Gold-backed cryptocurrencies are unique cryptocurrencies with stable backing in the crypto space.
These stablecoins, directly linked to physical gold, offer investors a reliable and secure alternative for transactions, investments, and hedging against high market volatility.
By representing specific quantities of gold held in secure reserves, these cryptocurrencies ensure stability while also providing the potential for additional returns.
In this article, we explore what gold-backed cryptocurrencies are, how they function, examples of gold-backed cryptocurrencies, and so on.
Gold-backed Cryptocurrencies are a form of stablecoin directly linked to physical gold.
Each token or coin represents a specific quantity of gold securely stored by the issuer or custodian.
The value of these crypto tokens remains stable, as it is mainly tied to the current market price of gold. These cryptocurrencies have various use cases:
This is because precious metals like gold have less market volatility and can withstand inflation.
Gold-backed cryptocurrencies operate by having physical gold held in reserves. These gold reserves are typically managed by custodians, often banks or third-party institutions.
You should know that the backing ratio to gold varies depending on the cryptocurrency. Some gold backed tokens are backed to a 1:1 ratio (1 token to 1 gram of gold). While other gold-backed tokens may represent a fraction of an ounce.
Investing in gold-backed crypto offers stability and security, as gold has historically maintained its value.
The value of these cryptocurrencies will not drop below the value of gold, making them relatively stable investments. Additionally, the value of gold-backed crypto can potentially exceed the value of gold itself.
Many gold-backed cryptocurrencies are built on the Ethereum blockchain, which means they are ERC-20 tokens. This means they can be easily stored and traded in wallets and exchanges compatible with ERC-20 tokens, like the BitDelta wallet and exchange.
Examples of the best gold-backed crypto tokens and stablecoins to buy now are:
XAUT is a gold-backed token issued by Tether, representing one troy ounce of gold stored in Swiss vaults. XAUT can be redeemed for physical gold or cash and traded on exchange platforms.
DGX offers fractional ownership of 99.99% pure gold from certified refineries. Each DGX token represents one gram of gold, which is audited and insured. It can also be redeemed for physical gold or cash.
The PAXG cryptocurrency represents one troy ounce of gold stored by Paxos in Brink's vaults. PAXG is allocated to specific bars with unique serial numbers, and can be redeemed or traded on exchanges.
GLC is a decentralised cryptocurrency backed by one gram of gold, allowing redemption for physical gold or cash. Staking GLC in master nodes offers additional earning opportunities.
PMGT is a tokenized version of the GoldPass certificate from the Perth Mint, representing one troy ounce of gold stored in their vaults. PMGT can be redeemed or traded on exchanges.
MCAU uses the Algorand blockchain to enable fast and scalable gold transactions. Each MCAU token represents one gram of gold which comes from Australian refineries, and these tokens can be redeemed or traded on exchanges.
Investing in gold-backed crypto has both its pros and cons.
Gold-backed crypto offers stability because of its backing by physical gold. This maintains consistent value over time. It acts as a hedge against price volatility, inflation, and currency devaluation.
Gold-backed crypto benefits from the high liquidity of gold, allowing easy conversion into cash or other assets without significant loss in value. It can be traded on various platforms and redeemed for physical gold or fiat currency.
Gold-backed crypto enables fractional ownership, making gold more accessible to small investors.
Gold-backed crypto tokens eliminate the need for holding physical gold which can be expensive. And can be used for online transactions and accessing blockchain applications.
Legitimate gold-backed cryptos may have a higher value than the spot price of gold, offering potential additional returns.
Gold-backed crypto provides access to various blockchain applications beyond traditional gold ownership.
Let’s move on to the cons.
Gold-backed crypto relies on centralized issuers and custodians, introducing the risk of fraud, theft, mismanagement, or insolvency.
Researching the credibility and security measures of the token issuer and custodian is crucial.
Investing in gold-backed crypto involves various fees, such as transaction, storage, redemption, or management fees. Comparing fees and benefits among options is important for cost-effective choices.
Investing in gold-backed crypto indirectly involves the ownership of physical gold, requiring considerations for storage and security.
Large amounts of physical gold can incur costs or losses associated with holding and managing, impacting overall investment performance.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.