Gold-backed cryptos are shining in 2022, market cap hits $1B for the first time

Published at: March 10, 2022

The market capitalization of gold-backed crypto tokens increased by 60% in 2022 to surpass $1 billion for the first time in history, according to Arcane Research in its latest weekly report.

Gold shines, Bitcoin disappoints

In 2022, investors have been rushing to the perceived safety of gold-backed crypto assets, whose value is pegged to the price of gold.

Namely, PAX Gold (PAXG), Tether Gold (XAUT), and similar precious metal-backed digital assets have been climbing in value as investors "diversify inflation bets" within the crypto sector, explains Arcane Research. PAXG is also outperforming Bitcoin (BTC) this year, as shown in the chart below.

Gold itself rose by almost 14% YTD to nearly $2,050 an ounce, its highest level since August 2020. Arcane noted:

"The rallying gold price seems to have attracted more crypto investors to the gold-backed tokens [...] since they allow crypto investors to diversify inflation bets through familiar crypto market infrastructure."

PAXG outperforms XAUT

PAX Gold contributed the most — around $500 million — while swelling the gold tokens' market valuation to over $1 billion. In comparison, its top rival, Tether Gold witnessed minimal growth, Arcane noted while citing the chart below.

Currently, the total market cap of PAX Gold is a little over $607 million, up 85% YTD. Similarly, Tether Gold's market valuation rose to nearly $211 million, up just 9.20% in the same period.

Intelligent money behind the gold-token rally

Alexander Tkachenko, founder and CEO of VNX — a Luxembourg-based, FMA-regulated tokenized gold investment platform, explains that intelligent investors have been more cautious when investing in cryptocurrencies. He adds that their decision to invest in gold-backed tokens shows their inclination to adopt regulated digital assets amid the ongoing macro uncertainty.

Tkachenko said:

Not all gold-backed tokens are of good value. Therefore, investors should be careful not to get a 'paper index,' but look for tokens that are linked to physical gold and are 'secure' - issued by regulated issuers and can demonstrate the gold reserves.

PAXG's issuer is Paxos, a New York State-chartered trust company regulated by the New York State Department of Financial Services (NYDFS). That translates into lesser overhead risks, especially when confirming that each PAXG in circulation is 100% backed by an ounce of gold.

However, XAUT doesn't appear to have been regulated by any regulator in any jurisdiction inside or outside the U.S. Its whitepaper also states that "no regulatory authority has examined or approved" its claims of being backed by gold.

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