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bitcoin digital gold backed tokens commodity
Nexo

Gold Tokens Reach Milestone Market Cap; Does This Pose a Threat to Bitcoin?

Tony Spilotro by Tony Spilotro
2 years ago
in Bitcoin
0
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Bitcoin and gold have been rising in tandem, as the dollar has been falling. It has also driven the growth of the market cap of digital gold tokens, backed by the precious metal commodity, to record highs.

What exactly has caused this rapid growth in market cap, and does this pose any threat against Bitcoin?

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Market Cap of Commodity-Backed Gold Tokens Soars 1000% In 2020

Bitcoin and gold share several key similarities, such as supply scarcity. Bitcoin’s benefits soon begin to outweigh the precious metal, especially in terms of storage and security.

Gold existing in a physical form makes it far less portable and often requires storage in a vault or safe. It also leaves the asset highly vulnerable to theft, unless kept secure in this way.

To alleviate any challenges faced with storing gold and to avoid the high premiums gold bars are currently fetching, a new trend of digital gold tokens has emerged.

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These tokens are backed by a corresponding amount of the commodity, and often represent digital ownership over a real bar stored in a security facility elsewhere.

The recent 2020 gold rush due to the economic uncertainty of 2020 has prompted the market cap of these commodity-backed tokens by 1000% to over $100 million and climbing.

The total gold token market cap has achieved a total of $139 million, with $82 million attributed to Tether Gold (XAUT) and $56 million to Paxos Gold.

commodity backed digital gold tokens market cap bitcoin tether paxos

Why Commodity-Backed Tokens Pose No Threat To Bitcoin and Crypto

If Bitcoin has long been considered digital gold due to important comparative attributes, then are these commodity-backed tokens competitors to the cryptocurrency?

In a sense, yes. All other tokens and gold itself are all competing against Bitcoin for capital. However, these assets pose no serious threat to Bitcoin.

For one, the combined market cap has only reached $140 million. Bitcoin’s market cap is over $200 billion. Bitcoin also has a hard-capped supply of only 21 million. While gold may be finite, it has an undetermined remaining supply.

Bitcoin is also a decentralized, non-sovereign network, while these gold tokens are backed by a commodity held by a centralized company that is bound to local government laws. The cryptocurrency existing outside of these barriers offers a value precious metals simply cannot match.

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Instead, these tokens are providing investors an alternative to gold, not Bitcoin, as an easier way to store the asset, access the market, or perhaps own a smaller sum. Like other crypto tokens, commodity-backed coins are divisible by decimal points.

Further fueling the growth is the recent increase in security fears from the wealthy. According to recent reports, investors in Hong Kong have been moving their precious metals offshore to Switzerland and elsewhere fearing theft or seizure. Instead, their wealth could be stored digitally, in tokens backed by the same commodity they are sweating over.

It is for reasons like that, that these commodity-backed tokens will continue to grow, but also will continue to pose no threat to the top cryptocurrency.

Featured image from Deposit Photos.
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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