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For centuries, gold has been a sought-after investment vehicle in India. The ability to counter market trends with minimal risk has been its key selling point. As the crypto ecosystem evolves, one of its use cases is to tokenize real-world assets on the blockchain. The initial implementation of this comes in the form of crypto-based gold assets – Tether Gold (XAUT) and PAX Gold (PAXG) being the popular ones. Today, we analyse its purpose and enlist key advantages of having it as part of your crypto portfolio.

Gold-backed crypto assets (XAUT, PAXG) are digital currencies that have gold as their underlying physical asset. A company issues a token that represents a certain value of gold – an ounce for example. The issuing company then stores physical gold in bank vaults to back the tokens in the market. The price of this asset varies in accordance to the global market value of gold. 

Some advantages of investing in a gold-backed crypto asset are:

• • Greater liquidity through fractional ownership – investors can buy/sell gold within 2 mins – and anytime (24/7).
• • Easy accessibility – just login to your exchange.
• • Tokenized commodities don’t require physical storage – easy to ‘transport’ or carry with you.
• • No territorial barriers – anyone with an internet connection can trade.

While advantages are clear, there may be some risks/issues we need to be aware of with gold-backed crypto tokens

• • As secure as your personal crypto wallet – if you lose your keys, you lose ownership
• • Gold-based instant loans aren’t developed fully as a product – some protocols allow you to lend your gold-backed tokens for instant loans but we believe this needs more time. The current product is ideal for long term investors in gold
• • Trust in the company backing the token – always go for the reputed ones. We recommend Tether Gold (https://gold.tether.to/) and PAX Gold (https://paxos.com/paxgold/) for your research and consideration
• • Inability to use as jewellery :)

Okay, now we get to the interesting part – why should you even consider gold-backed crypto in your portfolio?

1. Gold is a hedge against inflation in India

An inflation hedge is an investment that protects investors from reducing the power of a currency due to a fall in its value because of rising prices. Gold is considered as an excellent hedge against inflation due to its organic rise in value over the years. According to the World Gold Council, for every 1% rise in inflation, the demand for gold in India soars by 2.6%.

Source: Goldprice.org

2. Gold outperformed Bitcoin in 2022

2022 was a dull year for BTC enthusiasts as the #1 crypto asset slid more than 60% in value. Whereas, gold was mostly flat during the year and would have preserved your capital if you had some exposure to it.

Source: CNBC

3. Bitcoin outperformed Gold in Q1 2023

Bitcoin is up nearly 70% this quarter while gold has gone up by 18% - this means BTC has outperformed gold this year.

Source: TradingView

It feels counter-intuitive: how is this one of the reasons to have exposure to gold-backed crypto when BTC does better than gold? 

Gold and Bitcoin together in your portfolio can offset some of the volatility in the market and keep your portfolio stable/rising when the market is bearish and you gain considerably when a rally comes by. Overall, this is a good risk-reward structure for long-term investors.

What is the ideal way to begin investing in gold-backed crypto?

• Allocate a share of your crypto portfolio to gold when the market is volatile: 2023 is likely to be a topsy-turvy year for all assets. Capital preservation for an eventual lull in markets is ideal. Gold can be an effective strategy (along with stablecoins) to enable this. We recommend that up to 20-30% of your crypto portfolio can be in gold tokens.
• Invest in Indian exchanges that have listed these tokens: It is always preferable to invest via Indian exchanges given the addition of crypto to PMLA act. That way, you are sure to abide by requirements with respect to GST as well as safe storage of assets.

Full disclosure: Giottus is officially listed as one of the global exchanges (and the only Indian exchange) that has listed Tether Gold on their website.

Source: https://gold.tether.to/

Use promocode TNM51 at www.giottus.com/profile#promo after registration to get Rs.51 worth free Bitcoin.

Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.