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Gold-backed stablecoins demand rises amidst COVID-19 crisis

Gold backed stablecoins demand rises amidst COVID crisis

Gold-backed stablecoins are witnessing a resurgence amid the ongoing COVID-19 pandemic. In what can be termed as ‘opportunity in tragedy’, many investors are flocking towards gold-backed stablecoins instead of actual gold. The ongoing economic crisis will undoubtedly uncover some attractive investment opportunities in the crypto sector.

Stablecoins such as Paxos Gold (PAXG) and Tether Gold (XAUT) are the preferred choice among the traders and investors alike. Unlike other gold-backed instruments, gold-backed stablecoins are available readily on the exchanges. Both these assets are supported by one ounce of physical gold. This means owners of these tokens can claim equivalent physical gold by exchanging these tokens.

Coronavirus pandemic presents new investment opportunities

Gold has always been a safe haven in times of crisis. Today, when the world is facing unprecedented turmoil and economic markets are in a downward spiral, many new investment opportunities are emerging from unlikely origins. Gold-backed stablecoins are an excellent example of how gold-related assets are being reimagined as a tool for financial stability.

Roy Sebag of Goldmoney says that high demand for gold is a natural response to any financial crisis. Different governments have responded differently to the COVID-19 scare. The U.S. Fed changed the rules suddenly when it flooded the market with helicopter money and caused huge swings in the rate of interest. As a response, investors took a flight of safety, and gold was the obvious answer.

Testing times ahead for gold-backed stablecoins

PAXG has been bought aggressively, leading to double-digit growth in sales figures within a week. So far, the platform claims they have appropriate physical gold in stock to cover the enthusiastic buying pattern. Similarly, XAUT demand has been rising steadily, which has driven the price of the stablecoin significantly. It remains to be seen if both coins will be able to service the underlying physical gold demand if the need arises.

Tether released a statement saying that strong XAUT growth will surely strengthen its credentials as a dominant virtual token. As physical bullion demand skyrockets, the tokens will surely feel the pressure in terms of haven credentials.

Gurpreet Thind

Gurpreet Thind

Gurpreet Thind is pursuing Masters in Electrical Engineering at University of Ottawa. His scholarly interests include IT, computer languages and cryptocurrencies. With a special interest in blockchain powered architectures, he seeks to explore the societal impact of digital currencies as finance of the future. He is passionate about learning new languages, cultures and social media.

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