Why Gold-Backed Cryptocurrencies Beat The Bear Market

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In June 2022, the global cryptocurrency market cap fell below USD 1 trillion for the first time since January 2021. With Bitcoin trading at a 65% decline from its all-time high of USD 69,000 in November, the largest cryptocurrency by market value crashed for 12 consecutive weeks—a groundbreaking downturn for the digital asset.

Closely following, the second-largest cryptocurrency, Ether, was trading below USD 1,300 at around USD 1,235, a decline of 74% from its all-time high of USD 4,878. Neither of the cryptocurrencies has witnessed such crashes since December 2020.

The cryptocurrency winter ensued after the Bureau of Labor Statistics released monthly inflation data from the consumer price index (CPI), indicating an 8.6% year-over-year increase in May, a level way above estimates from Wall Street.

In these uncertain market conditions, investors seek solutions to hedge against inflation. For many past economic downturns and bear markets, gold has proven to be a safe haven for investors worldwide. As a result, many traders and investors choose to invest in gold to protect their capital against value depreciation, which occurs from inflation, causing an increase in general prices. 

Since gold prices are related to the value of the US dollar due to gold being dollar-denominated, a stronger USD keeps the price of gold down and more controlled, meaning more gold can be purchased when the dollar is weaker. This protects investors against economic events like currency devaluation and provides a safety net during periods of political instability.

Despite its utility, investors should be aware that many gold mining companies are