In the crypto world, Bitcoin is considered as the digital gold. Why? because it is limited in availability ( 21 million when started) like Gold. But, is it possible to invest in a crypto backed by actual gold? Yes. In this post, we will talk about PAXG, an Ethereum token that is backed up by gold bullion and can used for hedging your portfolio
Why Gold is popular and a good investment still?
There are three reasons why I believe gold is still a popular investment
Gold discoveries through mining are going down the hill year after year. So, there is limited supply.
A lot of developing countries like China, India, etc have an affinity towards gold. We know that the income levels of the middle class are rising in these countries and they intend to invest more in Gold. So, there is a great demand for Gold.
we are living in an age of free currency ( not backed by any store of value like gold) and are able to print money at will. As more money is printed and available, fixed supply stores of values like Gold (other precious metals such as silver, platinum, etc), real estate (land is scarce too), and Bitcoin tend to go up in value as the demand increases.
What are the popular ways to invest in Gold currently?
From an investment point of view, Gold acts as a great hedge for your portfolio. When the stocks tend to go down, gold tends to either maintain its value or go up in price.
Spot Gold trades almost 24/7 in a trading week ( not on the weekends) and the prices fluctuate every day. The most preferred way today is to buy Gold in terms of its weight. Today, investors buy Gold bars/coins available in different weights in the market through known suppliers and store them in vaults. Investors end up paying some storage fees to store Gold in their vaults.
With the advent of Gold spot ETFs such as GLD in 2004, investing in gold has become much easier. One can own gold virtually and does not have to pay storage fees for vaults.
What is the Crypto with Gold Stability
PAXG is a stablecoin based on the Ethereum (ERC20 protocol). Instead of pegging against any currency, it’s pegged against gold. Better yet, PAXG is 100% backed by gold. It doesn’t use algorithmic arbitrage systems or other similar mechanisms. Nor is there any leverage being used.
One PAX Gold token represents one fine troy ounce of a London Bullion Market Association-accredited London Good Delivery gold bar. These bars typically weigh about 400 fine troy ounces, making them worth more than $700,000 apiece at current prices. If you own a PAX gold token, you own the corresponding amount of gold being held. You can even look up the specific serial number and physical characteristics of the bar your particular token is tied to. This is why PAX Gold’s price directly mirrors the current spot price of one ounce of gold.
The bars are stored in London vaults under the custody of the Paxos Trust Company. Paxos is a state-chartered trust company regulated by the New York State Department of Financial Services, which means it’s held to a very high standard and ensures customers’ assets are protected. It also means your gold is separated from Paxos Trust’s assets, meaning it’s safe from confiscation in the event of a company bankruptcy.
For more information about PAXG, click here
What are the advantages of owning PAXG?
Unlike Spot gold, PAXG trades 24/7 seven days a week. It might enable you to get better prices
The minimum investment for this token is 0.01. The current price of PAXG is mirroring with gold and is at 1924. So, we can start with an initial investment of around 20$. The investment for physical gold is based on weight and can run to a few hundred dollars.
There are no storage fees associated with buying the crypto. The transaction fee is around 0.02% along with Ethereum gas fees
Physical gold corresponding to the purchase of the crypto token is allocated immediately after the purchase and is redeemable (get gold shipped)
There are quite a few crypto companies that provide staking income for this crypto. A few notable ones are Crypto.com ( 2.4%), YouHodler (3.04%), and CoinLoan (5%). Even Binance offers 0.5%.
It is regulated as mentioned in the previous section.
Final Points
I hold more than 50% of my crypto portfolio in BTC. I also hold around 30–35 %in infrastructure cryptos for applications (DeFi, gaming, etc) such as Ethereum, BNB, ChainLink, etc. PAXG is a nice way to hedge your portfolio and seems like it is there to stay especially since it is regulated and has low entry to purchase. I am thinking of dollar cost averaging weekly into PAXG.
Thanks for reading so far!!
Would love to hear your opinion