Gold-backed cryptocurrencies offer an alternative to U.S. dollar stablecoins. With thousands of years of history as a store of value, gold is the original “stablecoin”.
Cryptocurrency stablecoins made financial headlines in May 2022 with the meltdown of Luna and UST. In the space of less than one week these two top 10 coins with a combined market cap of over 47 billion dollars imploded on themselves.
[LUNA and UST in the top just before the great crash (via coinmarketcap.com.]
The obliteration of UST also brought attention back to Tether (USDT), which is the oldest stablecoin and largest by market cap. Tether has been a controversial stable coin as it is not apparent how much of its total market cap is fully backed by U.S. Dollars. Tether has said that it is a mix of U.S. Dollars and other assets, but has declined to be independently audited.
After the collapse of UST, questions were being asked if the same thing could happen to Tether. USDT briefly depegged and went to .95 before righting itself.
While UST is an algorithmic stablecoin and USDT is unverified, there are verified U.S. Dollar stablecoins. The second-largest stable coin (by market cap at the time of this post) is USDC. This project by Circle is backed dollar-for-dollar, with independent audits to back this up.
Not all stablecoins are backed by fiat or a basket of other cryptocurrencies. The most popular asset-backed tokens are gold-backed cryptocurrencies. If you are looking for a stablecoin to keep your assets in cryptocurrency while buying and selling, then gold-backed cryptocurrencies are an alternative to fiat-backed cryptocurrencies.
There are different types of gold-backed cryptocurrencies, and as the experience of UST has shown, it is important to know what you are buying first.
Not all gold-backed stablecoins are created equally
Just as there are differences among the stablecoins that are pegged to the US dollar, there are also differences among the gold-backed stablecoins.
Not all gold-backed cryptocurrencies are 100% gold-backed. Some are mixed with other assets. Some also vary in gold content and are not fixed (eg 1 gram of gold per token). Some tokens have an accumulation feature, which add more gold to the token from fees. Some tokens also act like a share in a gold mine, where you could potentially share in the profits of the mine, or end up losing it all.
If you are looking to buy a 100% gold-backed cryptocurrency, the most important feature is that it needs to be 100% owned by you. This means that if the company goes broke it cannot sell the gold as it is held in your name.
Here is a list of how to buy gold-backed cryptocurrencies.
Gold-backed cryptocurrency vs allocated gold services
Gold-backed cryptocurrencies (where you are the owner of the gold) offer similar advantages to allocated gold services such as BullionVault and Vaultoro. They allow you to own a partial amount of gold without having to worry about storage.
Gold-backed cryptocurrencies are ideal if you want to park proceeds from sales of other cryptocurrencies into a stablecoin. Al alternative is to buy gold with bitcoin without having gold on a blockchain. Vaultoro is the oldest site that provides this service.
If you just want to buy gold with fiat, then BullionVault provides and easy and safe way to do so.
Here are more ways to buy gold online.
Diversify with gold – the original stable currency
The LUNA/UST catastrophe is a good reminder not to put all your eggs in one basket. Not only should you not go all in on cryptocurrency, but you should not go all-in on only one cryptocurrency. There are reports of people who moved all their crypto assets to LUNA and bought UST to earn 20% interest via Anchor. They lost everything.
Now with the crypto market entering a bear market (triggered by the LUNA collapse), having a mix of assets helps soften the blow. The cryptocurrency crash of 2022 has shown that bitcoin is actually not the new gold, as some pundits have tried to proclaim. It turns out that gold continues to be the ultimate stable currency, as it has done for millennia.
[The relatively-stable gold price chart – May 2022 (via gold.org).]
This isn’t financial advice and I’m not a financial advisor. I can’t tell you what the right balance of assets is for your portfolio. Goldscape.net is affiliated with BullionVault and Vaultoro.