Should You Invest in Gold-Backed Altcoins?
Gold-backed altcoins represent a digital return to the gold standard and could stabilize the crypto market. But are they worth investing in?
One of the big challenges facing cryptocurrency is volatility. Many experts question the utility of Bitcoin and other cryptos so long as their prices remain unstable.
One potential solution to this is to tie cryptocurrency directly to an asset. This has led to the rise of gold-backed altcoins over the last year or so.
How Do Gold-Backed Cryptocurrencies Work?
For centuries, most currencies were directly backed by gold or other precious metals. This provided stability and made it easier for people to understand what a dollar or doubloon was actually worth.
Proponents of gold-backed altcoins argue that the creation of a kind of cryptocurrency gold standard could be the solution to the volatility that defines the crypto market today. This gold backing means that every token has a theoretical “floor” because it represents a hard asset.
But gold-backed altcoins are generally worth more than the gold they hold. Major projects have seen a significant premium due to some of the advantages they offer over holding physical gold.
What Are the Pros and Cons of Gold-Backed Altcoins?
Consider the following:
Pros
- They are stable: The price of the token should mirror the price of the underlying gold, making it more stable than other cryptocurrencies.
- More mobile than gold: Purchasing gold in large volumes means you need store it somewhere. A gold-backed token allows you to more easily liquidate and store your asset.
- The token premium: Much like physical gold coins, altcoins can take advantage of a premium above the spot price of gold.
Cons
- Gold is more stable: While gold-backed altcoins are more stable than other cryptocurrencies, they are less stable in price than physical gold
- Lack of regulations: The cryptocurrency world is mostly unregulated, which means that there is more risk. Investors should only consider audited projects.
- Limited liquidity: Gold is hard to move but easy to sell. Small gold-backed altcoin projects can have the opposite problem. Investors need to ensure that there is adequate demand or a way to convert their tokens into a physical asset.
What Gold-Backed Altcoins Should Investors Consider?
Accountability is the alpha and omega of gold-backed altcoin investing. It doesn’t matter how good a project sounds. If they’re unwilling to prove that they hold the assets they claim, it’s most likely a scam.
With that out of the way there are a handful of projects that are worth looking at:
- The Perth Mint Gold Token (PMGT): The first digital gold token on a public blockchain backed by Australian government-guaranteed gold. Each PMGT is a tokenized version of a GoldPass certificate, which is 100% backed by physical gold stored in The Perth Mint’s central bank-grade vaults.
- Paxos Gold (PAXG): Another example of a well-regulated stablecoin. Each PAXG corresponds to one troy ounce of a specific serialized gold bar that complies with the London Good Delivery standard, stored in Brink’s vaults.
- Tether Gold(XAUt): One of the most liquid gold-backed altcoin projects. As with the other examples, each XAUt represents ownership of one troy ounce of physical gold tied to a specific gold bar.
All of these tokens are easily redeemed for their underlying gold. As a result, they all closely track the price of gold.
The Future Is Bright for Gold-Backed Altcoins
Gold-backed altcoins provide liquidity to gold and stability to cryptocurrencies.
As a result, they could well be the future of the cryptocurrency world. In either case, with gold prices on the rise, offer a valuable new way to invest.