While Bitcoin ether and other major cryptocurrencies fell Friday in a $19 billion liquidation event, leading gold-backed digital assets bucked the trend amid the precious metal’s rally.
Tokens tied to physical gold, including Paxos’ PAXG and Tether’s XAUT, were among the few to hold on, and even advance, as broader markets slumped.
Bitcoin lost 8.5% of its value over the past 24 hours, while the broader crypto market plunged 12.75%, as measured by the CoinDesk 20 Index (CD20). PAXG meanwhile is down just 0.23% to $3,998, while XAUt is up 0.2% to $4,010. The troy ounce of gold, on which these tokens are backed, closed at almost $4,018.
These coins are backed by reserves of the precious metal, providing crypto investors with a refuge from the volatility that reflects gold’s historic role in traditional finance. Since the start of the year, these tokens are up over 50% amid gold’s historic rally.
But even though gold-backed cryptocurrencies have weathered the crash, there are signs that their underlying asset may be on the verge of fatigue. Gold has risen for eight straight weeks, which the World Gold Council’s Markets Monitor said pushed the price into “overbought” territory. This is reflected in the daily, weekly and monthly charts, increasing the likelihood of a near-term reversal.
“With the extreme ‘typical’ overbought history – 25% above the 40-week average – seen just above here at US$4,023/ounce. We would then be wary of rally exhaustion for this phase of gold’s uptrend, opening the door to a consolidation/correction phase,” the report said. “Net long positioning remains high but is not yet seen at the extreme.”
In the broader crypto market, the path to recovery could now be a slow process. Liquidity constraints, weekend ETF closings and a cautious return from market makers suggest a prolonged bottoming process.
As trade tensions between the United States and China escalate again, the floor could remain elusive.
