Enterprises and institutional investors are beginning to favor digital assets over precious metals as a store of value and a means of leverage. This includes gold bugs who want to maintain their exposure in the gold market.
The latest data from on-chain data aggregator, Kaiko, shows that investors are more inclined to buy gold stablecoins. They are less volatile amidst the current uncertain market conditions. This may be because they offer investors exposure to gold without the downsides like the ease of liquidation.
Popular crypto tokens such as PAX Gold (PAXG) and Tether Gold (XAUT) are considered by institutional investors as a better hedge against inflation. These stablecoins have made their way to the top 300 cryptocurrencies by market capitalization.
Gold Stablecoins Becoming Favourites Amid Geopolitical Tensions
The demand for gold stablecoins has increased, especially in the ongoing tension between Russia and Ukraine. The instability in both countries has boosted the appeal for gold which has seen a 5% increase since the start of February, hitting a multi-month high.
On the other hand, Gold-backed stablecoins have seen a slight upward trend on centralized exchanges.
Source: KAIKO
As seen in the chart above, the trade volume of PAX Gold has slightly surged above $20M since February 2022. Similarly, the daily trade volume of Tether Gold saw a small increase within the same time frame.
Gold stablecoins are digital tokens backed by gold. Each token is worth the same amount of gold in the real world. Every token issued by PAXG is backed by one fine troy ounce (t oz) of a 400 oz London Good Delivery gold bar, stored in Brink’s vaults.
Investors can even lookup the address and receive a serial number of the physical gold bar that backs their token.
Gold stablecoins allow investors to participate freely in trading the precious metal without going through the hassles related to the storage of physical gold owing to higher security.
Institutional Investors Looking to Invest in Digital Forms of Gold
One of the arguments presented by investors is that gold appears to be a lot less volatile in the short term.
As inflation rates keep rising, currencies such as the US dollar will be worth much less in the future and traditionally, investors are looking at gold as a hedge.
However, more investors are turning to Bitcoin to preserve their wealth. With a maximum supply of 21 million coins and a circulating supply of 18.97 million, many see it as the perfect hedge against inflation.
The fear of missing out by institutional traders is evident as the flow of funds has shown. According to JP Morgan Chase, there is more demand for Bitcoin as institutional investors move gold exchange-traded funds (ETFs) to Bitcoin. This shows massive demand for Bitcoin by retail and institutional investors. Over $1 billion was added to its crypto products in Q3 2020
Despite the rush for digital assets, investors are more dedicated to looking for stable investment options like gold stablecoins. With global uncertainty ranging from the ongoing Russian invasion of Ukraine, gold is becoming more attractive to investors.
Do you think gold would surpass cryptocurrencies as the popular hedge against inflation? Let us know your thoughts in the comments below.
