2022 was a turbulent year for crypto—from the Ronin network hack in March to the Terra/Luna crash in May; contagion effects are still spreading. Despite Ethereum’s milestone upgrade, The Merge, crypto winter had set in by Q3 2022, with prices of all crypto assets declining. In October, $718 million was stolen from various DeFi sites in 11 different hacks, and November saw the great FTX collapse. These events impacted the price of Bitcoin and reigned in the crypto bear market cycle. Because of this, investors have turned their attention towards gold-backed tokens as a viable bet in a crypto bear market.
What Are Gold-backed Tokens?
A gold-backed token is a cryptocurrency bасkеd bу physical gold. Thе currency’s vаluе іѕ bаѕеd оn thе current market price of gоld and саn be uѕеd fоr transactions like any other type of cryptocurrency. Gold-backed сrурtосurrеnсіеѕ can bе bоught аnd ѕоld on еxсhаngеѕ аnd can also be uѕеd tо рurсhаѕе gооdѕ аnd ѕеrvісеѕ. People whо іnvеѕt in gоld-bасkеd сrурtосurrеnсіеѕ еnjоу іnсrеаѕеd rеturnѕ from thе pricing of gоld аnd can rеdееm crypto іn еxсhаngе fоr gоld.
Why Is Gold Important
Gold has been proven to be a safe-haven asset, even in the most severe crisis. Gold is chemically stable, malleable, indeed rare, and universally precious. Its value is determined by supply and demand in the global market and retains its value whenever the world economy experiences financial or geopolitical downturns. This precious metal is a fantastic hedge against inflation, as well as a way to protect against currency devaluation.
While investors have been buying physical gold and gold ETFs for years, it still poses logistical and operational complexity. The existence of gold-backed tokens on the blockchain has the added advantage of allowing for fractional ownership of the asset. Furthermore, because of the lack of intermediaries, operational costs are kept low.
How Gold Became a Tokenized Asset in Crypto
The process of tokenizing gold involves creating a digital token that represents a specific amount of gold, which is stored in a secure vault.
Here’s how gold is tokenized:
- Verification of gold: The gold needs to be verified to ensure that it is genuine and of the correct purity. This process may involve assaying and auditing the gold by a third-party provider.
- Custody and storage: Once the gold is verified, it needs to be held in a secure custody and storage facility. The facility needs to be audited and insured to ensure the safety of the gold.
- Token creation: A digital token represents a specific amount of gold, for example, one gram. The token can be created on a blockchain platform, which is a decentralized and secure ledger that records all transactions.
- Token issuance: The tokens are issued to investors who purchase them. The tokens can be traded on exchanges or used as a store of value.
- Redemption: Investors can redeem their tokens for the underlying physical gold. The gold can be shipped to the investor or held in the custody and storage facility for the investor.
Gold Vs. Bitcoin
Looking back at the Russia-Ukraine War in 2022, the price of gold which has historically been seen as a store of value and hedge against macro calamity has increased to $2,000. On the other hand, Bitcoin (BTC) was down nearly 6%.
This is because BTC has bееn tethered tо equities for ԛuіtе ѕоmе tіmе. Wіth gоld, hоwеvеr, the еаrlу 2021 mаnіа thаt bеnеfіttеd аѕѕеtѕ like еԛuіtіеѕ and bіtсоіn did nothing to the рrісе of gold.
This іѕ bесаuѕе gold dоеѕ not trade lіkе ѕtосkѕ аnd сrурtо. Cаріtаl dоеѕn’t mоvе іntо “hype” with gоld (thеrе is none) аѕ іt does with ѕtосkѕ аnd сrурtо—thе аvеrаgе grоwth rate of gоld іѕ сurrеntlу 6.51%, vеrу mоdеѕt from thе сrурtо реrѕресtіvе. Thе change frоm 1 уеаr ago is nеаr thаt аvеrаgе, аt 6.79%.
Thе market dеtеrmіnеѕ whаt is and what іѕn’t. It hаѕ mоldеd Bіtсоіn іntо a rіѕk-оn аѕѕеt, while gold іѕ rіѕk-оff. Agаіn, thе rеаlіtу is соdіfіеd bу thе mаrkеt bеhаvіоr, nоt nесеѕѕаrіlу dоvеtаіlіng wіth the narrative.
As JP Mоrgаn rightly said: “Gold аnd Sіlvеr аrе mоnеу. Evеrуthіng else is credit.”
Gold Always Performs
While equities suffer during a market decline, gold usually performs well. It’s an asset that keeps its worth and is always stable during recessions, inflations, hyperinflations, and deflations. None of these monetary phenomena have the power to touch this noble metal. Gold tends to grow when investors shift their assets from stocks to precious metals due to fear that a recession is coming.
Gold is an asset class that moves opposite to whatever the dollar does. Many investors chose gold during the pandemic, which is one of the reasons why the price jumped from 1,300 to 2,100 USD in less than six months. That’s a massive jump. As the economies of the world started to recover, gold still maintained its high price.
Benefits of Investing Tokenized Gold in a Bear Market
One can see gold-backed tokens as a way to merge the best of both worlds – precious metals and cryptocurrencies. In some ways, investing in tokenized gold might be superior to buying physical gold or trading gold ETFs.
If 100% backed, tokenized gold still holds the value and price of physical gold but with added efficiency and liquidity. Since there are no intermediaries or third-party involvement, trading tokenized gold is faster and cheaper as no operational cost is imposed. Furthermore, the fractional nature of tokenized gold reduces the pressure of committing to investing in full gold bars thus reducing the barrier to entry in gold investment.
TijarX, the world’s first halal DeFi commodity exchange, offers the opportunity to invest in tokenized gold with ease. True to its value in promoting financial inclusion, anyone regardless of financial status or economic background can participate in the gold market by buying micro or macro amounts of tokenized gold on TijarX.
Invest in Gold on TijarX via Sahal Wallet
As a halal crypto company with multiple awards such as “Best New Islamic Crypto Platform”, MRHB (pronounced ‘Marhaba’) holds a unique approach to ethical finance to satisfy the needs of faith-based and ethically conscious communities. With the Sahal Wallet, the gateway to the entire MRHB ecosystem, you can invest in tokenized gold via TijarX in a matter of seconds.
Tokenized assets on TijarX are 100% backed by their physical counterparts, redeemable, and secured by the Gold Silver Standard of Ainslie Bullion Group Australia.
- Download Sahal wallet
- Navigate to the TijarX platform
- Add ETH and USDT
- Buy AUS or AGS
You would need ETH to cover gas fees and USDT to purchase tokenized gold (AUS) or silver (AGS). Access the halal DeFi commodity exchange via Sahal Wallet in a matter of minutes!