When looking for the best cryptos to buy, it’s important to take macroeconomic conditions into consideration.
When the Fed raises interest rates, the overall value of the cryptocurrency market decreases. That has essentially been the pattern that has been established in 2022. The Fed instituted its first rate increase of 0.25% on March 16. That was followed by a 0.50% rate increase in May and two subsequent hikes of 0.75% in June and July, respectively.
Investors who reference this chart that tracks the cryptocurrency market capitalization will understand the overall trend of rate hikes on crypto. The so-called ‘crypto winter’ that has ensued is a direct result of quantitative tightening.
That said, when looking for cryptos to buy there are certain areas within the crypto space that should fare better. Gold-backed cryptocurrencies look particularly strong as do other stablecoins.
Here are the three best cryptos to buy to hedge against interest rate hikes.
Tether Gold (XAUT-USD)
The reason that Tether Gold (XAUT-USD) should win as the Fed hikes interest rates is simple: It is backed by gold reserves held in Swiss vaults. Tether Gold is managed by the eponymous firm that created the most famous stablecoin in the markets today. Tether Gold was launched in 2020 and currently boasts a market cap of $434.44 million.
A single Tether Gold token represents one troy fine ounce of gold. What’s interesting about Tether Gold is that it combines the stability of gold as a traditional hedge against inflation and the benefits of digital currency.
For example, physical gold comes with storage fees and accessibility issues. Tether Gold doesn’t suffer from those problems and that differentiates it from physical gold which is becoming increasingly attractive as a store of value.
The overarching notion is that subsequent Fed rate hikes make dollars less valuable and investors should therefore flee to gold and other commodity-backed cryptocurrencies. This makes Tether Gold one of the more intriguing cryptos to buy.
PAX Gold (PAXG-USD)
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The argument in favor of PAX Gold (PAXG-USD) is much the same as that for Tether Gold.
It operates in the same manner with a PAX Gold token representing a troy fine ounce of gold. That means owners control the trading rights to the gold they purchase as PAXG and can trade it freely without having to consider the transfer of the actual physical gold.
PAX Gold is also interesting because it makes gold more tradeable in terms of divisibility. It is difficult to divide physical gold beyond a certain point. A PAX Gold token is indefinitely divisible so a token holder can trade fractions of that token that would otherwise be physically impossible.
In theory, gold-backed cryptocurrencies like PAX Gold are opening up gold trading to smaller investors who traditionally lacked access in the past.
PAX Gold has a market cap that is currently approaching $600 million. To put that in perspective, there’s roughly $3.5 trillion in total gold available today.
That means PAX Gold controls gold reserves that amount to .00001% of the total gold available. That is a minuscule number but PAXG is increasing the ease of trading gold which should strengthen the market.
USD Coin (USDC-USD)
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The method by which USD Coin (USDC-USD) benefits from Fed rate hikes is relatively straightforward. Stablecoin operators hold assets in reserve backing their coins and charge interest on those reserves.
So, in a rising rate environment companies like USD Coin and Tether receive higher interest fees as they increase their rates. Every time the Fed raises interest rates USD Coin can reliably expect that its operating profits will rise.
But while this is good news for those companies it doesn’t translate to a benefit for investors. That interest income generated from reserve assets with greater interest fees isn’t shared with holders. USD Coin wins when the Fed raises rates, holders don’t gain anything.
But USD Coin is noted as a safe haven in volatile times. It accounts for 4.75% of the cryptocurrency market and is ranked 4th overall with a market cap above $53 billion.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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