Bitcoin and gold have been rising in tandem, because the greenback has been falling. It has additionally pushed the expansion of the market cap of digital gold tokens, backed by the valuable metallic commodity, to report highs.
What precisely has brought on this speedy development in market cap, and does this pose any risk in opposition to Bitcoin?
Market Cap of Commodity-Backed Gold Tokens Soars 1000% In 2020
Bitcoin and gold share a number of key similarities, resembling provide shortage. Bitcoin’s advantages quickly start to outweigh the valuable metallic, particularly by way of storage and safety.
Gold present in a bodily type makes it far much less transportable and sometimes requires storage in a vault or secure. It additionally leaves the asset extremely susceptible to theft, until saved safe on this manner.
To alleviate any challenges confronted with storing gold and to keep away from the excessive premiums gold bars are at present fetching, a brand new development of digital gold tokens has emerged.
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These tokens are backed by a corresponding quantity of the commodity, and sometimes characterize digital possession over an actual bar saved in a safety facility elsewhere.
The current 2020 gold rush because of the financial uncertainty of 2020 has prompted the market cap of those commodity-backed tokens by 1000% to over $100 million and climbing.
The entire gold token market cap has achieved a complete of $139 million, with $82 million attributed to Tether Gold (XAUT) and $56 million to Paxos Gold.
Why Commodity-Backed Tokens Pose No Menace To Bitcoin and Crypto
If Bitcoin has lengthy been thought-about digital gold because of necessary comparative attributes, then are these commodity-backed tokens rivals to the cryptocurrency?
In a way, sure. All different tokens and gold itself are all competing in opposition to Bitcoin for capital. Nonetheless, these property pose no critical risk to Bitcoin.
For one, the mixed market cap has solely reached $140 million. Bitcoin’s market cap is over $200 billion. Bitcoin additionally has a hard-capped provide of solely 21 million. Whereas gold could also be finite, it has an undetermined remaining provide.
Bitcoin can also be a decentralized, non-sovereign community, whereas these gold tokens are backed by a commodity held by a centralized firm that’s sure to native authorities legal guidelines. The cryptocurrency present outdoors of those boundaries presents a price treasured metals merely can’t match.
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As an alternative, these tokens are offering buyers a substitute for gold, not Bitcoin, as a neater option to retailer the asset, entry the market, or maybe personal a smaller sum. Like different crypto tokens, commodity-backed cash are divisible by decimal factors.
Additional fueling the expansion is the current enhance in safety fears from the rich. In line with current studies, buyers in Hong Kong have been transferring their treasured metals offshore to Switzerland and elsewhere fearing theft or seizure. As an alternative, their wealth could possibly be saved digitally, in tokens backed by the identical commodity they’re sweating over.
It’s for causes like that, that these commodity-backed tokens will proceed to develop, but additionally will proceed to pose no risk to the highest cryptocurrency.
Featured picture from Deposit Pictures.