Investor confidence in stablecoins pegged to gold is on the rise, with cryptos like Pax Gold (PAXG-USD) up 7.1% this year. Its peer Tether Gold (XAUT-USD) has also experienced little to no volatility in the last 12 months. Together, the two cryptos hold a combined market capitalization of more than $1 billion. This is in contrast to mainstream cryptos like Bitcoin (BTC-USD) and Ethereum (ETH-USD), which are down 19% and 25% this year, respectively.
The bullish sentiments toward gold-backed cryptos stem from the inflation looming over the economy. Investors looking to hedge their risk in today’s uncertain market environment view gold-pegged stablecoins like PAXG as a liquid alternative to traditional cryptos.
One major drawback of cryptocurrencies is that they have no intrinsic value and are not backed by anything, making the asset more prone to volatility. However, gold-backed cryptos like Pax Gold offer the solution to the problem.
Like other cryptos, ownership of the coin is stored and monitored on the Ethereum blockchain. The only difference is that the value of the coin is tied to gold. One PAXG token represents one ounce of gold, and owners of the coin can access the serial number of the underlying physical gold bar.
This means that, like gold, these stablecoins are less likely to experience large price fluctuations. For risk-averse investors, gold-backed coins like PAXG provide a safe way to invest in cryptos — especially during times of economic uncertainty.
There are currently 326,441 PAXG tokens in supply, with more than 40% of the coins minted. Like traditional gold exchange-traded funds (ETFs), Pax Gold coins can be redeemed for the gold bars they are tied to.
The recent demand for gold-pegged cryptocurrencies is largely driven by retail investors as the threat of inflation looms over the economy. According to Paolo Ardoino, Tether’s chief technology officer, “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 inflation-resistant assets like gold.”
Gold-pegged coins are still a novelty in the crypto space, but the liquidity they offer will bolster investor confidence in an asset typically known for its risk and volatility. This makes Pax Gold a solid choice for any risk-averse investor looking for crypto opportunities.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.