In the last few months, the cryptocurrency market has once again sprung to life, and cryptocurrencies left, right, and center are experiencing significant gains.
But amidst this bullish momentum, there is a growing sense of uncertainty among seasoned traders and early adopters — who have seen what usually follows such a period of dramatic growth… a temporary reversal at best, or a full-blown correction at worst.
Gold-backed tokens represent arguably one of the safest ways to hedge against these risks. Not only has gold demonstrated a long-term bullish trend, but it’s also relatively uncorrelated to crypto markets, making it an ideal hedge and a strong store of value.
If you’re looking to gain exposure to gold through an easy-to-access crypto token, here’s what you’ll want to consider when making your pick:
Volatility and Liquidity
If you’re looking to invest in a gold-backed token, then odds are you’re not a fan of volatility. After all, gold itself is a relatively non-volatile asset, so shouldn’t gold-backed assets be too?
Overall, gold-backed tokens are relatively non-volatile, at least when compared to regular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and the like. But there is a considerable difference in volatility among gold-backed tokens.
In general, gold-backed tokens with a lower trading volume tend to experience more volatility than those with higher trading volume. As the two most liquid gold-backed tokens, CACHE Gold (CGT) and PAX Gold (PAXG) suffer from the least volatility, whereas Perth Mint Gold Token (PMGT) and Digix Gold (DGX) suffer far greater volatility — since they have negligible order book depth and low liquidity.
Order book depth is an excellent way to check liquidity. (Image: Live Coin Watch)
Moreover, the liquidity of the gold-backed is directly related to its utility — after all, if you can’t easily purchase or liquidate the token without slippage, it’s not of much use. Right now, only CACHE Gold (CGT), and PAX Gold (PAXG) achieve more than $1 million in daily trading volume, whereas Tether Gold (XAUT) is just behind — typically racking up between $50,000 and $500,000 in 24 hour volume.
Perth Mint Gold Token (PMGT) and Digix Gold (DGX), on the other hand, are relatively illiquid and are hence prone to sudden price fluctuations with sudden changes in trading volume.
Getting your hands on gold-backed tokens shouldn’t be a challenge in most cases, after all, a handful of popular cryptocurrency exchanges now offer support for gold-backed tokens, including both centralized and decentralized options.
But despite this, some are without a doubt more accessible than others. One way to gauge the accessibility of these tokens is to compare them based on the quality of the exchanges they can be traded on.
PAX Gold is the only gold-backed token listed on Binance. (Image: Paxos)
Right now, CACHE Gold (CGT), PAX Gold (PAXG), and Tether Gold (XAUT) are the only three gold-backed tokens listed on a tier 1 exchange, with CGT available on Bittrex, PAXG on Binance, and XAUT on Bitfinex. Likewise, all three of these tokens can be traded on the most popular decentralized exchange (DEX): Uniswap. Of these, CACHE Gold (CGT) currently has by far the highest liquidity on the DEX.
Perth Mint Gold Token (PMGT) and Digix Gold (DGX) again struggle in this department, since they’re both listed on relatively obscure exchanges, and even offer limited liquidity on decentralized platforms.
As a gold-backed token, it stands to reason that you should be able to easily convert your tokens into physical gold, should you wish to take possession of the actual underlying gold for any reason.
While most gold-backed crypto assets offer this feature, not all are particularly transparent about the process behind it or whether it’s even possible.
One of the main barriers when converting gold-backed tokens into physical gold is the minimum redemption amount. This is the minimum number of tokens you need to redeem at any one time — and this value can vary considerably from platform to platform.
For PAX Gold (PAXG) and Tether Gold (XAUT), this is set at a whopping 430 ounces (i.e. 430 tokens). At today’s rates, that’s around $777,000 worth of tokens. This means you will be simply unable to redeem your PAXG or XAUT unless you’ve got close to $800,000 in your balance.
CACHE Gold (CGT) and Digix Gold (DGX), on the other hand, are far more reasonable. Both have a minimum redemption amount of 100 tokens (100 grams of gold), currently worth around $5,800. We also found that CACHE Gold has by far the simplest redemption process of any gold-backed token, whereas Perth Mint Gold Token (PMGT) is arguably the worst, since the minimum redemption figure isn’t publicly available.