LONDON (Bywire News) - Some things never change and one of those it appears is the underlying value of gold as a safe-haven investment in difficult times. While the rest of the crypto market struggles with economic uncertainty and war, a new type of stable coins is bucking the wider gloom.
These are stable coins backed by gold rather than the traditional dollar. Tether Gold has risen by 8.4% while PAXG has jumped 7.4% in 2022. Meanwhile, Bitcoin has dropped 13% and Ether is down 20%.
Stable coins are a rapidly growing class of cryptocurrencies that have become a common medium of exchange used by traders seeking to move funds around. Unlike regular cryptocurrencies which are backed by nothing, they are tethered to the price of a more conventional asset. It has usually been the global reserve currency of choice, the dollar. Gold, though, represents a good option at a time when markets are experiencing volatility from all directions.
Although this remains a niche market, interest is growing from large investors who want more stability in their crypto holdings. The market share for PAXG has almost doubled to $6,327 million over the course of this year, while Tether Gold has risen by 9% to more than $209 million. However, it is still some way behind its dollar-backed sibling Tether Dollar which remains the largest stable coin in the world at a market capitalisation of $83bn.
Critics will argue that these stable coins have done nothing but track the positive performance of gold. The war in Ukraine, surging inflation and ongoing concerns around COVID-19 have created a uniquely volatile environment and seen investors flocking to their usual safe-haven investment, gold. It has risen by more than 8%, which has helped boost those stable coins linked to its fortunes.
Supporters of these coins, though, suggest they provide an easier way to hedge investments by pegging values to gold rather than going through the process of physically buying and selling gold. Some have also argued that having gold-backed stable coins boosted the credibility of the wider crypto-verse.
Much of where they go in the future will depend on investor confidence. These aren’t immutable, they are simply IOUs back by gold. Investors will have to decide if they have the same levels of trust in these structures as in the SPDR Gold Shares exchange-traded fund, which has risen by around 7.6% during 2022.
In the short term at least, though, it appears as if the cryptocurrency world is following the lead of more conventional finance in that – even in a virtual world – all that glitters is gold.
(Writing by Tom Cropper, editing by Klaudia Fior)