Apr 5, 2022 - Economy

Crypto's gold is, increasingly, actual gold

Illustration: Sarah Grillo/Axios

In times of economic uncertainty investors retreat to gold. These days, crypto investors are doing it too, but without leaving blockchains.

Driving the news: Pax Gold (PAXG), a crypto token that represents actual bullion, has seen a 66% jump in supply since mid-February.

  • The token is managed by Paxos, a blockchain infrastructure company.

Why it matters: Crypto people love to say that everything will be tokenized. Pax Gold, a digital version of safe-haven gold, buoys the case for blockchain-based assets that give investors access to classics they know and love.

The big picture: Geopolitical uncertainty, like Russia's invasion of Ukraine, tends to drive interest in gold. Pax Gold's supply started popping as bullion shot up in mid-February, as Russian forces advanced on Ukraine.

  • The surge follows a 6% uptick across the whole gold market from January to February, according to the World Gold Council.

State of play: The new gold bugs are overwhelmingly people who are already in the crypto market, which is expected in this early stage.

  • There's institutional interest, but Walter Hessert, Paxos’ head of strategy, tells Axios the infrastructure needs more development.

How it works: Each Pax Gold token is enabled by the Ethereum blockchain, but backed by real physical gold. Many of the buzzy new crypto products, like NFTs, also rely on Ethereum.

  • Gold ETFs, on the other hand, represent exposure to the market without actual ownership. They also carry an annual fee, usually around 0.65%.
  • Pax Gold charges a small fee for on-chain transactions, minting and redemption.

Details: If you own the token, you own the underlying physical gold. Pax Gold and Tether Gold (its closest competitor) allow users to check the serial number of the bar they own a piece of.

  • Security firm Brinks stores the actual gold represented by these tokens on behalf of Paxos as custodian. Issuance is supervised by the New York Department of Financial Services.

Pax Gold's total supply hit 318,060 tokens on March 31 (backing 800 real bars), with just under 40% of that minted since Feb. 14. It launched in September 2019. Retail traders are driving demand, Hessert said.

  • "We saw a real spike in the price of gold, and it's obviously a safe haven asset historically and still used that way today,” Hessert said.

Yes, but: The market cap of Pax Gold is "only" $614 million.

The bottom line: They call Bitcoin "digital gold," but the original cryptocurrency is now facing a little competition from actual gold.

Go deeper