Starting March 19th, SMART VALOR, becomes the first European digital asset exchange listing tokenized physical gold PAXG to help investors cope with a stock market crash.
The stock market collapse of the last days and the meltdown in cryptocurrency market set a stage for the urgent need of investors to adjust their portfolios to the new reality of recession. To offer a real alternative to investors in a time of crisis, SMART VALOR, the Switzerland-based European digital asset exchange opened listing of tokenized physical gold PAX Gold (PAXG) as of today. PAXG is the first and only regulated gold-backed digital asset from Paxos Trust Company that allows individuals and institutions access to the highest-quality investment grade gold held in the most secure vaults with no storage fees.
Olga Feldmeier, CEO of SMART VALOR commented on the PAXG listing:
“The US dollar lost 93% of its value over the last 100 years. In a view of the recent decision by the US Federal Reserve to lower the benchmark interest rate to 0% and relaunch its quantitative easing program with $700 billion, the greenback is set for further devaluation. With the breakout of the coronavirus we also might be heading into a deep recession like the Great Depression of the 1930s. This is the time when investors are in need for a real alternative to protect their savings. Therefore, we decided to move forward with listing of PAXG on SMART VALOR exchange.”
The overly negative correlation between stock market and gold means that gold’s price tends to rise as stock markets fall and vice versa. This is why gold is generally referred to as a safe-haven asset or chaos hedge. Through wars and the worst recessions — including the 1930s — we have experienced a massive rise in the price of gold. During the Global Financial Crisis, gold’s price grew by over 200% soaring from USD850/oz in 2008 to USD1’800 /oz in 2011.
“PAX Gold is a truly unique product - it is the fastest and easiest way to buy, own and trade the highest-quality physical gold. Given the volatile market environment, it’s important that investors around the world can access this safe-haven asset quickly and easily - PAX Gold does just that. With SMART VALOR, customers with GBP, EUR or Swiss Francs can now buy PAX Gold and trade that against the biggest cryptos.” Kyle Libra, Product Director at Paxos, commented.
Why gold now?
The stock market collapse over the last two weeks in which S&P 500 slipped 30%, with further losses likely, has yet to see its counterbalance in a rise in gold’s price. But why hasn’t this happened yet? The reason is that during the initial stage of a stock market crash, market participants need to unbundle leveraged positions, liquidating — among other assets — their gold positions. This is the reason that gold has so far not reflected the fast switch into recession already visible in the real economy and stock markets. The price is flat on the year-to-date basis, hovering at around USD1’500/oz at this time. This is why the upward correction of the gold price is widely anticipated.
The fundamental role of blockchain
Many experts in the cryptocurrency space hoped that the first cryptocurrency, Bitcoin, would turn into some kind of digital gold, the safe-haven asset negatively correlated to the overall economy. Unfortunately, that theory has not played out this time and the price of the Bitcoin plunged in line with the overall stock market going from 8’000 USD to 3’500 during the last week. The liquidity crunch and the leverage are partially to blame. But the truly innovative role of the blockchain during this crisis might have nothing to do with Bitcoin, and rather be more on the side of tokenization of real assets.
Today, the predominant way to get gold exposure is through physical gold-backed exchange traded funds (ETFs). To invest in these ETFs, you either need to have an account in the bank that offers such instruments or open an account on a trading platform offering gold ETFs. This is the old world. Decentralized finance does away with barriers like these.
The key difference between ETF and PAXG is that a trader can send the token globally, peer-to-peer, in a few minutes to anybody anywhere who has an Ethereum wallet address. No bank account necessary. The result is that this tokenized gold can be used not only as a store of value but also as a means of payment, where it can travel completely outside of the banking system. It can become the type of money used before Bretton Woods did away with the gold standard. It might be even the money the world will turn to again, should state defaults and bank runs become daily news.
In Switzerland, the big advantage of listing a gold-backed token like PAXG is that the national financial regulator explicitly puts it into the category of non-securities, which enables fully compliant distribution and trading of physical gold represented through a token.
To buy tokenized physical gold PAXG you can register here:
Disclaimer: The risk of loss in trading tokenized commodities can be substantial. You should therefore carefully consider whether such investment is suitable for your risk profile and overall asset allocation. This is not a financial advise.