Gold and Crypto: A Match Made For Crisis Investing?

It is not hard to fathom that the global pandemic had a pretty significant impact on the financial markets. A lot of stocks plummeted, and people rushed to squeeze out any financial gains possible from what was left to take. Later, the prices went up and down, with no certainty when any stability may ensue. The rollercoaster-like price fluctuations left investors unsure as to what a good investment was. It prompted many people to return to basics and invest in the tried and true – real gold. That is not only because it seems traditional and safe, but the price of gold rose to a newfound all-time high. On the other hand, we have cryptocurrencies. These have also gathered quite a lot of interest recently.

 Due to significant media hype, cryptocurrencies went from being an insider tip to public knowledge. Success stories of people becoming rich overnight flooded news channels, and people were quick to jump on the bandwagon. It was made to seem as if crypto investments and crypto mining were like making money out of thin air, just like a game. In some cases, such as  Mr Bet casino, sheer playfulness can add funds to your pocket. However, is crypto all it is made out to be? Let’s take a look at digital currencies and their relation to physical gold.

 Reliability of Investment: Stocks vs. Gold

 Between March 15 and August 10, the gold price rose by 43%, hitting $2,061. After that, it wound down a little, because a lot of people started buying it. Loads of other stocks on the S&O 500 index were plummeting at the time. Whenever stocks took a hit, gold remained a lot more stable in terms of value. That was a testament that even during dips in the financial market, the metal did not fluctuate as heavily. In conclusion, it seems that gold is far safer than stocks for investing.

When it comes to cryptocurrencies, Bitcoin is considered to be the leading asset. It attracts the most attention among young investors. Enthusiasts go so far as to say that it will replace the US dollar in the coming future. One argument for the superiority of Bitcoin is that it has a finite nature. Unlike the US dollar, bitcoins have a set amount of 21 billion in total. That renders it safe from creating more and causing an inflation of the cryptocurrency. The US dollar can be printed as much as the federal reserve desires, making it prone to vast value fluctuation.

 However, Bitcoin also has experienced some significant fluctuations in price over the past few years. In February of 2019, it dropped down to $3,858. After that, it rose to $12,542 in the middle of August. As of December 2020, the price is at a staggering height of $20,143. Some see this meteoric rise as a validation that Bitcoin will keep shooting up, while others accuse it of potentially being a “pump and dump” scheme. No one knows what is true for sure, but the rise of cryptocurrency looks promising when taken at face value.

The Rise of Gold-Backed Tokens

Interestingly, the crypto market found a way to use the stability of gold for its purposes. Namely, to improve the resilience of digital currency. Startups launched coins that are essentially backed by actual gold, which is stored by legitimate gold wholesale agents. Some of the startups include Paxos Global’s PAX Gold (PAXG), Perth Mint’s Gold Token (PMGT), and Tether Gold (XAUT). It should be noted that several of the gold tokens do have their issues regarding liquidity, which makes it tricky for retail investors to get access to them. That is because they did not track the gold price entirely well. 

PAX Gold shows the most accuracy with the actual gold price, but not completely. The correlation is at around 26%. However, CACHE Gold (CGT) looks to have cleared this issue by offering a fully redeemable token that is backed by gold. A huge bonus is that the company allows retail investors to purchase or sell tokens in very small quantities, starting from $10.00. That opens the market up for a wide variety of people who are intrigued by the promising concept. Rightfully, the notion of combined crypto and gold coins seems to be very alluring as it combines the best of both worlds – the stability of gold and the great innovation of cryptocurrency.

Gold and Crypto: A Match Made For Crisis Investing?

The Challenges of Gold Token Price in Relation to Gold

 Some say that gold-backed crypto is still far from being perfect. The main challenge of gold-backed tokens is having an accurate price correlation to gold. It is argued that the bigger the gap between the gold token and the spot price of gold, the less alluring the concept becomes to investors. However, as of now, PAX Gold states that they offer tokens that are backed 1:1, each one being worth one fine troy ounce of actual gold. That may be a worthy argument to silence the naysayers. Still, it should be taken into consideration that the accuracy of price correlation is open to market fluctuations, so how safe the investment is will depend on possible variations. Then again, investments are never guaranteed to succeed.

 Conclusion

All in all, the global financial market has still not quite recovered from the unfortunate effects of the pandemic. The S&P index may seem like it has rebounded, but some analysts say that is not something to bank upon during these challenging times. Some hold the position that the market is still shaky and could potentially plummet, especially if there is a second wave of COVID-19. In preparation, it could be smart to diversify one’s investments, and gold is still the most stable thing to invest in. Whether that be digital or real gold coins is up for debate. What do you think of gold-backed tokens? Please leave your comments in the section below. We are keen to hear your thoughts on this topic!

Leave A Comment

Your email address will not be published. Required fields are marked *