© Reuters. FILE PHOTO: Employees handle ingots of 99.99% pure gold at the Krastsvetmet non-ferrous metal plant in Krasnoyarsk, Siberia, Russia November 22, 2018. REUTERS / Ilya Naymushin / File Photo
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By Lisa Pauline Mattackal and Medha Singh
(Reuters) – A fledgling risk-averse cryptocurrency is dominating a broader market crippled by war and inflation.
Gold-backed coins are newer variations of “stablecoins,” often pegged to the dollar to tame volatility. The largest copper, Pax Gold or PAXG, has gained 7.4% in 2022, while its main competitor Gold has gained 8.5%.
In contrast, bitcoin has lost more than 13% and ether is down 20%.
“One of the main concerns many newcomers to crypto have is that it is not backed by anything,” said Everett Millman, head of market analysis at Gainesville Coins. “So attaching them or linking them to a real-world commodity, that really makes sense.”
The access to gold, a traditional hedge against geopolitical volatility and inflation, is not surprising. However, the demand for gold-backed cryptocurrency is new.
Stablecoins, a rapidly growing cryptocurrency, have emerged as a popular medium of exchange, commonly used by traders looking to transfer funds. For example, it is easier to swap major stablecoins for bitcoin or other cryptocurrencies than traditional currency swaps like US dollars for bitcoin.
According to Paolo Ardoino, chief technology officer of Tether, Tether Gold has attracted the attention of larger investors, including whales with $1 million or more in crypto, using the token. notice to exchange part of their holdings for gold.
“Many of our investors are already into crypto, but are interested in not having their entire assets denominated in crypto or dollars, and are looking for assets that are resistant to inflation. more prosperous than gold,” he said.
However, gold-backed coins are still a novelty in the current crypto market – PAXG and Tether Gold are just over two years old – with low liquidity and little certainty of long-term fortunes. their term.
PAXG has seen its market value nearly double to $627 million this year, while Tether Gold has grown 9% to over $209 million. By comparison to its eight-year-old brother, dollar-pegged Tether – the world’s largest stablecoin – has a market capitalization of over $83 billion.
According to data from CoinMarketCap, daily PAX gold trading volume has fluctuated between $10 million and $520 million over the past month, compared with ether volume that has fluctuated between $8.7 billion and $25 billion dollars in April. Dollar-pegged Tether 24-hour trading volume ranges between $35 billion and $92 billion.
ALL THESE WELCOME GLASSES?
Skeptics argue that PAXG, developed by the company Paxos, and Tether Gold merely emerged from a widespread gold rush; actually they tracked the price of physical gold, which is up about 8.5% this year. PAXG is up 4.5% since February 23, the day before Russia invaded Ukraine, compared with 4% for gold.
SPDR Gold Shares Exchange-Traded Fund (NYSE:), managed by The road for government (NYSE: Global Advisors, up 7.6% in 2022).
“The tokens themselves are not immutable. They’re really just IOUs that use the infrastructure,” said Alex Thorn, head of company-wide research for Galaxy Digital in New York. blockchain”.
He said investors will have to determine whether they should have the same level of trust in the companies behind PAXG and the gold ETF.
“Both are synthetic gold essentially backed by holdings of gold. Perhaps trust is part of what people will consider when deciding whether we can trust Paxos the same way we do. whether we trust State Street or not.”
However, proponents of such coins say that they offer the ease of owning gold without the worry of hoarding a physical coin or bar, and eliminate the signing requirements. Minimum funds are usually required to trade gold on the traditional markets.
For example, PAXG requires a minimum investment of 0.01 ounces of gold, about $20, compared with the $184 that an investor would pay per share of the SPDR Gold ETF.
Millman at Gainesville Coins also argued that gold-backed stablecoins underpin the credibility of cryptocurrencies.
“One of the main criticisms of cryptocurrencies is that they are very volatile. Hence the idea of backing the token with a stable commodity,” he said. “The marriage between those two can really strengthen confidence in crypto as well.”
