What is a gold-backed cryptocurrency?
A gold-backed cryptocurrency is a type of stable coin that is pegged to the price of gold.
Stablecoins can be backed by fiat currencies, commodities like precious metals, or even other cryptocurrencies. For example, Tether (USDT), one of the most widely used stablecoins, is backed 1:1 by the U.S. Dollar. There are similar stable coins for other fiat currencies worldwide, although the U.S. Dollar is the most popular reserve.
Unlike a USD-backed stable coin, a gold-backed stable coin is one whose price moves up or down with the price of gold. When a gold-backed stable coin is first produced, a reserve of physical gold is purchased and kept in a vault by the entity which launches it.
This reserve maintains a minimum value to the stable coin by allowing owners to exchange their coins for the underlying asset, guaranteeing the stable coin is worth at least as much as the asset it can be exchanged for.
Things to look out for in a stable coin
There are a few things to consider when choosing which gold-backed stable coin to invest in.
- Look for as much authentication as possible that the stable coin is backed up by physical gold of good quality and good security.
- Make sure the stable coin maker guarantees the ability to exchange the coin for gold, even if you don’t even plan to use the exchange.
- Tokens that represent a fraction of a gram of gold can be helpful for smaller investors as these allow investors to buy as many or as few as they like.
- Look for fast confirmation and transaction speeds so that the cryptocurrency can be used as a means of exchange.
With these in mind, here are 3 of the best gold-backed cryptocurrencies available today.
Gold Coin offers an easy entry point to investing in gold and cryptocurrency. Its biggest benefit is that each coin represents only a small fraction of an ounce of gold, meaning you can purchase as little or as much gold as you like.
Some tokens trade 1:1 with full bars or grams of gold, making the barrier to entry much higher to purchase those cryptocurrencies. You’ll still have to collect enough Gold Coin (1000) to exchange for a full ounce of gold if you’d like to trade them in.
Gold Coin is built on the Ethereum blockchain, with the physical gold backing each token stored in their own secured vaults. All gold holdings can be viewed online at any time and are fully audited by third-party auditors.
Finally, Gold Coin requires no identification to purchase, meaning investments in the asset can be completely private. You simply provide an Ethereum wallet address when purchasing, and the tokens are deposited directly.
Launched by PAX Standard in September 2019, PAX Gold (PAXG) is a gold-backed stable coin that runs on the PAX stable coin network. Each PAXG token is backed by one fine troy ounce of gold bar, stored in Brink’s vaults. These are approved storage facilities of the London Bullion Market Association and are considered top of the line.
The PAXG is an ERC-20 token, which is compatible with most other assets on the Ethereum network and is considered relatively safe. The Ethereum network ensures low trading fees and high-speed settlements.
The intended purpose of PAX Gold is to offer a reputable digital version of gold. The owner of each PAXG token receives full ownership of the backed portion of gold and can trade the token worldwide through exchanges accepting the ERC-20 token that represents the gold.
PAX Gold offers a fairly low, although substantial, investment minimum to purchase each PAXG token. In addition, they have each token connected to physical bullion, which means you can redeem each PAXG individually for its associated gold.
PAX Gold is regulated by the New York State Department of Financial Services, giving it a strong reputation and backing. PAX Standard has a third-party auditor check the storage vaults each month to ensure everything is running smoothly.
Perth Mint Gold Token
The Australian government officially validates the gold behind each Perth Mint Gold Token in both weight and purity. This gives it one of the strongest guarantees of the truth to its backing compared to other stable coins.
A government-backed project such as this one tends to draw more conservative yet savvy investors. PMGT began in 2018 as a cost-effective way to invest in gold.
Each PMGT comes with a digital gold certificate as proof of its backing through the GoldPass app. These tokens are created directly by Western Australia’s Perth Mint and are backed by physical gold bars in their vaults. The use of the gold certificate further verifies that each cryptocurrency token has the legal and government backing of the gold it is supposed to represent.
Of all the options on this list, the Perth Mint Gold Token has the highest grade of guarantee that each token is truly linked to its respective gold.
The Perth Mint incurs all storage and insurance fees of the gold bars, with competitive and cost-effective prices compared with other gold-backed cryptocurrencies.
Although PMGT is one of the most popular gold-backed stable coins today, it is not as widely available on exchanges as others. This makes it harder to get involved in a convenient way.
Which stable coin should I invest in?
As we have seen, each token has its own advantages and drawbacks.
PMGT perhaps has the best guarantee but is harder to find on crypto exchanges. PAXG is a solid choice with significant backing, but the minimum buy-in is a little more expensive than other options. Finally, GLC is the most accessible with the simplest buy-in from its fractional shares but doesn’t have quite the strength of guarantees some of the others have.
It might also matter to you how decentralized each stable coin is, so be sure to look that up for each stable coin you analyze before investing.