Medha and Lisa Pauline Mattackal

(Reuters) – A new class of crypto-rich people is growing faster than a larger market that has been paralysed by inflation and war.

To reduce volatility, coins backed by gold can be upgraded to “stablecoins” which are often pegged to dollars. Pax Gold (or PAXG) has seen a 7.4% increase in value over 2022. Main rival Gold has seen an 8.5% jump.

Bitcoin, on the other hand, has experienced a loss of over 13% while ether has seen a 20% drop.

Many people aren’t familiar with crypto, and this is one of their main worries. Everett Millman is Gainesville Coins’ chief market analyst. “It only gets on a monitor,” he said. It makes sense to attach them, or link them with a real commodity.

Unsurprisingly, gold is a classic hedge against inflation and geopolitical instability. However, the demand for gold-backed cryptocurrency is quite new.

A rapidly-growing crypto breed, stablecoins have become an increasingly popular means of exchanging funds. Swapping major stablecoins to bitcoin and other crypto is much easier than swapping traditional money, such as U.S. Dollars, for bitcoin.

According to Paolo Ardoino (Tether’s chief technological officer), Tether Gold was buoyed in part by larger investors.

“Many of the investors in our crypto-related investments were already interested in bitcoin, but wanted more inflation-resistant assets, such as gold, to avoid losing their whole wealth in cryptos, or dollars,” he stated.

However, gold-backed coins remain a novelty in crypto markets at the moment – PAXG is barely two years old and Tether Gold is just over one year old. They have little liquidity and are uncertain about their future fortunes.

PAXG saw its market capital almost double to $627m this year. Tether Gold’s value rose 9%, to more than $209m. Comparatively, Tether Gold’s 8-year-old sister, the dollar-pegged Tether, which is the largest stablecoin in the world at over $83 billion has a market value of more than $209 million.

Data from CoinMarketCap shows that daily trading volume for PAX gold ranged between $10m to $520m over the last month. This compares to monthly volumes for ether which fluctuated between $8.7billion and $25billion in April. The 24-hour volume of dollar-pegged tether was between $35 billion to $92 billion.

All That GLITTERS?

Skeptics claim that PAXG and Tether Gold, both developed by Paxos, have only risen due to a general rush for physical gold. In fact, they track the price of gold which has climbed about 8.5% this past year. PAXG’s value has increased by 4.5% in the past week, which is 4.5% more than gold’s.

SPDR Gold Shares is an exchange-traded funds managed by State Street Global Advisors (NYSE:) is currently up 7.6% for 2022

The (cryptogold) tokens are not immutable. These tokens are essentially IOUs made using the blockchain infrastructure,” Alex Thorn from Galaxy Digital, New York said.

Investors would need to decide if they have the same confidence in PAXG or the gold ETF.

They are both basically synthetic exposure to gold backed up by gold holdings. Trust is perhaps something that investors would look at when making a decision about whether Paxos should be trusted as State Street.

However, such coins are praised by advocates because they allow you to own gold with no need for physical bars or coins.

PAXG requires that an investor invest at least 0.01 ounces of gold. This is roughly equivalent to $20. An investor would spend $184 for every SPDR Gold ETF share.

Millman of Gainesville Coins also claimed that stablecoins with gold backing boosted the credibility and legitimacy of cryptocurrencies.

One of the biggest criticisms about cryptos is their volatility. “Hence the idea of backing a token with stable commodities,” he stated. Combining these two could help boost trust in cryptos.