- The popularity of gold price-linked cryptocurrencies has grown exponentially in the last two years.
- Amid the ongoing crypto bear market, gold-backed cryptocurrencies offer a potential safe-haven superior to stablecoins.
- PAXG and XAUT are the largest gold-backed cryptocurrencies by market cap, while PMGT, GLC and DGX have potential.
Over the last two years, gold-backed cryptocurrencies have exploded into popularity. As of Thursday, cryptocurrencies that are backed by gold deposits have a market capitalization of a little more than $1 billion, up from virtually nothing this time two years ago. However, given that the market cap of all the gold in the world is currently around $11.6 trillion, gold-backed digital currencies have a long way to go before they can be considered mainstream.
But with the broader cryptocurrency market having experienced a ferocious bear market so far in 2022, the outlook for continued growth in the market cap of gold-backed tokens looks promising. One way that crypto investors traditionally like to hedge their risk but without taking money entirely out of the space is to buy stablecoins like Tether’s USDT and Circle Internet Financials’ USDC.
But with inflation in the US running at four-decade highs and prices rising 1.0% in the month of May alone, according to US CPI data released last Friday, some investors might be drawn to gold-backed cryptocurrencies. Gold is often viewed as a hedge against inflation and, while many crypto enthusiasts also see Bitcoin in that lens, gold is undeniably less sensitive to risk appetite.
Here is a list of the top five gold-backed cryptocurrencies to watch in 2022…
Pax Gold (PAXG)
Pax Gold is an ERC-20 token that runs on the Ethereum blockchain, with one token corresponding to exactly one troy ounce of gold. PAXG was launched back in September 2019 by Paxos Standard, with tokens backed by London Good Delivery gold bars that are stored in vaults operated by Brink’s, a London Bullion Market Association (LBMA) approved storage company. PAXG is currently the only gold-backed cryptocurrency that can be directly redeemed for LBMA-accredited gold bullion bars.
The current circulating supply of PAXG tokens is just under 335,000, according to CoinMarketCap data, meaning PAXG’s total market cap is around $615 billion, according to gold’s spot market price on Thursday of close to $1830 per troy ounce. A benefit of owning PAXG over physical gold is that owners can generate yield on their holdings by utilizing one of the many Decentralised Finance (DeFi) applications running on the Ethereum network. A downside of running on the Ethereum network is that, in order to conduct transactions, users need to hold ETH in order to pay gas fees.
Tether Gold (XAUT)
With Tether having established itself as the leading stablecoin issuer over the last few years, with the market cap of its fully collateralized USD-pegged USDT currently around $70 billion, it makes sense that Tether decided to move into the gold-backed cryptocurrency space in 2020. Like Pax Gold, one XAUT token represents one troy ounce of physical gold on a London Good Delivery bar, but unlike PAXG, the gold that backs XAUT is stored in Switzerland.
One drawback of owning XAUT is that investors are required to pay a transaction fee of 0.25% a pop, reducing its viability as a form of currency. As of Thursday, the circulating supply of XAUT is around 246,500, according to CoinMarketCap data, which gives the gold-backed cryptocurrency a market cap of around $450 million.
Perth Mint Gold Token (PMGT)
Like Pax Gold and Tether Gold, each Perth Mint Gold Token represents one troy ounce of gold. The gold backing PMGT is stored at The Perth mint and, like PAXG, tokens can be redeemed directly for gold bullion. The bullion that backs PGMT is Australian government guaranteed. One benefit of holding PMGT over other gold-backed cryptocurrencies is that there are no transaction fees and, like other tokens, there are no fees associated with the storage/management of the gold that backs the token.
At present, there are only about 1,150 PGMT tokens in circulation, according to CoinMarketCap data, corresponding to a market cap of around $2.14 million. One of the factors holding PMGT back from greater adoption is likely the fact that it is only available to buy on small Australian crypto exchange Independent Reserve, although talks are allegedly in the works for PMGT to be listed on other crypto exchanges. When this does happen, token issuance should rise.
Gold Coin (GLC)
Like Pax Gold, Gold Coin is an ERC-20 token that runs on the Ethereum network. Unlike Pax Gold and the other above-mentioned gold-backed cryptocurrencies, one GLC token does not correspond to one troy ounce of gold. In fact, one GLC corresponds to one-thousandth of a troy ounce of gold. GLC currently has a small market cap of around $880,000, which corresponds to about 43.7 million tokens in supply.
The largest crypto exchange where the coin can be purchased is Crypto.com. As with PAXG, one of the drawbacks with GLC running on the Ethereum network is that users must hold ETH to pay for network gas fees.
Digix Gold (DGX)
Singapore-based DigixGlobal’s Digix Gold token is fully collateralized by physical gold bullion bars and, like with most other gold-backed cryptocurrencies, one DGX token corresponds to one troy ounce of gold. DigixGlobal stores its gold in Singapore and Canada. One drawback of the token is that investors must pay a 1% fee per transaction.
DGX tokens had a market cap of around $800,000 as of Thursday. But DigixGlobal’s future is uncertain. The company suspended operations back in January in order to focus on reviewing the license requirements under the Singapore Payment Services Act and announced that it would not be taking any more transactions.