Explore whether gold-backed cryptos can outperform gold investments in a stable market
The extreme volatility and unpredictable nature of Bitcoin are why some individuals are apprehensive about investing in it. Because it may be used as a store of wealth, Bitcoin is frequently referred to as “digital gold,” yet its price can change considerably quickly. For this reason, some investors like gold-backed cryptocurrencies, which are virtual currencies connected to actual gold. These currencies are more dependable and stable than other cryptocurrencies because they have a fixed value corresponding to the gold price.
Because of their lower price volatility and more predictability, gold-backed cryptocurrencies are sometimes known as “stablecoins.” According to UAE-based cryptocurrency trader and expert Brian Deshell, cryptocurrencies backed by gold have inherent worth that other digital assets do not. He said that these currencies have an edge over other cryptocurrencies in that the value of the gold backing them will always stay below that amount.
Why is the Popularity of Gold-Backed Cryptocurrencies Increasing Right Now?
The ability to send money anywhere to anybody, without using a middleman is one benefit of cryptocurrencies like Bitcoin and Ether. However, the fact that they are unpredictable and volatile is also a significant drawback. Using them for daily needs is challenging because of how quickly their costs might fluctuate. To ensure their security and well-being, people frequently want to know how much their money will be worth. The UAE-based trader and analyst for cryptocurrencies, Brian Deshell, said this. He added that this is why gold-backed cryptocurrency is currently more well-liked.
A form of digital money known as “gold-backed crypto” is based on the price of the precious metal, which is more reliable and stable than other cryptocurrencies. A stablecoin is a gold-based cryptocurrency with fewer price swings and greater predictability. But this is hardly a brand-new notion. To stabilize the economies, various currencies used to be backed by gold. This was due to the value of gold as a resource for governments and central banks. However, this system ended when people began to hoard gold during economic downturns, and governments could not keep up with it.
The Recent Gold Price Rise Supports the Success of Gold-Backed Cryptocurrencies
Gold is a valuable metal that has been used as a store of value for a long time, so the value of gold-backed cryptocurrency is based on the price of gold. Investors should take gold price trends and changes into account before making a gold-backed cryptocurrency purchase, according to Zubair Shakeel, an investment adviser headquartered in the United Arab Emirates. In early 2022, he claimed, gold prices almost hit record highs of over $2,000 (Dh7,346) per ounce, but by year’s end, they had fallen by more than 20%. Additionally, he claimed that the beginning of 2023 saw many ups and downs for gold prices. Bitcoin’s price fluctuated far more dramatically than gold’s price.
Taking Bitcoin as an example, its value dropped by 50% in the middle of 2021 before increasing by 100% in just two weeks. Additionally, in late 2021, Bitcoin reached an all-time high before falling 30% in a single month. As a result of these price fluctuations in cryptocurrencies, according to Shakeel, it is difficult to predict returns on investments. According to him, investors may continue to gain from the rising price of gold, which increases the allure of cryptocurrencies with gold backing.
As he stated, an asset was stronger and more stable the more valuable it was. Additionally, he claimed that gold was a secure investment because of its extremely low volatility and immunity to other market elements in times of economic instability. According to him, these characteristics have helped gold-backed cryptocurrencies become quite well-liked in recent years.
Despite Some Hazards, Gold-Backed Cryptocurrencies Provide Stability
The stability of crypto with a gold backing over other crypto choices like Bitcoin or other cryptocurrencies is one of its primary benefits. The price fluctuations and predictability of gold-backed cryptocurrency are also lower than those of Bitcoin, which can have large swings. However, according to Brian Deshell, a cryptocurrency trader and analyst from the UAE, gold-backed cryptocurrency offers few advantages over other forms of cryptocurrency or precious metals. He claimed that, in most situations, the development and profit potential of cryptocurrency backed by gold were minimal. According to him, investors can find other assets like stocks, bonds, or rental properties more alluring. Additionally, he cautioned against cryptocurrency investments due to cybersecurity threats, including phony trading platforms that can jeopardize investors’ accounts.
