The Russian-Ukraine war has led to a supply shock for the global market, leading to inflation pressure in the face of surging energy and food prices. The current volatility in the equity market has made investors seek protection under precious metals like gold and silver. It is why there has been a recent surge in gold-backed cryptocurrencies prices.
As per CoinDesk, the two prominent gold-backed tokens- PAX Gold and Tether Gold crossed the market capitalization of $1 billion combined. CoinMarketCap states that PAXG (PAX Gold) and XAUt (Tether Gold) touched $2071. Their combined market value stands at $811 billion.
The re-assembling gold prices seem to attract more crypto buyers for the gold-backed tokens. This reallying takes place at a time when the global market for the capitalization of all cryptocurrencies combined has dropped owing to the risks of stagflation. Crypto pundits believe stagflation to be a serious risk and worry over a longer and higher inflation rate.
Russia-Ukraine war has led to a stagflation
In the global economy, stagflation is a condition where high inflation, high unemployment rate and slow economic rate occurs at the same time. Such a situation has been created now by the ongoing Russian-Ukraine war. Russia’s attack on Ukraine has resulted in a supply shock, which has led to inflationary pressure in the face of rising food and energy prices. Since the war commenced, crude oil prices rose to $130 per barrel- the highest value since the 2008 economic crisis.
Typically, a stagflation setting is very bad for the stock market. However, gold and silver-backed cryptocurrencies are serving as a safe haven for investors. In an inflation environment, the purchasing power of cryptocurrencies depletes, which in turn makes gold expensive. And such gains led to more investment into gold-backed cryptocurrencies. In fact, crypto analysts call stagflation and gold to be better bedfellows than anything else.