Crypto Gold PAXG contract once again outperforms Bitcoin (BTC) in recent market bloodbath. Since the beginning of the crash on June 7, PAXG has shown an amazing market performance, rising 50% against BTC at one point. Later, when the situation cooled down, its quotes fell by 7% and its price now stands at the level of 0.08076 against BTC, or $1,819 in equivalent dollars.
It is worth remembering that PAXG, issued by Paxos, is a token backed by real gold in a 1:1 ratio. Its peg to gold makes it the kind of tool that allows crypto investors to take advantage of gold without leaving the cryptocurrency market ecosystem.
Is gold or its crypto analog a defensive asset during a crisis?
At all times, financial markets have been dominated by the belief that gold is the asset most capable of protecting funds from inflation, at the very least, and severe economic shocks, at the most. However, this is not entirely true, at least as far as the last point is concerned.
Yes, when it comes to geopolitical shocks or inflation, gold is a protective asset because the economic situation of the agents does not change and they reallocate funds in favor of a “safe haven”. If we talk about the situation of falling markets, it is associated with a drop in investor income and, consequently, with a drop in demand for precious metals.
Of course, the rise of PAXG against Bitcoin is impressive at first glance. However, on the PAXG to USDT chart, the picture does not look so beautiful anymore. Since the beginning of the same period in question, the price per token first increased from $1,836 by 3% to $1,896, but then quickly fell by 3.69% to $1,819, which is even lower than the price on June 7.
Is gold or its crypto analog a defensive asset during a crisis? The question is creative. The diversification benefits of adding gold to your portfolio are obvious, as the precious metal or its crypto equivalent has no direct correlation to economic cycles. However, lack of correlation and negative correlation are very different things.
Gold, and PAXG in particular, is no less volatile than BTC or ETH, and may be losing value. Therefore, you must be careful when formulating a “protective asset” and clearly distinguish between which processes protect gold and which “safe haven” moments in gold might not be worth pursuing.