Shark Tank star Mark Cuban recently aired his thoughts on Ethereum’s upcoming “Merge” upgrade. He pointed out how Ethereum’s utility as a smart contract platform and as a deflationary asset are at odds. In an interview with Altcoin Daily on Sunday, Cuban explained that there is an inverse relationship between deflation and utilization of Ethereum. “If utilization goes up, and the value of a token goes up, then the cost to do something goes up,” he explained. “So you have…
Financial markets worldwide are struggling to cope with one of the worst economic crises in recent history. The crypto market is not an exception, seeing most of its assets alternating between fleeting highs and depressing lows. In these uncertain times, investors are looking toward reliable assets to stabilize their portfolios, and the answer could come from gold-backed tokens.
But are these gold-pegged cryptocurrencies enough to mitigate the extreme volatility of the crypto market?
During times of severe stress and confusion, we tend to return to a safe place we know and control. In a financial crisis, it is only natural to return to an asset people have relied on for millennia. Gold remains a predictable bearing when navigating turbulent economic seas and might even help crypto investors weather this storm.
Why Gold Could Be a Financial Lifeline
The crypto market has risen to unexpected heights in the past two years. Some of its leading assets, including Bitcoin (BTC) and Ethereum (ETH), have surpassed even the wildest predictions. As a result, savvy investors built substantial portfolios in a short period, a feat rarely possible in other financial sectors. Meanwhile, even the least-inspired financiers reaped the benefits of crypto trading and staking.
Unfortunately, nothing good lasts forever, and the crypto market backed this fact by recording up to 70% in pullbacks. This sour turn of events shrunk many investors’ portfolios. The savvy ones lost significant chunks of their investments. On the other hand, the least-inspired ones lost everything.
The crypto market is bound to bounce back, as in most financial sectors. Investors of all kinds will be able to regroup and rebuild their portfolios. However, now they will be looking for more reliable assets to curb the line of potential future financial disasters of similar magnitudes.
While Bitcoin and its pursuing cohort of altcoins were thriving, gold was silently but steadily growing as well. Of course, it didn’t hold any headlines with its significant value boost over two years. But after all, people are used to gold’s reliability, and all the spotlights were on the young and rebellious crypto assets.
Historically, gold has overcome inflation without flinching. Some investors are dropping their crypto investments like hot potatoes, redirecting funds towards the glistening precious metal. However, that may not be necessary. Crypto assets pegged to gold could provide the best of both worlds. Above all, they could ensure investors keep a steady foot in the crypto market despite its volatility.
Can Gold Solve Crypto Market Volatility?
One of the main criticisms of Bitcoin is its lack of tangible value in the real world. Its opponents often argue the popular asset has no physical representation for more relatable financial purposes. We will not dive any deeper into this debate. However, this criticism is not valid for another class of crypto assets, gold-backed tokens.
A gold-backed token is a cryptocurrency using the real-world value of gold to maintain a steady price course. Every token of this kind is backed by a real-life piece of gold bullion, usually in safe storage in a geographically identifiable location.
Simply put, owning gold-backed tokens on the blockchain is identical to owning real-life gold. The best part is that you don’t have to worry about storage, transportation, and logistics when trading or holding it.
Bitcoin does not have a tangible representation. Several factors influence its price trajectory, including trade, volume, popularity, news, and rumors. As a result, it is highly volatile. Its turbulent fluctuation impacts the rest of the crypto market, except assets pegged to real-world goods, such as stablecoins.
Gold-backed tokens like Paxos Gold, and Tether Gold, or AABBG, rely only on the real-world value of gold, which has minor, often unnoticeable fluctuations. They enjoy real-life liquidity and universal acceptance as most investors know the precious metal’s reliability.
Furthermore, gold is a regulated asset with centuries-old representation in markets worldwide. Unlike the crypto sector, gold is subject to national and international regulations. This factor helps it deal much better with inflation.
Gold-backed tokens represent the next step in gold trading evolution by combining a universally-accepted asset with modern blockchain technology. The relatively stable price of gold makes these stablecoins nearly impervious to crypto market volatility. Therefore, gold-pegged tokens could become a means of exchange for investors, businesses, and institutions.
Gold-Backed Tokens Could Keep Investors in the Market
Inflation is currently spreading as a suffocating blanket over most financial markets, including stocks and crypto. Meanwhile, fiat currencies like USD and EURO are weakening and indicating the growing value of gold.
Not every investor can jump on the bull-surging gold bandwagon successfully. However, as holders of gold-backed tokens through crypto integration, most investors can acquire the precious metal. Even if they never get to touch or see the physical asset, they still hold undisputable value by owning its virtual representation on the blockchain.
Gold-backed tokens provide investors with a fundamentally strong asset they can buy, hold, and grow. They also ensure reliable wealth management while the crypto market matures and overcomes its speculation-infused volatility. So, when the storm passes and the markets recover, gold-pegged token holders may have sturdy resources to build their portfolios.
The fusion between gold and crypto enhances the benefits of both asset classes paving the way forward to a brighter, more secure future. Above all, it can bring investors to the crypto market and keep them there despite volatility or unstable economic periods.