Gold-backed Stablecoins Surge in Volume Amid Geopolitical Unrest

A Kaiko report has revealed that gold-backed stablecoins have experienced significant growth in terms of trading volume over the past month. The spike in volume comes on the back of geopolitical unrest in multiple jurisdictions and high inflation concerns across a plethora of economies.

Stablecoin Market Thrives Despite Crypto Market Dip

According to a report released by digital asset data aggregator Kaiko on Monday (February 21, 2022), there has been increased trading volume for stablecoins backed by gold since the start of February 2022. High inflation rates and geopolitical uncertainty in regions like Ukraine seem to be core reasons for the uptick in volume.

Stablecoins are digital tokens backed by physical assets, fiat currencies like the U.S. dollar or securities. They deploy collateralization methods to establish a stabilization mechanism. These so-called stablecoin tokens leverage such systems to hedge against market volatility commonly experienced by cryptocurrencies like Bitcoin (BTC) and Ethereum. 

Kaiko’s report showed that instability in some regions combined with high inflation incentivized the appeal of gold to investors. The asset reportedly hit a multi-month high milestone as gold gained five percent since the beginning of February. 

Following the surge in demand, centralized exchanges recorded that trading volumes for gold-backed stablecoins like PAX Gold (PAXG) and Tether Gold (XAUT) went up as well. Both tokens boast massive market caps of $420 million and $200 million respectively.

Data from the report also revealed that gold-backed stablecoin trading volumes have been on the uptrend since September 2021. While Tether Gold only experienced a slight spike in trading numbers, volume for PAX Gold almost doubled, per the report. 

Despite the significant uptick in demand and trading volume, stablecoins pegged to the U.S. Dollar remained the top choice for investors. The report explained that limited access to gold-backed coins has been an obstacle for traders. Currently, these tokens are only available on a few exchanges.

In addition, stablecoin markets have experienced less volatility compared to cryptocurrencies and demand for these tokens continues to increase. Also, more decentralized finance (DeFi) solutions have turned to stablecoins as margin for derivatives.

Gold Performing Better than Bitcoin

Indeed, the crypto market has suffered volatility and multiple declines in market prices over the past three months. Bitcoin (BTC), regarded as digital gold, has dipped from its $68,000 all-time high to around $39,000, as of the time writing this report. 

While BTC has fallen some 32.6 percent since November 2021, gold has surged about 3.9 percent according to data from Markets Insider. also previously reported that the BTC-to-gold ratio has reached its lowest points since mid-2021.

As the U.S. federal government moves to implement higher interest rates in a bid to manage rising inflation concerns, investors could also consider shifting capital to less speculative markets to hedge their funds against further dips in crypto prices.

Also, the ongoing geopolitical turmoil in Ukraine and current market sentiment could spur further declines across cryptocurrency prices. Technical analyst Katie Stockton highlighted that BTC has so far, failed to stay above a critical support level around $32,700. In the event of another major dip, Stockton suggests that BTC must hold $27,200-$30,000. 

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