Why Are People Buying Cryptocurrency Backed By Precious Metals?

In recent years, there have been new asset classes coming into existence that have captured the eyes of many in the investment community. Looking to diversify their portfolios and earn optimal returns, they set out to include these new asset classes. Among them are cryptocurrencies and precious metals, which provide new opportunities to generate ideal portfolio returns.

There is a clear appeal of digital currencies and precious metals and combining the two only further boosts this allure. Cryptocurrencies backed by precious metals – also known as stablecoins – are drawing in a plethora of investors looking for diversification for their portfolios. In fact, the popularity of this special brand of cryptocurrencies has reached a point where they have exchanges tailor-made for them, like Gold Exchange.

So, why are people flocking to precious metal-backed crypto? What is it about these currencies that are so attractive to eager investors?

What are precious metals?

Precious metals are exactly what their name suggests. These are rare metals that possess a high economic value that derives from a variety of factors. These include the fact that they are scarce, frequently used in industrial processes, and they play a huge part as a store of value. By far, the most popular precious metals that investors use are gold, silver, and platinum.

In the past, precious metals were crucial in the global economy due to many currencies being physically minted with the use of precious metals or backed by them, which was the case with the gold standard. In this day and age, investors will instead buy precious metals as a financial asset.

Precious metals as an investment are heavily sought-after as a tool for portfolio diversification, as well as a store of value. To be specific, as a hedge against inflation and during financial uncertainty. Commercial buyers usually see precious metals as a component that is essential for jewelry, electronics, and other projects. Three factors that have an impact on the demand for precious metals are all concerns regarding financial stability, worries of inflation, and the probability of war.

When it comes to investments, the most popular precious metal is gold; silver comes in second place. Precious metals that are used in industrial procedures include iridium and palladium. The former is used in specialty alloys, and the latter is incorporated into chemical applications and electronics.

Gold and Silver

It is not uncommon for a crypto that is backed by a precious metal to be more desirable than the metal itself. Silver-based stablecoin, Silver Coin, is an example of this, being more sought-after than physical silver for many investors.

According to various speculations, for over 4,000 years, people have stored a portion of their wealth in silver. In the form of investment, silver provides a hard asset that is as significant as it is valuable, maintaining this value for millennia. The demand for industrial silver has seen substantial growth in recent years, which in turn adds to the value that investors associate with it. Silver undergoes extensive usage in the making of jewelry, in producing chemicals and photovoltaic cells, and in the creation of cellphones. Adding to the investors’ attraction is its limited supply and practical use.

Budding markets are gradually becoming more digital. Therefore the need for silver to construct cell phones is on the rise. Higher demand will ordinarily generate a higher price or value. In this sense, this particular demand is predicted to have a sustainable future.

Gold-backed cryptocurrency is a crypto stablecoin that has each token being backed by physical gold. The price of the token is pegged to whatever the current gold price is, so there is less volatility in the price compared to other altcoins or Bitcoin.

At a minimum, the coin’s price will equal the current gold rate. Should the cryptocurrency’s popularity increase, then the price of the coin could grow in value, potentially exceeding the value of gold. However, if the cryptocurrency fails to take off, then the value will remain as the value of the gram of gold. In essence, it is like an integral stop-loss system.

The reason behind the draw

Once upon a time, a cryptocurrency-based monetary system came across as an unattainable concept, mostly because crypto is among the most volatile asset classes. In spite of this apprehension, stablecoins backed by tangible assets would go on to be a worthwhile option for those looking to invest in precious metals. In particular, those who would rather avoid the task of storing or transferring them.

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