When Bitcoin first launched in 2009, cryptocurrency critics disavowed the digital coin for not having the physical backing of a stable asset. They had this negative view despite leading global fiat currencies being similar, as they abandoned the US gold standard in 1971.
Risk-averse investors have also cited not investing in Bitcoin and other cryptocurrencies, or cryptos, because of their high price volatility and the lack of a central regulatory authority, such as a central bank, as is the case with fiat currencies.
The concept of gold-backed cryptocurrency, i.e., digital “stable coins” backed by physical gold, emerged to address cryptocurrencies’ price swings. These cryptos are “pegged” to an asset with a stable value, which is gold in this case, and experience less volatility compared to Bitcoin and other altcoins.
In this comprehensive guide to gold-backed cryptocurrencies, we look at:
- What gold-backed cryptocurrencies are and how they came about
- How gold-backed cryptocurrencies work
- Some popular, active gold-backed digital coins
- How to invest in gold-backed cryptos
What Is a Gold-Backed Cryptocurrency?
Gold-backed cryptocurrencies are cryptocurrencies with a physical value. The value of these digital coins is pegged to the value of gold.
The value of most digital coins is “intangible” and based on trade volume and popularity amongst investors. However, gold-backed cryptocurrencies have an associated physical and “tangible” value connected to the spot price of gold on the market.
Therefore, the parameters that make the price of a gold-backed cryptocurrency rise and fall are more understood. With Bitcoin and other altcoins, the price fluctuations seem arbitrary. When the cost of gold rises or falls, the value of gold-backed cryptocurrencies follows suit.
How do these digital coins work, though? With gold-backed cryptos, coins are issued with corresponding values to the value of gold. For instance, one coin equals one gram of gold. A trusted custodian, usually an independent third party, stores this gram of gold securely and can trade it with other coin holders.
The value of gold-backed cryptocurrencies will never fall below the value of gold at any given time, which provides these cryptos with their relative “stability.” However, the value of these cryptocurrencies can rise higher than the value of gold.
This built-in stop-loss feature is what gives risk-averse digital currency investors the confidence to invest in gold-backed coins.
However, investing in gold-backed cryptocurrencies is not without its risks. Accounting for the physical gold is not as transparent as accounting for the digital coin, which the blockchain safeguards. Determining if the gold exists and whether the storage is secure is not an easy task. Before choosing to invest in a particular gold-backed coin, ensure that you own the gold entirely and that it is stored in a secure facility.
Is Bitcoin a Gold-Backed Cryptocurrency?
Bitcoin is not a gold-backed cryptocurrency, though it has become a popular way to buy gold in recent years.
By its very concept, Bitcoin is an entirely digital currency that is not pegged to any physical asset or commodity. While gold-backed cryptocurrency existed in 1999, these stable coins did not gain popularity until after Bitcoin came onto the scene in 2009.
As Bitcoin grew in popularity, coin traders were allowed invest and exchange easily, creating more opportunities for digital currency enthusiasts to invest in gold-backed cryptocurrencies and other altcoins.
Some Well-Known Gold-Backed Cryptocurrencies
E-gold was the first gold-backed cryptocurrency system to hit the market. Launched in 1996, E-gold existed 13 years before the creation of the father of all cryptocurrencies, Bitcoin.
The E-gold system grew to a massive 5 million accounts by 2009. Legal issues, such as lagging transactions and cybercrime security concerns, then necessitated its suspension.
The launch of blockchain technology and Bitcoin launched in 2009 presented an opportunity for gold-backed cryptocurrencies to reemerge.
The largest stablecoin is Tether (USDT). One Tether token is backed by one USD. The largest token by market capitalization is Perth Mint Gold Token (PMGT) for gold-backed cryptos.
Some popular gold-backed cryptos include:
Anthem Gold (AGLD)
Anthem Gold, developed by Anthem Vault Inc., offers tokens that are each backed by one gram of physical gold. The gold is fully insured and securely stored with a nonbank operator.
The coin launched in April 2019 and is available on the Anthem Gold Edge Wallet.
Cash Telex (CTLX)
Cash Telex coins are linked to a diversified fund of gold, silver, diamonds, and real estate.
One Cash Telex gold coin equals one gram of gold that is securely vaulted. All of the gold is fully insured and audited, as well as publicly verifiable.
This fully-redeemable Singaporean gold-backed cryptocurrency is equivalent to one gram of gold. This crypto is also fully insured, audited, and securely vaulted.
All Cache gold coins are publicly verifiable at all times. The coins have a market cap of $2.9 million.
DigixGlobal, a Singapore-based company, provides Digix gold tokens, which have an equivalent gold value of one gram.
The gold is held in secure vaults in Canada and Singapore and is fully insured by the Bullion Association. The current market capitalization of this coin stands at just under $6 million.
Gold Coin (GLC)
This gold coin is worth a fraction of one gram of gold, making it incredibly accessible to traders because the barriers to entry are low. Investors can invest in this coin incrementally, so it is an affordable long-term investment choice.
GLC has been on the Ethereum blockchain for many years now, making it one of the safer investment choices. The latest known price of GLC was $0.0030449.
Perth Mint Gold Token (PMGT)
This gold-backed crypto is one of the most popular on the exchange platforms, as it is pegged to gold blocks from Western Australia’s Perth Mint. The Australian government guarantees the purity and weight of the gold, and the Mint issues digital gold certificates via the GoldPass app. PGMT gold coins are backed by the certificates with a 1:1 ratio.
Traders can exchange tokens with others on various exchange platforms or fully redeem their coin holdings for physical gold. The current market cap stands at just over $1.5 million.
Tether, the largest USD-backed stablecoin, now has gold-backed crypto known as XAUT. Each XAUT is equivalent to one troy ounce of gold.
The gold is held in Swiss vaults, and token holders can search for the serial numbers of their gold bars to ascertain ownership. Investors can also fully redeem their coins for physical gold or cash.
XAUT tokens are found on blockchains like TRON and Ethereum. The current market cap stands at approximately $50 million.
Other noteworthy gold coins include:
- DRCG Coin
- Guardian Gold
- Troy Gold
Investing in Gold-Backed Cryptocurrencies – Making An Informed Decision
Gold has been famous as a long-term, stable investment, especially during a recession and economic failure. Many investors also buy fiat currencies from gold-backed currency countries because gold-standard currencies have a credible and reliable value and are considered solid investments.
With the advent of blockchain technology, digital gold currencies are now seen as the new standard of global gold-backed currency. This form of currency is not tied to a single central bank or nation, but it is traded and exchanged across the borderless, unregulated, and anonymous world of the internet.
When considering whether to invest in a gold-backed cryptocurrency, you must consider some essential factors to make sure that your investment is profitable.
Some questions to ask yourself include:
- Do you understand what investing in cryptocurrencies, particularly gold-backed cryptocurrencies, means?
- Do you know how to choose profitable and trustworthy gold-backed altcoins?
- Do you know how to choose a trusted crypto exchange to do business with?
- Is a specific gold-backed cryptocurrency worth what they say it is?
- Can you keep up with the value of actual gold in the market to determine if a particular gold-backed cryptocurrency is based on actual market value?
- Can you tell a scam from a genuine investment? If the price of your gold-backed crypto is far above or below the gold spot price, your investment choice may be a scam.
Before you invest in gold-backed cryptocurrencies, you need to understand why you are making the investment and how the investment will turn into profit for you.
Having some knowledge of the gold market and its trends is undoubtedly beneficial. Still, you should also acquaint yourself with the finer points of investing in cryptocurrencies, cryptocurrency price trends, and how the two very different markets converge.
As with all investments, do your due diligence to ensure that you do not lose your money. Ensure that you wholly own the gold that backs your crypto and that a reputable facility stores the gold.
For more information on investing in gold and gold-backed cryptocurrencies, contact Learn About Gold’s investment specialists. We are your best resource for all gold investments. We will give you the information you need and refer you to credible gold investment platforms based on fees, special offers, and reviews.