Gold has been the safest form of money for over 3000 years and a great hedge against inflation and potential financial disaster during times of uncertainty. But Bitcoin and crypto are the new kids on the block that have emerged in the last 10 years to challenge gold’s dominant position in world financial markets.
These factors have become even more prominent in the last few weeks with the Russian and Ukranian crisis causing severe renewed geopolitical tensions on the world stage. This has pushed the price of gold over $2000 per ounce while Bitcoin has also remained steady in the face of a looming world financial crisis.
But what if you could combine the safety of physical gold with the security of owning digital gold? Or better even, what if you could purchase a crypto token where each digital coin is backed by one physical ounce of gold? Well PAXG or PAX Gold backed by the Paxos company is exactly that and funds have rapidly been flowing into this new and exciting asset.
In the first few months of 2022 macro uncertainty has been felt in the crypto and traditional markets as economic, regulatory, and political scenarios unfold.
Historically, investors see gold as a reliable safe-haven asset they can run to when stocks and bonds decline. It is not surprising for gold prices to have seen a 19-month high as the U.S. and UK decided to ban Russian energy products. It seems that now investors are not only attracted to the metal, but to gold-backed tokens as well.
What Crypto Can Expect From Macro Uncertainty
The macro uncertainty has only increased in 2022, starting with Russia’s invasion of Ukraine, then escalating as the sanctions on Moscow have a direct effect on commodities prices. Moreover, analysts expect that a rising U.S. inflation will be reflected in the CPI numbers to be published next Thursday.
Arcane Research data noted that CPI is expected to reach 7.9%, and the Federal Reserve might perform the 25 basis point rate hike that chair Jerome Powell said he is inclined to support.
Bloomberg experts, however, project for “February CPI to show an increase of 8.0% year over year and top out in the vicinity of 9% in March or April,” and added that “CPI could rise above 10%” if energy prices continue to rise.
The Fed has also said that they might move more aggressively later on if inflation does not come down. If the market’s expectations on the rate hike do not meet reality, crypto prices could see increased volatility.
As Arcane Research pointed out, the implications of the Russo-Ukrainian war on the surging commodity prices might turn into a hurdle race for central banks trying to bring inflation down.
60% Growth For Gold-Backed Tokens
Furthermore, Arcane Research reported massive growth for gold-backed tokens in 2022. The macro uncertainty has led the gold price to rally with an 11% surge in the year as investors look for safety in a hedge against the expected risks.
The gold price rally could be calling the investors’ attention towards the top gold-backed tokens. Their market capitalization recently surpassed $1 billion, a 60% growth in 2022.
As per Investopedia, “Gold-backed digital currencies link one token or coin to a specific quantity of gold (for instance, 1 token equals 1 gram of gold),” and “If the digital currency becomes popular, the price of the coin can actually exceed that value. In this way, gold-pegged digital currencies offer protection against the bottom dropping out of a digital currency’s value.”
The top gold-backed tokens to consider are PAX Gold and Tether Gold. Indicated in the chart below, Tether Gold has seen little growth during the year, and as a consequence, PAX Gold overtook its position in the market cap after it saw a high influx in February.
However, the share of gold-backed tokens in the total crypto market is still around 0.05%, a tiny size compared to the top cryptocurrencies.
What About Bitcoin?
The report also notes that “Bitcoin has underperformed in this uncertain macroclimate, but many investors still view it as an inflation hedge.” Bitcoin price is up 8.93% in the last 24 hours after President Joe Biden announced the executive order on digital assets, which took a benefitial position for the crypto industry.