Crypto tokens tied to gold, a traditional inflation hedge, continue to see solid growth amid a turbulent geopolitical backdrop as the specter of stagflation hangs over the global economy.
Digital assets backed by gold have seen demand surge since the start of 2022 according to data from Arcane Research. The market cap of PAX Gold and Tether Gold, two of the largest crypto coins pegged to the price of gold, surpassed $1 billion earlier this week, an increase of 60% this year to date.
“Bitcoin has underperformed in this uncertain macroclimate, but many investors still view it as an inflation hedge,” commented Arcane Research in a blog post.
“Gold tokens can be helpful tools since they allow crypto investors to diversify inflation bets through familiar crypto market infrastructure,” the post added.
The price of gold has jumped by nearly 10% this year to trade above $2,000 per ounce, yesterday approaching the $2,070 mark. Meanwhile the market cap of PAX Gold, an asset-backed by physical gold reserves, swelled by 50% in February allowing the project to overtake Tether Gold’s position as the largest gold-backed token.
Investors are flocking to assets seen as a store of value amid Russia’s conflict with Ukraine which caused global stock markets to tumble.
“Stagflation is a serious risk and a higher and longer inflation is close to a certainty,” Singapore’s Monetary Authority said early on Wednesday, according to ForexLive.
While the crypto community considers bitcoin an inflation hedge, the top digital asset tends to move or less in tandem with high-beta stocks, perhaps because it is also an emerging technology sensitive to expectations of monetary tightening by the US Federal Reserve and other central banks. The cryptocurrency is down 2% this year.
“Bitcoin (BTC) has underperformed in this uncertain macroclimate, but many investors still view it as an inflation hedge,” Arcane Research noted. “Gold tokens can be helpful tools since they allow crypto investors to diversify inflation bets through familiar crypto market infrastructure.”
However, Arcane Research noted that despite excessive growth, gold-backed tokens still account for a minimal share of the total crypto market, at just 0.05%.