up about 8.5 percent this year. PAXG is up 4.5 percent since February 23, the day before Russia invaded Ukraine, while gold is up 4 percent.
The SPDR Gold Shares exchange-traded fund, which is managed by State Street Global Advisors, is up 7.6 percent in 2022.
“(Crypto Gold) tokens themselves are not immutable. They are literally just IOUs that use blockchain infrastructure,” said Alex Thorne, head of Firmwide Research for Galaxy Digital in New York.
He added that investors will have to determine whether they should have the same level of confidence in the companies behind PaxG and Gold ETFs.
“They are both basically synthetic gold exposures backed by gold holdings. Perhaps trust is part of what people will consider when deciding whether we can trust Paxos the same way we trust State Street. “
Nevertheless, proponents of such coins point out that while eliminating the minimum margin requirements often required to trade gold in traditional markets, they offer the ease of owning gold without worrying about storing a physical coin or bar. Huh.
For example, PAXG requires a minimum investment of 0.01 ounces of gold equivalent, approximately $20, versus the $184 an investor would pay for each share of the SPDR Gold ETF.
Millman of Gainesville Coins also argued that the gold-backed stablecoin strengthens the credibility of the cryptocurrency.
“One of the main criticisms of cryptocurrencies is that they have been very volatile. Hence, the idea of backing a token with a stable commodity,” he said. “The marriage between these two things can actually increase trust in crypto as well.”