With Gold-backed Tokens Crossing $2B, Has Crypto’s Elusive Safe Haven Arrived?
When gold hit a new all-time-high of $3,500 on Tuesday it put the spotlight on gold-backed tokens — a discrete class of cryptocurrencies that’s quickly capturing interest.
Last week the total market cap of gold-backed cryptocurrencies reached $2 billion, up from about $12.85 million in 2020. With Goldman Sachs predicting gold will hit $4,000 by the middle of next year, should investors make gold-backed tokens a staple in crypto portfolios?
The potential benefits are persuasive but limited utility in decentralized finance (DeFi) is a serious drawback. That could be about to change.
What are gold-backed cryptocurrencies?
Gold-backed cryptocurrencies are blockchain-based tokens redeemable for a specific measure of gold, typically 1 token for 1 troy ounce (31.3g) of gold.
They differ from mainstream assets like Bitcoin in that they are less subject to volatility, while their divisibility, transportability, and interoperability give them advantages over paper and physical gold.
Gold-backed cryptocurrencies offer a unique blend of stability and innovation by bridging the gap between gold — the original safe haven –and the dynamic world of crypto and blockchain. They offer investors an alternative inflation hedge and a shield from market volatility.
However, their integration into the broader crypto ecosystem remains a work in progress, with three core challenges yet to be overcome: regulatory uncertainties, liquidity constraints, and limited DeFi use cases.
Where tradition and innovation intersect
Crypto purists often say Bitcoin makes gold redundant since BTC shares similarities with the precious metal like capped supply and decentralized control. In unsettled times, however, gold’s ancient trading history and global acceptability have only strengthened its reputation as the world’s go-to safe haven.
Bitcoin’s reliability as an inflation hedge is …
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