Gold is one of the world’s oldest and most successful forms of currency. Even in today’s age of decentralized digital cryptocurrency and other technical innovations, gold has remained as prominent as ever. However, owning gold is still quite difficult and inaccessible for most individual investors. One crypto company that is hoping to change this is PAX Gold (PAXG). PAX Gold aims to democratize gold and make ownership more accessible for the average investor. PAXG is currently trading at $1,937 with a circulating supply of 318,000, for a market cap of $616 million.
What Is PAX Gold?
PAX Gold is a gold-backed cryptocurrency that provides investors with digital ownership over real gold. Rather than simply providing exposure to gold prices, the project allows investors to redeem their PAXG tokens for gold, with each token being redeemable for one fine troy ounce of physical gold. PAXG tokens can also be traded for other cryptocurrencies or even converted to fiat currency.
PAX Gold makes it easy for investors to own gold by removing the difficult process of storing, securing, and transporting physical gold. The project’s fractional nature also allows investors to buy partial shares of gold, thus making the high cost of gold less of a barrier for retail investors. By bridging physical gold ownership with the speed and mobility of cryptocurrency, PAX Gold is able to solve many of the modern-day gold market’s challenges.
How Does PAX Gold Work?
PAX Gold is an ERC-20 token built on the Ethereum blockchain. This provides the PAXG token portability across the Ethereum blockchain’s extensive network of wallets, exchanges, DeFi platforms, and other applications.
Tokens can be staked, traded, or redeemed for real gold. And this real gold is some of the highest quality gold on the market: London Bullion Market Association accredited gold bars. These gold bars are then held in some of the world’s most secure gold vaults. Despite the high quality of the gold and storage, PAX Gold surprisingly does not charge any custodial or storage fees. The only fee charged is a 0.02% transaction fee.
Beyond the gold, PAX Gold also strives to operate in a transparent and reliable manner. Both PAX Gold and its parent company, Paxos Trust, are formally regulated by the New York Department of Financial Services (NYDFS). Furthermore, PAX Gold holds the customer’s and the company’s assets separately, thus ensuring the customer is protected in the event of bankruptcy to Paxos. PAC Gold’s policies and regulations provide investors with an extra layer of security and peace of mind.
A final defining aspect of PAX Gold is its ease of use. It’s incredibly easy to buy, redeem, trade, or stake PAXG. PAX Gold does not seek to discourage redemption through creating a difficult redemption process. This ease of use has been crucial in helping PAX Gold achieve its mission of democratizing the ownership of gold.
What Is the Difference Between Bitcoin and PAX Gold?
Bitcoin (BTC) is frequently labeled as “digital gold”, whereas PAX Gold is a type of gold-backed crypto. So what exactly is the difference between the two cryptocurrencies?
Bitcoin’s “digital gold” label has nothing to do with physical ties to gold, but is instead due to the economic similarities between the two assets. Both Bitcoin and gold are stores of values, deflationary, supply-limited, and inflation hedges.
PAX Gold, on the other hand, is a digital token that is actually backed by gold and provides investors with direct ownership of physical gold. To put it simply, Bitcoin’s relationship to gold is only an analogy, whereas PAX Gold’s relationship to gold is a direct representation.
Bitcoin vs. gold (Source: Kinesis Money)
How Does PAX Gold Differ from Gold ETFs?
Gold ETFs are one of the most popular ways for investors to invest in gold, with over $112 billion worth of trades occurring daily. Gold ETFs are a simple and safe way for investors to gain exposure to gold. Anyone with a brokerage account can buy a gold ETF within minutes.
However, it’s important to note that gold ETFs do not provide investors any actual ownership of gold. PAX Gold offers the same price exposure and simplicity of Gold ETFs, while also providing investors with actual ownership of physical gold.
Who Is Behind PAX Gold?
PAX Gold was created by the Paxos Trust Company, a New York–based financial institution and tech company specializing in blockchain technology. Paxos was founded in 2012 by Charles Cascarilla — a former Goldman Sachs analyst — and Richard Teo — a former analyst at Cedar Hill Capital Partners.
PAX Gold is not Paxos’ first endeavour into crypto. Paxos has created a variety of other crypto projects including PAX Dollar (USDP), a digital dollar and stablecoin. Paxos has received strong institutional support and has raised over $500 million in total funding from investors like OakHC/FT, Mithril Partners, and PayPal Ventures.
PAXG Price History
PAXG’s price directly tracks the real-time price of gold. That means the price will always be identical or almost identical to the price of gold. The only factor that directly influences PAXG’s price is gold’s price. That being said, the price of gold is influenced by a variety of factors such as gold supply & demand, inflation, and macro-economic events.
Because PAXG is backed by gold, it’s more stable and less prone to the short-term volatility of many other cryptocurrencies. This stability makes PAXG a great investment for crypto investors looking for a more secure investment with less risk — although it also has less upside.
PAXG is currently trading at $1,937, which is up 10% year-to-date ($1,748) and up 27% from the project’s 2019 debut ($1,525). By contrast, Bitcoin is down 12.3% from the start of the year, and the S&P 500 is down 6.9% year-to-date. PAXG’s all-time performance (Source: CoinMarketCap)
What Is the Future of PAX Gold?
It seems almost certain that gold will continue to be a valued commodity and a crucial component of the global economy. However, whether PAX Gold will continue to succeed within the competitive landscape of gold and crypto remains to be seen. Some factors that will impact PAX Gold’s future success are as follows.
Negative factors for PAX Gold
- High Competition: There are currently several other projects competing with PAX Gold in the gold-backed crypto sphere. Tether Gold (XAUT) is a leading player in the crypto-gold industry, and is one of PAX Gold’s strongest competitors. Tether not only offers a similar product, but also brings the brand recognition and support that comes with the Tether name. If PAX Gold is to outcompete Tether Gold and others, they must develop a clear competitive advantage. Currently, it’s not clear whether the team has any major plans that will provide such differentiation. The top five gold-backed cryptocurrencies (Source: Crypto Briefing)
- Lack of a Detailed Roadmap: The leadership team at Paxos has not provided a detailed update or roadmap for the future of PAX Gold, nor have they announced any major new initiatives or changes for the project. This is definitively concerning. Continual innovation is crucial within the fast-changing world of crypto. And if PAX Gold is to succeed within the long-standing and established gold industry, they must continue to innovate and provide new value to investors.
Positive factors for PAX Gold
- Regulation: The crypto industry is under constant scrutiny and has faced repeated calls for increased regulation. Many cryptocurrencies operate in an unregulated grey area that may lead to issues if regulations change. But unlike other cryptocurrencies, PAX Gold is fully regulated and approved by the NYDFS. Thus, PAX Gold will likely not face any major governmental barriers to future success.
- Global Issues: Macro-economic issues and geo-political issues — like COVID, inflation, or war — often lead to increased demand for gold. In tumultuous times, investors tend to move away from the more-volatile markets and into more-stable “safe-haven” assets like gold. Evidence for this can be seen in PAX Gold’s price success relative to other major assets during the volatile and tumultuous year of 2022.
- Quality of Project: PAX Gold has a strong value proposition that addresses genuine issues within the gold market. If PAX Gold can continue delivering value through its beneficial features, quality gold, and high security, PAX Gold will likely have the fundamental attributes required for long-term success.
These factors together show that PAX Gold does have the right pieces to potentially succeed. However, the lack of a well-developed roadmap by the team should make investors hesitant in becoming too bullish on the project.
PAX Gold is a gold-backed cryptocurrency that provides investors with direct price exposure to and ownership of gold. The crypto is simple to invest in, easy to own, and secure. While the company behind PAX Gold has yet to define a roadmap for the project, it has a wealth of crypto experience and is fully licensed and regulated. Those looking for a project that combines the security of gold with the new-age convenience of crypto should consider investing in this project.