Gold Price Surge Drives Record Tokenized Gold Demand

Key Insights:

• Tokenized gold just crossed above $6 billion. Here’s why the segment is becoming more preferred over stablecoins.
• PAX Gold and Tether Gold dominate the tokenized gold demand segment.

The gold price rally and its push above $5,000 were widely publicized and attracted significant attention. While this led to a major liquidation event at the end of January, it was also a lightbulb moment for crypto investors.

The recent surge in gold prices in January was mostly driven by macro uncertainty. However, there was another major reason behind this push: the crypto market’s embrace of gold-backed coins or tokenized versions of the precious metal.

The Crypto Market is Increasingly Betting on Gold Price

According to recent reports, tokenized gold coins recently surged to a $6 billion market cap. Interestingly, this value grew by $2 billion within the last 6 weeks.

This impressive growth suggests that the crypto market was also aiming for a piece of the gold price pie, especially given the recent market conditions.

Tokenized gold market cap/ source: Dune

The rising tokenized gold prices signaled strong demand for the precious metal from the crypto market. Their availability reflects a common trend across the investment landscape, and this trend may explain why tokenized gold is becoming more preferable than stablecoins.

Top analysts agree that the recent gold rush was driven by risk-off sentiment and extreme FUD in the market. This was partially true, but currency devaluation risks might also be a major cause for gold-favoring market sentiment.

Analysts have their sights set on macro environments, specifically the bond market. Rising debt in the West, coupled with signs of bond market strain, encouraged the world to shift towards the safety of hard assets like gold. The safest of haven assets.

Tokenized Gold Offers a Convenient Avenue for Exposure

It was only a matter of time until gold tokens gained popularity. The currency devaluation means the US dollar and other fiat currencies will likely lose a huge chunk of their value in the coming months and years.

This concern that fiat may lose value also extends to stablecoins whose values are pegged to currencies like the US dollar. In this scenario, waiting out the bear market while holding stablecoins may not be ideal. This is because stablecoins are backed by fiat. Hence, they are not immune to loss of value through currency devaluation.

However, it is also worth noting that tokenized gold is also susceptible to value fluctuations, especially in the short term. The latest gold price pullback is the perfect example.

Gold Price Surge Fuels Tokenized Gold Dominance

According to the Dune research, PAX Gold (PAXG) and Tether Gold (XAUT) accounted for almost 97% of the tokenized gold segment.

The dominance that the two gold tokens currently have over the markets may soon be challenged. The tokenization trend, combined with the robust demand for the token form of the precious metal, will likely pave the way for more players in the future.

This trend is also expected to proliferate for other assets such as silver. So, in an interesting turn of events, the recent surge in demand for gold in its tokenized form highlights one of the most successful instances of tokenization in effect.

Issuers of these tokens stand to gain significantly from the rapid adoption, especially from fees. Speaking of, the issuers of gold tokens back their tokens at a 1:1 ratio. This means 1 ounce of gold can be redeemed for every equivalent worth of gold tokens.

The 1:1 ratio underscores the sudden rise in interest in Pax Gold and Tether Gold. Tether’s latest official gold audit report revealed that it had 520,089.350 fine troy ounces. Meanwhile, Paxos reportedly holds about 459,010 fine troy ounces.

Gold price action/ source: TradingView

Meanwhile, the gold price today bounced back above $5,000. It has been oscillating within the same range for the last few days, suggesting the hype has cooled.

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