Gold-backed cryptocurrencies have been all the rage, with the collective total market capitalization now above $2 billion. This milestone serves to underscore the increasing demand to harness the stability of gold while enjoying the benefits and efficiencies provided by blockchain technology. Gold prices have skyrocketed to all-time highs, driven by economic uncertainty. This supply boom has created a perfect environment for the emergence of digital assets to become a popular safe-haven investment.

In 2020 the total market cap of gold-backed cryptos was only around $12.85 million. This dramatic rise is a sign of the times and a clear indication of investor appetite for assets that provide a hedge against inflation and broader economic unrest. These unique tokens provide investors with an exciting new digital entrance to precious metals. They benefit from features such as being globally accessible, settling instantly, and trading 24/7.

Gold-backed cryptocurrencies are blockchain-based tokens that are pegged to a certain amount of gold. You are redeemable each token for one troy ounce (31.3g) of gold. These tokens effectively merge gold’s low-risk characteristics with blockchain’s efficiency. Paxos’ PAXG and Tether’s XAUT are the two largest tokenized gold products by market capitalization but they have dollar reserves backing their value.

This spike in interest in gold-backed tokens isn’t surprising considering the dramatic increase in the price of gold overall. Spot gold is up 29% year-to-date, reaching 28 straight all-time highs. This remarkable streak is another testament to gold’s increasing reputation as the investor’s preferred safe-haven asset. Gold spiked as much as 6.6% during this same period, climbing from $2,700 per ounce to a recent high of $3,030 per ounce. It hit a new all-time high of $3,500.

Gold’s long-standing inverse relationship with the U.S. dollar is one reason behind its allure. Besides, gold has low exposure to monetary policy risks, especially appealing in a time of increased monetary uncertainty.

"Prevailing narratives that call Bitcoin "digital gold" overlook the unique qualities of each asset." - Firms' analysts

In fact, some analysts noted how gold and Bitcoin are different investments.

"Investing into gold is exposure to gold's longstanding use case as a status symbol, inflation-hedge, and store of value. Investing into Bitcoin is exposure to a new technology, characterized by decentralized consensus, near-instant settlement, and arbitrary, programmable transactions." - Firms' analysts

Importantly, PAXG and XAUT are not usable loan collateral assets on Aave’s decentralized lending platform.

Gold prices have recently reached record highs—especially since President Trump assumed office. Historically, gold has been a preferred safe-haven asset during periods of uncertainty. Its low-risk haven properties appeal to those investors seeking stability in times of great turbulence.

Meanwhile Goldman Sachs is predicting gold will hit $4,000 by the end of next year. This bullish prediction added to the frenzy surrounding gold-backed cryptocurrencies as an easy way for investors to get exposure to the precious metal.