Bitcoin and Ethereum have been leading the crypto market rally in 2021, bringing huge profits to investors. But that all changed when Elon Musk posted a tweet merely hinting that he’s fallen out of love with the world’s top digital currency. On top of that, China’s central bank announced that all transactions involving cryptocurrencies are illegal and banned digital tokens like Bitcoin.
As expected, investors have started to look at other cryptos. The upside is that the field of cryptocurrencies is constantly expanding, and the next great digital token may have already been released.
Cryptos backed by gold are becoming increasingly appealing for investors looking forward to hedging against investment risk. Gold-backed cryptocurrency is backed by 100 percent physical gold. To put it simply, the value of the digital asset is underwritten by the equivalent price in gold. The digital currencies hold a more stable value.
This new class of digital tokens provides the best of both worlds – gold and cryptocurrencies. Several gold-based cryptocurrencies have gained attention in recent years, yet they offer unrealistic promises, not to mention that some of the projects aren’t even backed by gold.
Precious Metals Like Gold Have Always Been Key Commodities in The Trade Market
The role of gold in the monetary system is limited by the scarce availability worldwide. Gold is in short supply, so it can’t be used as a means of transaction, such as coins. Nonetheless, it can be traded. Speculators, funds, and investors buy and sell gold at a fixed exchange rate. At present, gold is part of most central banks’ foreign exchange reserves, although its share has steadily declined.
Currencies are defined in relation to a certain amount of gold. Therefore, they can be converted at home or abroad into a fixed amount of gold per unit of currency. Exchange rates between countries are fixed.
Gold represents an effective commodity investment because it tends to do well in reflationary periods. It outperforms other equities and bonds. Volatility increased across major assets and commodities in 2020 because of uncertainty brought about by the COVID-19 pandemic, but gold was largely unaffected.
As an investment asset, gold has performed exceptionally well in the last years. It’s a multi-faceted asset that enjoys diverse supply and demand dynamics. There’s no better time than now to invest. The health crisis continues to push the price of precious metals higher. The experts at Goldman Sachs expect gold to soar throughout 2021.
Developers Have Had an Interest in Creating a Gold-Backed Digital Currency Since Forever
Since the dawn of cryptocurrency trading, developers have bent over backward to create an electronic form of money that’s backed by gold reserves held in private vaults. The question now is: Why? Well, the baseline (that is, the minimum value) of the digital token is the same as the fixed amount of gold.
This, in turn, ensures protection against a sudden drop in value. Volatility is eliminated, so it doesn’t affect the portfolio. There are several other differentiators between gold and other commodities, as follows:
- It’s highly liquid.
- It maintains its value, rather than depreciating.
- It’s a more effective diversifier.
As opposed to physical gold, gold-backed cryptocurrency is easier to store. It’s stored in a digital wallet, which comes in the form of a smartphone app. Digital currency doesn’t take up too much space and, most importantly, it’s readily accessible. Investors can connect to the blockchain, a decentralized, distributed, and secure digital ledger. It’s worth noting that a great many organizations use blockchain to enhance their operations.
Investors can take advantage of the steady rise of gold with AABB Gold token (AABBG), launched by Asia Broadband, Inc. (OTC: AABB), a high-margin resource company that produces, supplies, and sells precious and base metals to Asian markets.
AABBG is a hybrid cryptocurrency that presents the stable quality of stablecoin, with the token price supported at 0.1 grams of the spot gold price. The digital token will be soon available for exchange for major cryptos, such as Bitcoin, Ethereum, or Litecoin. It became available in March 2021, recording $1 million sales in the first weeks following launch.
Are Cryptos Backed by Gold a Safe Haven for Equity Markets?
Investors are actively searching for safe heavens to limit their exposure to losses in the event of a market downturn. New cryptocurrency investors aren’t willing to take on risks, as they’ve witnessed the mistakes of the past 12 years, characterized by volatile investment. Bitcoin and other leading crypto coins have experienced a considerable drop in share price, as highlighted earlier.
What investors want is a more stable crypto investment, protected from bigger market swings. The introduction of gold-backed cryptocurrency couldn’t have come at a better time. It behaves like a safe heaven and is set to attract new players in the world of cryptocurrency investing.
The spread of COVID-19 is ongoing and there’s no way of knowing when it’ll go from pandemic to endemic. The chaos caused might lead to hazardous activities that can lead to substantial losses. As the equity market is slowly but surely declining, it shouldn’t come as a surprise that investors are moving towards safer assets.
Where can they find some level of stability? Gold-backed cryptocurrency represents an alternative investment that could replace old safe-havens. It’s the next wave of innovation. It’s believed that more gold-based cryptocurrencies will enter the equity market. Their place in financial history is still forming.
In the wake of many failed exchanges, gold-backed cryptocurrency has risen in prominence. It’s essential that the actual cryptos backed by gold maintain a stable price/earnings-to-growth ratio to support growth and promote more acceptance. Investing in cryptocurrencies, regardless of their nature, can be a risky undertaking, so it’s recommended to reach out to a qualified professional and not make financial decisions on your own.
It’s in your best interest to carry out transactions carefully. If you’ve made the decision to invest in the crypto market, take precautions. There’s less price volatility compared to Bitcoin, say, yet you must know what you’re doing.