The past couple of years has been quite volatile for investors. Covid, supply chain issues, and now the war has created distress, leading investors to seek safe-haven assets.
Traditionally, gold fulfilled this role by offering investors stability, security, and sovereignty. And even in recent weeks, we have seen the yellow metal reach near record highs on the back of the market and the world’s volatility.
When Bitcoin entered the scene, many wondered if the intrinsic characteristics of gold were reflected in BTC, with some even calling the cryptocurrency “digital gold.” Those people highlighted one aspect of BTC that perhaps even outshone gold: transportability.
But in recent months, BTC hasn’t acted as a safe haven asset at all, having tracked more closely with risk-on assets, like tech and growth stocks. This could evolve with BTC decoupling from traditional markets and maturing into a safe-haven asset, but for now, a different crypto asset is fulfilling that role: stablecoins.
According to data from Coinmetrics, addresses holding at least $1 of a dollar-backed major stablecoin has recently passed 12 million – three times more addresses that were reported last year. But as inflation is slowly eating away the dollar’s purchasing power, investors are looking for other (perhaps even more stable) stablecoins.
Hence, the growth of investors placing their USD into gold-backed stablecoins.
In recent months we have seen a steady increase in the number of Ethereum addresses holding gold-backed stablecoins such as Paxos’ PAX Gold (PAXG), where each token represents one troy ounce of a 400 oz gold bar. Therefore, as the price of gold has increased in recent weeks, so has PAXG. And at a current market cap of ~$600 million, we are seeing PAXG slowly move into becoming a top 100 token based on market cap and begin to compete with other USD-based stablecoins such as Pax Dollar (USDP) at ~$1 billion market cap.
Other gold-backed stablecoins include Tether Gold (XAUT) and Cache Gold (CGT). With Tether of course, you get the potential sketchy business surrounding the parent company (check this out). With Cache Gold, you are betting on a smaller market cap gold stablecoin, but one where each token represents one gram of gold. Cache also has some gripes with Pax Gold and Tether Gold around their transparency, backing, and redemptions, so caveat emptor.