div classBodysc17zpet90 cdBBJodivpBy Lisa Pauline Mattackal and Medha Singhp
pReuters – A fledgling class of crypto that feasts on risk is outshining a wider market paralyzed by war and inflation.pdivdivdiv classBodysc17zpet90 cdBBJodiv
pCoins backed by gold are newer variants of “stablecoins”, which are typically pegged to the dollar to tame volatility. The largest, Pax Gold or PAXG, has jumped 7.4 in 2022, while main rival Tether Gold has leapt 8.5.p
pBy contrast, bitcoin has lost over 13 and ether is down 20. p
p“One of the main concerns that a lot of people who are new to crypto have is that its not backed by anything. It just gets on a screen,” said Everett Millman, chief market analyst at Gainesville Coins. “So attaching them or linking them to a realworld commodity, it does make some sense.”p
pThe reach for gold, a traditional hedge against geopolitical upheaval and inflation, is unsurprising. The demand for goldbacked cryptocurrencies, though, is new. p
pStablecoins, a fastgrowing breed of crypto, have emerged as a common medium of exchange, often used by traders seeking to move funds around. It is easier to swap major stablecoins for bitcoin or other crypto, for example, than it is to swap traditional money like U.S. dollars for bitcoin.p
pTether Gold has been buoyed by bigger investors, including “whales” with 1 million or more of cryptocurrency, using the token to change a portion of their holdings into gold, according to Paolo Ardoino, Tethers chief technology officer.p
p“Many of our investors were already involved in crypto, but were interested in not having their entire wealth in cryptos or in dollars, and were seeking more inflationresistant assets like gold,” he said. p
pYet goldbacked coins are still a niche novelty in the crypto market at present – PAXG and Tether Gold are barely over two years old – with thin liquidity and little certainty about their longterm fortunes.p
pPAXG has seen its market value almost double to 627 million this year, while Tether Gold has risen 9 to above 209 million. By comparison the latter‘s eightyearold sibling, dollarpegged Tether – the world’s largest stablecoin – has a market cap of over 83 billion.p
pAccording to data from CoinMarketCap, daily PAX gold trading volumes ranged between 10 million to 520 million over the past month, compared to ether volumes which fluctuated between 8.7 billion and 25 billion in April. Dollarpegged tethers 24hour volumes ranged between 35 billion and 92 billion. p
pALL THAT GLITTERS？p
pSceptics argue that PAXG, developed by the company Paxos, and Tether Gold have merely risen on the coattails of a broad rush for gold indeed they have tracked the price of physical gold, which is up about 8.5 this year. PAXG is up 4.5 since Feb. 23, the day before Russia invaded Ukraine, versus golds 4.p
pThe SPDR Gold Shares exchangetraded fund, which is managed by State Street Global Advisors, is up 7.6 in 2022.p
p“The crypto gold tokens themselves aren‘t immutable. They’re literally just IOUs that happen to be using blockchain infrastructure,” said Alex Thorn, head of firmwide research for Galaxy Digital in New York.p
pHe said investors would have to determine whether they should have the same level of confidence in the companies behind PAXG and the gold ETF.p
p“Theyre both basically synthetic gold exposure backed by gold holdings. Perhaps trust is part of the thing that people would consider when deciding whether we can trust Paxos the same way we trust State Street.”p
pNonetheless, advocates of such coins say they offer the ease of owning gold without having to worry about storing a physical coin or bar, while eliminating the minimum margin requirements often required to trade gold on traditional markets.p
pPAXG, for instance, requires a minimum investment of the equivalent of 0.01 ounce of gold, roughly 20, versus the 184 an investor would pay for each share of the SPDR Gold ETF. p
pMillman at Gainesville Coins also argued that goldbacked stablecoins bolstered the credibility of cryptocurrencies.p
p“One of the main criticisms of cryptos is that they have been so extremely volatile. Hence, the idea to back a token with a stable commodity,” he said. “The marriage between those two things could actually also bolster confidence in cryptos.” p
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pp Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru Editing by Vidya Ranganathan and Pravin Charp
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