While Bitcoin is losing some of its appeal as “digital gold,” some investors seem to be drawn to tokens backed by the physical version of the yellow metal. According to data compiled by Arcane Research, the total market capitalization of gold-backed tokens has increased 30-fold since early 2020. This gold craze is clearly linked to fears about a sustained return of inflation.
Gold-backed tokens on the rise
The Bureau of Labor Statistics had announced on May 10 that U.S. consumer prices rose about 5 percent over the 12 months, the fastest pace since August 2008. As social distancing measures are lifted and economies reopen, demand for consumer goods is soaring. As demand outstrips supply, commodities are sold to the highest bidder, helping to drive up prices and by extension inflation.
Many investors, like Michael Saylor, see Bitcoin as the only effective protection against inflation. However, this implies entering the market at the right time. Indeed, investors wishing to protect themselves against inflation are generally risk averse. As such, Bitcoin’s scary falls are not always to their liking. That’s why a growing share of this type of investor is turning to tokens backed by physical gold.
Carl Vogel, Senior Product Manager at Paxos, as well as data compiled by Arcane Research, confirms this hypothesis: more and more traders are using gold-backed tokens as a protection against inflation. This does not necessarily affect the price of gold, as the market is so huge. Nevertheless, we are seeing a frenzied growth in the capitalization of these tokens.
The PAX Gold (PAXG) token, issued by stablecoin specialist Paxos, was introduced in 2019 as an ERC-20 token.
Initially, this token typology was not an immediate success, but the market seems to realize the value of such an asset, as shown by the increase in its capitalization over the last 6 months. As of January 1, 2021, the capitalization of PAX Gold was $75 million, and now exceeds $275 million. To a lesser extent, the Tether Gold issued by Tether has also benefited from the inflationary macroeconomic environment.
We will finish this round-up of tokens backed by physical gold by mentioning the French Veraone project and its VRO token, the possession of which is associated with that of 1 gram of physical gold. An initiative that enriches a growing ecosystem, all within the framework of the activities of the leading group in the market Aucoffre.com.
In our previous analysis of gold, the king of precious metals had started a bullish phase, but failed to break through the $1,920 per ounce level. This key level corresponds to an all-time high reached in 2011, during the episode of the sovereign debt crisis that induced an inflationary context. Similarly, Bitcoin has not managed to sustain itself above the $40,000 level.
