Goldmoney merging BitGold

[Paul]

I had this email from GoldMoney the other day, things are on the change. Im not sure if this is for the better or worse.  

 

It reads:

 

Dear GoldMoney customer,

 

Today, we announced the acquisition and merger of GoldMoney Network Limited with BitGold Inc. forming the world's largest and oldest bullion money service with over 60,000 active customers and $1.5 billion in assets under management. BitGold Inc. is a publicly traded company on the Toronto Stock Exchange Venture under the symbol (XAU).

GoldMoney's existing board members, founder James Turk, Geoff Turk, Mahendra Naik, and Hector Fleming will also be joining the listed company's board.

 

What you can expect as a GoldMoney customer?
Over the next few months, you will begin to experience a wide range of features and service improvements including:

 

Reduced fees on dealing;

• A plastic debit card allowing to spend your gold balance at any traditional point of sale, where credit/debit cards are accepted or to withdraw local currency from any traditional ATM;
• The world's first 24 KT gold plated debit card for customers with over $100,000 in their Holding;
• A mobile application for iPhone, Android and Blackberry, allowing full dealing and payments capabilities (Apple Pay integrated);
• An enhanced customer experience with updated payment methods (fund your account with credit card, ACH or SEPA);
• Free global payments (for non-US resident customers);
• Physical redemption in as little as 10 gram increments (GoldMoney Cubes);
• Multilingual website in 12 languages

 

We will be making all these enhancements while never compromising the integrity and security that you have grown accustomed to. Everything you have loved about GoldMoney will continue to exist.

 

The combination brings a tremendous amount of access to capital, building a more solid financial base than ever, as well as the integrity, transparency, and reputation value of being a publicly traded entity.

 

As a welcome to the BitGold family, we are reducing any dealing fees on gold to 0.01% for existing customers over this weekend.

Use promotion code: 001FEE on gold trades from Friday 22 May 2015 to 23.59 Sunday 24 May, 2015 UK time*.

If you have any questions please contact customersupport@goldmoney.com

 

Yours sincerely,
The GoldMoney Team

[Hookythestacker]

The 24 KT debit card just oozes class. I got mine of ebay. 

 edit- plated card.

 

Comment at the end of article about stored insurance is interesting.

 

http://cointelegraph.com/news/114358/bitgold-inc-purchases-goldmoneycom-for-nearly-52m

[Paul]

I have just read a very insightful commentary on this merger from Dominic Frisby from my Money Week email - here it is pasted below for those interested 

 

 

Today, we revisit a story I wrote about last week – the company that is aiming to be the PayPal for gold, Canada-listed BitGold.

 

There was a huge announcement on Friday. BitGold acquired GoldMoney.

 

GoldMoney is a vehicle to buy and sell precious metals online and store them. It has good brand awareness (people know and like it), 870 tonnes of gold and silver under storage and 20,000 customers.

 

It might at first look like a great deal.

 

A game-changer even.

 

But it hasn’t changed my view that you shouldn’t touch BitGold…

 

A brief history of GoldMoney

 

GoldMoney was founded in 2001 by James Turk with his son, Geoff. The company was a big success.

 

It had a good business model, the launch coincided with the start of a rampant bull market in gold, and Turk had a strong media profile – he was charismatic, and made clear arguments about the importance of gold.

 

Eventually, it had well over a billion dollars’ worth of metal stored, more than 20,000 customers, and was the clear market leader.

 

I should say I feel an immense amount of affection for James Turk. He was one of the first people I ever interviewed on my podcast – way back in 2006.

A lifelong hard money advocate, he knows as much about gold as anyone.

 

I regard his 2005 book, written with John Rubino, The Coming Collapse of the Dollar and How To Profit From It, as one of the best investment books for the layperson that I’ve ever read.

 

The recommendations – buy gold and (particularly) sell financial stocks – were prescient.

 

They could have made you a lot of money.

 

However, his bigger vision – that the US dollar, in fact all fiat money, will collapse – has not happened. I suppose it nearly did in 2008, but that’s another story.

 

And since about 2011 (when gold peaked), GoldMoney’s star has waned rather.

 

It has been overtaken as market leader by Paul Tustain’s BullionVault, which offers pretty much the same services at a lower price.

BullionVault now has about 50,000 customers with 33 tonnes of gold stored (compared to Goldmoney’s 20 tonnes).

 

Turk eventually retired in 2013.

 

This deal may not be as good as it looks

 

At the peak of the gold mania, GoldMoney’s valuation might have been somewhere between $200m and $300m.

 

BitGold is getting it for C$52m, using its (very highly-valued) shares.

 

I must say I’m not crazy about the way this deal has been handled on BitGold’s side.

 

First, BitGold had been trading for little more than a week before this deal was announced. GoldMoney’s business model is closely related. Yet there was not even a hint of this in the regulatory filings before Friday’s news release.

 

Second, when the news release was made on Friday morning in Canada, BitGold’s stock was halted.

Then, on Friday evening after the markets closed (the golden hour for releasing ‘not so positive’ news), another release was put out which included GoldMoney’s basic accounts over the last five years.

 

These had not been made public before and the numbers are concerning.

$9.5m in profit in 2011;

$7.3m in 2012.

Great so far.

$0.3m in 2013. Hmm.

 

And then the humdinger – $9.4m in losses in 2014, with a projected $0.8m in losses projected for 2015. Sales have collapsed by over 75%.

GoldMoney has become a loss-making business.

 

The explanation for the 2014 loss was “gains and losses on unhedged metal inventories”. It looks like bad bets were made on the gold price. 

 

But my main issue is that I think BitGold's strategy is flawed.

Gold payments systems simply will not work (I think)

 

There are three arms to the BitGold strategy.

 

First the buying, selling and storing of gold.

BullionVault is already doing that. It has a more proven track record and it’s doing it for less.

And unfortunately, GoldMoney’s customers will not enjoy the free gold storage that BitGold’s do. That’s no surprise – GoldMoney has 870 tonnes of metal (gold and silver) to Bitgold’s quarter of a tonne. Metal costs money to store.

 

Second, there’s this crossover between bitcoin and gold. I discussed this last week – Bitcoin bugs and goldbugs are two very different animals. Goldmoney already tried this with Netagio and it didn’t work. Maybe BitGold can make it work. I’m not convinced.

 

Third, it wants to get people using gold to make payments. Again, I argued last week this model was flawed. I’d also point out the security issues that using vaulted gold for payments raises. If people are dipping in and out of their accounts on a daily basis to make payments, that gold becomes vulnerable to all sorts of fraud, password theft and so on, when previously it was locked away.

 

I remember speaking to Turk in 2006. “How will we know when the time has come to sell our gold”, I asked him. His set answer to this question was always, “You’re not going to sell your gold, you’re going to spend it”.

 

In other words, when the world moves on from fiat, gold would become money once again. It’s a story I once bought into. In 2008, I even hounded Turk to find me some stock in GoldMoney to buy, because I thought its patented gold payments system would become some kind of standard.

 

Perhaps BitGold’s founder, Rory Sebag, who is only 28, shares the same youthful goldbug dream that I once had.

But the evidence of history, as I argued last week, is that gold is not a day-to-day medium of exchange, nor has it ever been. It is only ever likely to be used as a medium for high-value transactions or payments in extremis. Thus gold payments systems are inherently doomed.

 

Sure digital gold makes sending tiny amounts possible, but there are better moneys for smaller purchases – fiat being one of them.

GoldMoney’s patented gold payments system, by which customers could make gold payments to each other online, never really took off. It was closed in early 2012 with the stated reason being the cost of compliance.

 

But, worth noting, was this sentence from the email sent out to customers about the closure: “Our research has proven that our customers' use of the metal payments and currency exchange services is not significant and we trust that the suspension of these services will not be inconvenient for the majority of our customers”.

 

Therein lies the problem. Customers’ use of metal payments was “not significant”. People weren’t using it enough to justify it.

Maybe Sebag can make gold payments work. I hope he does. But my head says he won’t.

 

So all in all, in BitGold we’re looking at three ideas. Two (gold-backed digital payments) have failed, and one (storage) can be done cheaper elsewhere.

 

In short, this is overvalued and overhyped – avoid it

 

It’s a bit weird. GoldMoney’s shareholders are getting a good price.

They’ll also keep some of GoldMoney’s cash (something BitGold will, in my view, soon be worryingly short of). But BitGold is making use of its highly valued shares.

And that’s the biggest problem I have with BitGold, and the main reason I would avoid it – it is absurdly over-valued and heavily promoted. Too much success has been priced in.

[HighlandTiger]

So glad I went with Bullion Vault and not Goldmoney. This merger is going to end in tears..............

[Paul]

............and so the saga continues - James Turk has offered a critical response to Dominic Frisby's commentary on the BitGold / GoldMoney article from yesterday

 

Giving a little more light and what has happened and what is the plan going forward.

 

Here's is James Turks response 

 

James Turk, founder of GoldMoney (recently acquired by BitGold), responds to Dominic Frisby’s take on BitGold from Thursday’s Money Morning.

 

 

Dear Dominic,

I am writing in response to your latest article about BitGold’s purchase of GoldMoney.

 

I would like to clear up some points, so that your readers understand this transaction.

 

BitGold is not a “bitcoin company” – if you need a comparison, it is much more “PayPal” than “bitcoin”, but BitGold can be better understood as a “digital gold” company, which of course is what GoldMoney invented and patented.

 

The digital gold currency being offered by BitGold is a technological advancement upon the service GoldMoney provided until January 2012.

The profitability of a high velocity payments business like PayPal dwarfs that of gold ETFs and custody businesses.

 

When GoldMoney launched 15 years ago, its payment service was ahead of its time. Today the market is ripe for innovation.

 

BitGold and GoldMoney will operate separately, offering products and services that appeal to different market segments.

 

GoldMoney will continue to operate as before, while BitGold is focused on widening access to gold by enhancing its use as currency in day-to-day current accounts, and by enabling customers to accumulate value over time with any level of savings.

 

These services are particularly useful in emerging markets and for those just starting on the path toward wealth accumulation.

 

GoldMoney customers who are not US residents can open an account with BitGold if they choose to do so, and I expect that many will.

 

Similarly, BitGold customers can open a Holding in GoldMoney. Just as many people have two bank accounts – a current account and one for savings – we expect customers to use BitGold/GoldMoney in the same way.

 

Though our two companies will operate separately, there will be efficiencies that can be achieved that benefit customers, which results in satisfied customers. That means the shareholders of the combined company will benefit too, which leads to the heart of your article.

 

You are making a judgement call about the share price of BitGold. I am a firm believer in the market process. I also believe that investors will undertake the research needed to make an informed decision about whether or not to buy the stock of any listed company.

 

In my five decades of investing experience, I know first and foremost to look at the management team. I am impressed by the breadth and depth of the team that BitGold has assembled.

They have experience in online commerce, deep IT skills, creativity, dedication, enthusiasm and above all, integrity. This mix of ingredients is necessary to build a successful company, and when joining with the people already within GoldMoney, it is a formidable combination.

 

By choice, GoldMoney shareholders are receiving shares of BitGold, not cash. I view these shares to be a long-term investment for holding well beyond the 12-month lock-up.

 

There exists vast potential for changing online payments, and in my view, BitGold has the right people and resources to take advantage of this potential to the benefit of its customers and shareholders.

 

GoldMoney shareholders want to be part of that effort, but will BitGold/GoldMoney be successful?

 

The future cannot be predicted of course, which explains the importance of relying upon a first-class management team.

 

Good people can make good things happen. Importantly, the opportunity to change online payments exists, notwithstanding your concern that metal payments years ago never took off.

 

Nor for example, did ATMs, which existed for many years before bank customers finally understood their many benefits. The point is that customer adoption in financial services often comes slowly; it is a natural response because people do not want to take risks with their money.

 

Additionally, the use of metal payments in GoldMoney was affected by Gresham’s Law, which states that bad money drives out good. In other words, money can be spent or saved, and the bad currency gets spent, and the good currency gets saved.

 

BitGold has the opportunity to reverse this, for two reasons.

First, although safety plays an important part, currency is driven mainly by ease of use and cost, with the lower-cost currency being spent. BitGold’s technology addresses both of these points, and makes digital gold currency the easiest to use, lowest-cost and most secure way to make payments.

Using the latest technologies in mobile payments, functional programming and cloud computing for speed and scalability, and effectively reorganising the way gold bullion will exchange and settle, the BitGold technology can help solve the most fundamental problem in money – making a store of value a good medium of exchange.

 

Second, Gresham’s Law is something goldbugs understand, which is the market segment that GoldMoney addressed. But BitGold is attracting users who have never bought gold. What’s more, the average account size in GoldMoney is about US$70,000, compared to about US$100 in

 

BitGold. Anyone with such a small exposure to gold will not care about Gresham’s Law.

 

BitGold is opening accounts for people who want to use digital gold currency to make payments and buy things online, which will attract merchants to BitGold and provide it with another important source of profits.

 

Only time will tell of course whether or not new impediments develop and hinder the adoption of digital gold currency. But GoldMoney shareholders want to participate in this journey, and I will also participate as a member of the Board of Directors of the combined company.

 

In 2013, I retired as chairman of GoldMoney, but have remained a member of the board. Once this transaction closes, I will join the BitGold board with two fellow GoldMoney directors, Hector Fleming and Mahendra Naik.

 

I look forward to participating in the combined company which offers an historic opportunity for the gold industry by creating an entirely new demand for gold – its use as online currency, to spend gold and even earn gold as people’s currency of choice.

 

I am hopeful that I can contribute to the BitGold/GoldMoney strategy to ensure that its plans and ideas come to fruition. I will also do my best to ensure that BitGold/GoldMoney remains the industry leader in governance practices to provide our customers with assurances of integrity so they know that their money is safe.

 

Yours sincerely,

James Turk

Founder & Director, GoldMoney

[HighlandTiger]

Methinks he doth protest too much... ..

[Paul]

The further I am reading into things there has been a some major mud slinging going round these CEOs

 

Bullionvault's main-man Paul Tustain has stuck his two pence worth with him singing the praises of his own firm below  :

 

 

 

 

• Bitcoin, BitGold, GoldMoney - and BullionVault

Wednesday, 5/27/2015 20:19
GoldMoney taken over by bitcoin-to-gold service BitGold. What is BullionVault's view...?

MANY gold investors will have been surprised by the announcement made last week that one of our competitors, GoldMoney, was being sold to BitGold, writes Paul Tustain, CEO of BullionVault.

On a personal level I am pleased for James Turk, GoldMoney's founder and guiding hand, who was already in retirement, and with whom I have enjoyed many events and lunches. But the deal has a number of aspects which absolutely demand comment.

The GoldMoney data
The company I run, BullionVault, publishes its audited results every year. GoldMoney never did, and it shows us once again why transparency is profoundly healthy.

At 00.41am on a Saturday morning UK time (after Toronto trading closed on Friday evening) GoldMoney's recent trading history was quietly published by BitGold. It had to tell the stock-market what it had acquired. Those results made scary reading.
GoldMoney's sales have collapsed – by 78.7% over three years.
It lost £9.4 million in just one year – 2014.
Its net assets fell from £25.4m in 2013 to £13.1m in 2015.
At its March 2015 year-end it is still posting losses.
The first thing we should understand is how GoldMoney lost so much money in 2014. The answer is presumably a combination of things but mainly that they bet their balance sheet on gold. Or, in the special language of company announcements:
"Profit (Loss) for the financial year includes certain gains and losses on unhedged metal inventories which is not a recurring business for BitGold."
How much exactly was lost to this is not disclosed, but it will be a relief for BitGold's shareholders that this part of the losses can be reined in by eliminating speculation from the company's policies.

Gold storage
Of more importance for BitGold's new and prospective customers is that BitGold continues to advertise a business model which will offer free gold storage.

Storage is one of the most significant costs for a substantial gold vault service, and the cost must surely be recouped for any but a fledgling business.

BitGold certainly does offer 'free' vault storage. But it's only because BitGold was, until recently, so tiny. It had only a quarter of a tonne of vaulted gold, so it could wear the insignificant storage cost for now.

GoldMoney – on the other hand – looks after 870 tonnes of gold and silver, which belongs to its clients. Storing and insuring this quantity of metal at third party vaults takes a chunk out of the monthly budgets, and BitGold is simply not a viable business if it provides the storage and insurance of all this gold and silver for free.

BitGold knows this. After clarification on the post-deal conference call it appears that BitGold will not offer its new GoldMoney customers free gold and silver storage. So that part of the proposition headlined on their website appears likely to be discontinued, or possibly withheld from GoldMoney users. It is still not fully clear.

Without free storage the BitGold trading offer is not especially attractive. 2% from offer to bid, and storage on top? That's hardly compelling in a very competitive marketplace.

Working capital reduction
However in my view the least attractive aspect of the deal is that the working capital in the business is being stripped, leaving GoldMoney operating on much thinner buffers than it has been – even since these significant losses.

After losing half of its net assets in 3 years – down from £25.4m to £13.1m, all but $3m (£2m) of that remaining £13m of GoldMoney's capital is now being paid out to GoldMoney shareholders. So that's another £11.1m going out of the combined business. Not losses, but a 'special distribution' to GoldMoney shareholders.

The leftovers – just £2m – will be added to BitGold's net cash which is how they get to C$12.5m of post-deal working capital.

Yet even when (if) their warrants are exercised, bringing in another C$5.5m that only makes C$18m BitGold working capital. At an exchange rate C$/£ of 1.9 that's only £9.5m.

So instead of combining financial strength for the two businesses going forward, the effect of the asset strip on GoldMoney is to reduce the capital buffers down from £20.5m to £9.5m across both GoldMoney and BitGold businesses. With 870 tonnes of customer metal to look after, and bold investment and expansion plans for BitGold, this is seriously light on capital.

Bitgold expansion plans
Those BitGold expansion plans need a closer look too. BitGold is a brand new 'development stage internet technology business' (see the BitGold: Listing Application, TSX Venture Exchange, 8 May 2015) with a remarkable stock market rating.

Its CEO, Roy Sebag, has brought with him laudable enthusiasm for gold, and bitcoin, and heaps of financial talent, but his company appears to be planning to offer an amalgamation of three ideas, one of which has long been done cheaper elsewhere, by companies with a much more solid base than he can offer, and two of which have already failed.

BitGold offers you the chance to buy and own gold. According to the BitGold website the net round-trip cost, in and out of gold, is 2%. This is not exceptional value. BullionVault's gold round trip costs 1%, and that reduces fast above $75,000. (I am still unclear on BitGold's storage fee proposition and how it will work for GoldMoney users in the long term).

BitGold also anticipates you will use the service to deal in gold, currencies, and bitcoin. The problem with this trading idea is that it has been tried very recently by Netagio – then a subsidiary of GoldMoney – and it failed. We gold owners are a fusty lot, and after 4 months Netagio had little customer interest. Originally financed by GoldMoney and launched in summer 2014 the service was quietly closed in February 2015.
And finally BitGold believes you will choose to make gold backed payments, or even go shopping with a special Visa card, both of which will deplete your gold holding as you spend. GoldMoney itself (again) tried providing a pay-with-gold function, and gave up when they came up against the practical truth of Gresham's Law: "Bad money drives out good" (from circulation).

What Gresham's Law says is that it will be a long uphill struggle persuading people both (a) that gold is better than dollars (or bitcoin) for storing the value of your savings and ( that once you have finally agreed, and bought gold, you should spend it! This is a contradiction. And on top of that it seems there's an extra 2% fee if you use your BitGold Visa card. Is this really what gold savers want?

Roy Sebag said in his conference call that he thinks the barrier to adoption of GoldMoney's payment ideas was technological. I doubt that. And James Turk will not have forgotten what his team at GoldMoney wrote to customers on these subjects in December 2011:
"Dear Customer,

"...we have decided to suspend the following services until further notice with an effective date of the 21st January 2012:
The facility to make and receive payments in precious metals to or from other GoldMoney Full Holding customers.
The facility to convert directly between the various currencies.
"...Our research has proven that our customers' use of the metal payments and currency exchange services is not significant and we trust that the suspension of these services will not be inconvenient for the majority of our customers."
Gold Reserves and Payment Systems
I completely supported James Turk's suspension of GoldMoney payments services in 2011 because I have always disliked linking vaulted gold holdings to payments services. Let me explain.

Few people leave $50,000 (the size of a typical GoldMoney account) in their current/checking account. Most would be uncomfortable to leave a sum like that in a place where it can relatively easily be paid to someone else. Yet BitGold intends to let/encourage GoldMoney account holders to make payments. For BitGold, that's the point of the takeover deal.

But it's foolhardy to assume that no-one will ever find out any BitGold passwords. A far better policy is to assume that passwords will be found out, and to still be safe.

This is why payments to other people are disallowed by BullionVault. Money (or gold) exiting a BullionVault account can only go back to the funding source, which means if someone finds out your password and breaks in (which will trigger the burglar alarm on your phone) the worst they can do is sell your gold at the current market price, and send the money straight back to the source.

In my opinion no substantial gold reserve should be connected to a diverse payments system, least of all one that is irreversible and anonymous, like bitcoin is. It's not failsafe.

GoldMoney / BitGold synergy
On Tuesday's conference call Roy Sebag told us why he is taking over GoldMoney. And he makes perfect sense based on what he knows. He is seeking critical mass for the network effects which are needed to ignite a BitGold payments system.

But for the reasons I have explained I believe he will find no more enthusiasm for gold payments and bitcoin among GoldMoney users than James Turk found there in 2011 and 2014, or indeed than I would find among BullionVault users. Then the key question becomes how much of its limited resources will BitGold expend in turning GoldMoney's operational losses around, if it doesn't pay the rewards he anticipates. We shall see.

BullionVault
In the meantime if you are a GoldMoney customer do remember that BullionVault and GoldMoney historically offered a similar service. We operated in very similar ways, although it now appears that BullionVault has – at least for a few years – been the more cautious organisation. Also, where we used to be about the same size, BullionVault now has approximately three times the free working capital (£27m) that BitGold is proposing for their combined entity (£9.5m).

Nothing has changed at BullionVault. We have always been more transparent than GoldMoney. Our audited accounts have always been published on our site. Our Daily Audit has always proven to clients on a daily basis that their gold is there in the vault. Also the price you pay is still considerably lower than what you pay at GoldMoney. I believe these reasons are why over the last 36 months we have grown relative to GoldMoney by a steady but telling 1% per month, and why we are now about a third bigger than GoldMoney overall.

I have appended a comparison of key indicators for you to compare the two businesses. If you wish to know more please accept my invitation to contact us here.

Paul Tustain
CEO BullionVault
27 May 2015

 

[Paul]

...............and now yesterday CEO Roy Sebag of BitGold comes back with an equally scathing response about Bullionvault and Paul Tustain below 

 

http://seekingalpha.com/instablog/1309921-roy-sebag/4042506-roy-sebag-and-josh-crumb-view-on-bullionvault

 

Roy Sebag And Josh Crumb 
May 28, 2015 8:32 AM

 

Throughout our journey with BitGold we have found there to be two types of people in the gold industry.

First there are those that truly believe in gold's value. They understand the math and physics of money, and they want savers to be on the right side of history. These people often have altruistic motives for the companies they create, to educate and look after their clients and to lower the barriers to prudent financial services. This group includes Eric Sprott, James Turk, the Fleming family, the Soros family, and many major institutions that have embraced our mission and the business proposition of BitGold.

 

And then there is the other camp, the peddlers of fear and greed, trying to maximize profit off the emotion and volatility facing their clients. This second camp seems to be quite threatened by BitGold. So sure enough, their first attack is to threaten our customers and shareholders and invoke unfounded fears. For decades people have waited for a solution like BitGold, yet most of these ill-mannered incumbents didn't make the investments, financially or intellectually, that are required to push the frontier of gold access and utility. Instead they sat back with the same tired narrative and waited for exogenous price volatility so they can live fat and happy off their clients.

 

There are many in this second camp that have or will embarrass themselves in their attacks of BitGold, and the majority deserve no time or mention. The majority don't properly understand our business model or technology.

 

However, we personally are extremely disappointed with Paul Tustain, the CEO of Bullion Vault, and the senseless inaccuracies he recently published about our business. We will point out that BullionVault is a good service with some capable people.

 

While marketing our own business, we've pointed to BullionVault as a leader, even though we offer a far superior service.

 

By attempting to scare our clients when they may be feeling uncertainty about something new, however, he has now found himself in the crosshairs of fight that we do not intend to lose. His misrepresentations are at best an example of ignorance, at worst a blatant attempt to obfuscate the truth for his personal advantage. Either way he has proven himself a bumbler in his purported analysis and frankly, ungentlemanly, very much in contrast to British customs. Every one of his attacks at our financials and business are easily rebutted, but as a fiduciary, he should have been much more cautious about throwing rocks from a glass house.

BitGold and now GoldMoney, once the transaction is closed, are publicly traded on the Toronto Stock Exchange.

 

We have an independent board of directors, a code of ethics, and we are audited by two big four accounting firms: PwC and Deloitte. On the GoldMoney side, we complete an ISAE Audit regularly, as one of our fundamental governance practices to provide our customers with assurances of integrity that their metal is being safely stored for them. GoldMoney is licensed and regulated by the Jersey Financial Services Commission, the only major precious metal dealer to have this additional supervision beyond a company's internal controls.

 

BullionVault is an unregulated private company that operates in the UK, outside of the protections offered by the Financial Conduct Authority to customers of financial service companies.

 

I am personally at a loss for words as to why the FCA or the Money Service Business (NYSE:MSB) regulators in the UK have not approached BullionVault requiring it to register as an E-Wallet or Money Service Business given the size and amount of customer holdings. When Josh and I founded BitGold, we spent nearly a year in an open dialogue with Canadian regulators, establishing a legal framework that would allow us to offer our service before proceeding with a plan of operation.

 

BullionVault does not use an internationally recognized auditor and in contrast to GoldMoney, does not complete audits in accordance with ISAE standards. Its company accounts are prepared by a little known firm in Southwest England (Albert Goodman) publicly available as required under UK law, and not a voluntary disclosure purporting to offer governance.

 

Having spent the last decade analyzing financial statements, we can opine that they are certainly not compiling financial reports under PCAOB or IFRS standards for public market consumption. Put differently, BullionVault's financial statements add little to the governance of customer assets, and certainly cannot be compared to the quality and integrity of the audits made available by GoldMoney/BitGold.

 

With respect to Net Assets, BullionVault's net assets are comprised of intercompany loans (yes, there is money reported as loans moving back and forth between the company and the CEO at above market interest rates). This practice raises a fiduciary red-flag both for shareholders of the business, but also for customers because it introduces counterparty risk and undue reliance on one individual to the overall business. The balance sheet also includes a lot of outstanding short-duration lending facilities, adding more risk. In contrast, GoldMoney and BitGold are debt-free.

 

At BitGold, Josh and I take an annual salary of $1 and have personally invested over $3 million throughout the years in building the business. We don't need an annual salary, let alone "double dip" by also lending money back to the company.

 

We see additional red flags on the qualitative side. While we strive to build a leading financial institution around gold an element we have spent the majority of our careers studying, Paul Tustain is pitching a new Whiskey Investment and Vaulting venture on crowd sourcing websites. I have always found a great indicator of ones investment acumen to be the company they keep and their ability to raise capital repeatedly from a core group of investors.

 

At BitGold, we are backed by investors that have invested and made money along-side us for years. If we chose to start a new venture tomorrow, we certainly wouldn't need to be pitching our idea on some crowd-funding website raising money from random investors over the internet.

 

Moving on, BullionVault has a susprisingly small board of either 3 or 4 members depending on the source of information. When discovering this fact, we had to recheck as we were convinced this was an error. Even more confusing is that one of the directors Marcus Quierin appears on the financial statements dated October 2014, yet does not appear on the website as far as we could tell. Has Marcus Quierin left the board? If so, how would a stakeholder know? Whatever the case may be, there appear to be no independents providing any oversight or representing the interests of shareholders and customers who hold nearly $2 billion of assets with the company.

 

This could explain why BullionVault has paid no significant dividends, while the company's CEO extracts via the company's loan arrangements favorable terms to the disadvantage of minority shareholders. Compare that to GoldMoney, which has paid out cash dividends democratically to all shareholders for several years highlighting owners income and free-cash-flow generation.

 

However, most bizarre is the financial comparisons made by Mr. Tustain and that somehow BullionVault is more financially formidable than BitGold/GoldMoney. BitGold/GoldMoney's market valuation is a quarter of a billion dollars and is backed by investors who are some of the world's most successful wealth managers and families.

 

If we needed to, we could raise more capital than BullionVault's cumulative earnings since inception from our own board of directors. BullionVault's CEO had to literally throw his company's shares at people to raise speculative capital from a venture startup conference in New York because his investors needed liquidity, which is surprising given that gold was roaring during that time.

 

While BitGold founders and backers were correctly predicting and profiting from the events of 2008-2011, BullionVault was seeking liquidity for its investors. These included "real estate speculators from northern England", a contradiction considering that gold provides the ultimate security (had these investors not believed in BullionVault enough to hold bullion?)

 

The culture we are building at BitGold/GoldMoney is one that understands gold; we are passionate about the potential gold holds for people's savings. The CEO of BullionVault and other sophists think they know our plans and want to shoot holes in it, we believe they should instead focus on their core business as these may soon require their utmost attention.

 

Our service at BitGold is significantly less expensive than BullionVault. They charge a minimum storage fee of $4 per month for gold and $8 for silver. That means if you own $1000 worth of each metal you are paying 4% and 9.6% per annum respectively just for storage! That same $1,000 worth of metal would carry no storage fees at BitGold and between 0.12%-0.39% fees through GoldMoney.

 

The saddest part about the negative energy that BullionVault and others have instigated is that we should all be working together, not against each other. Gold still represents a tiny fraction of global financial assets.

 

Together, BullionVault and BitGold/GoldMoney account for less than .00001% of the world's financial assets.

 

The market is massive and BullionVault should be focused on expanding the category as we are doing each day. BullionVault's CEO should focus on building his business and serving his customers, not attacking a new generation of entrepreneurs trying to broaden access to gold.

 

GoldMoney blazed a trail that BullionVault stepped into when the market became hot. Showing disrespect to GoldMoney and its customers is the ultimate display of impudence.

 

"If you live in a glass house, don't throw stones" - Peter Tosh

"Haters gonna hate" - Taylor Swift

 

Sincerely,

Roy Sebag & Josh Crumb

Disclosure: The author is long XAU CN.

Additional disclosure: The authors Joshua Crumb and Roy Sebag are controlling shareholders of BitGold Inc.

[Paul]

...............Jeeeeeeezzzz my head is in a spin with all this now, as I have a good chunk of cash invested with both firms - 

 

Is one better than the other ?

I thought I was wise keeping some split invested in both?

Part of me wishing i had not bothered at all now and kept it as fiat debt tokens

If i take all my cash out of one or both i'm at a loss currently 

 

I guess I should have just bought  Krugerrands, a map, x20 different locations, a spade, a tank of fuel for the car, a day off and a cm accurate GPS device instead

:(

[Cointreau]

...............Jeeeeeeezzzz my head is in a spin with all this now, as I have a good chunk of cash invested with both firms - 

 

Is one better than the other ?

I thought I was wise keeping some split invested in both?

Part of me wishing i had not bothered at all now and kept it as fiat debt tokens

If i take all my cash out of one or both i'm at a loss currently 

 

I guess I should have just bought  Krugerrands, a map, x20 different locations, a spade, a tank of fuel for the car, a day off and a cm accurate GPS device instead

:(

I too am a client of Goldmoney and I'm not bailing out yet. It's just a bit of scaremongering.

Mind you, I don't want Bitgold's add ons. I'm fusty and I just want to store my pms. That's all.

[HighlandTiger]

Having looked at both, and chosen to go with BV, I was very happy with my choice.

 

After reading these posts, I am even more happier staying with BV. I wouldn't touch Goldmoney or Bitgold with the proverbial golden barge pole.

 

I mean, what is the actual point of having a debit card that "spends" your PM holdings. If I wanted a current account, I'd have one where I knew that if there was £10,000 in it today, it would still be £10,000 in it tomorrow. If it is linked to the gold spot, and the price drops, my Bitgold debit card account all of a sudden has less money in it. 

 

It's like they are trying to re-invent the wheel just for the sake of it, not because there is a market for it........

 

I must admit, the people who create companies that are into gold and silver are a funny breed, it's either "we've got the next best thing so jump on now for the ride", or "it's all going to go tits ups so run for the hills"

[HighlandTiger]

I guess I should have just bought  Krugerrands, a map, x20 different locations, a spade, a tank of fuel for the car, a day off and a cm accurate GPS device instead

:(

 

And then when the SHTF, and all the GPS satellites get turned off or fall from the sky, you'll also be needing a metal detector

[HawkHybrid]

I mean, what is the actual point of having a debit card that "spends" your PM holdings. If I wanted a current account, I'd have one where I knew that if there was £10,000 in it today, it would still be £10,000 in it tomorrow. If it is linked to the gold spot, and the price drops, my Bitgold debit card account all of a sudden has less money in it. 

 

 

sounds a lot like a gold etf to me, are people sure there's

actual physical gold being held somewhere?

 

HH

[HighlandTiger]

My read on this is, that basically James Turk and Roy Sebag are saying that Money week's Dominic Frisby, and Bullion Vaults Paul Tustain, don't understand bitgolds and gold money's concept of their business model.

 

well if the guys who are actually money experts or in a similar business can't get their heads around it, what chance has the average punter of doing so. 

 

I don't like how Goldmoney has actually lost money, that would make me very very wary of having any money with them, as companies who lose money invariably end up on the scrap heap, with their customers paying the price.

[Bumble]

There are several points of interest here:

 

1. Goldmoney's reported losses due to “gains and losses on unhedged metal inventories” does sound suspicious to me. It gives me to believe that Goldmoney is trading in PMs on their own account. When brokers do that it makes me nervous because I wonder whether they might be dipping into their customers' assets to fund it. Their customers' metal is allocated, so they are not legally entitled to use it in this way, but fraud does happen sometimes. There have been cases of stockbrokers fraudulently using clients' funds to trade on their own account and going bust and losing their clients' money. When I use a broker, whether for stocks, PMs or anything else, I want a company that just provides brokerage services and nothing else, so that I am not exposed to a risk of losses from their other lines of business. If I discovered my stockbroker was trading on their own account I would move my account to another company. Ditto for PMs. I would like to see Goldmoney make a public statement about this.

 

2. Sebag's comment about BitGold being a publically listed company that is subject to external audit and the Canadian regulatory authorities is an important point. This should bring a great deal more transparency to Goldmoney in future.

 

3. I don't agree with Turk that BitGold will tend to make Gresham's law work in reverse. For those not familiar with it, Gresham's law is that bad money drives out good. If you were a citizen of the Roman empire when they were melting down silver coins and debasing them with copper and lead, and you find you have some nice shiny silver coins and some muddy looking debased coins in your pocket, which ones do you keep and which do you spend? Clearly you keep the silver and spend the debased ones. Similarly, if I have gold vaulted with a company like Goldmoney or BullionVault and I have a bank account with fiat currency in it, which do I keep and which do I spend? Obviously, I keep the gold and spend the fiat. Why would I want to spend my gold using bitcoin transactions? If I want the convenience of using bitcoin, I can just as easily convert my fiat into bitcoin. I don't see the point of connecting gold to bitcoin unless I were an ultra gold bug who refuses to hold any fiat whatsoever and so needs to have a way to spend gold directly.

[Pipers]

Wow I have just come back from holiday!!!

 

I have some Gold in Goldmoney and I was happy with the service.  

 

I have never sold a gram of Gold and never will until the time is right price wise(or I retire).

 

I do not like the BitGold model and I certainly don't like the backers, If I want to buy items I will use fiat then at the end of the month I buy PMs to save.  

 

If I was to use my Gold (If ever) I would want a big discount over fiat money as its worth more eg 25% on everything I bought.  This is where Goldmoney have over looked there client base.  

 

The only time I could see BitGold working is when Gold increases in value to $5000 or more even then I would want discounts on purchases.

 

I don't think Goldmoney went long Gold and that's why they lost money, the head of research has not thought Gold has been long. More likely Loans were taken out when the going was good, now they have lost a lot of clients because of the bear market.   

 

Honestly the spat between Bigold and Bullion-vault is a joke, they both are smallish companies really. It would be like me rubbishing the company down the road, they both should get on with there own businesses promoting precious metal ownership.        

[HelpingHands]

I think the only way people won't hoard is if the debit card was acceptable everywhere like a regular bank card.

 

For example if you were paid a wage and left only enough in that bank account to cover your direct debits you would be able to transfer the rest to your gold spending debit card and use accordingly.  Then it wouldn't real feel like spending gold coins but more like you were spending foreign currency

[HighlandTiger]

I'm sorry, but a debit card linked to your gold holdings is NEVER going to work. And you don't need to be a member of mensa to understand why

 

 

Imagine the scene, someone pops to the shops to buy their weekly groceries. Goes to pay with their wonderful gold backed credit card, only to find that in the time from leaving the house and getting to the supermarket till, the gold price has dropped and there is not as much money in their account as they thought there was, and the card is declined.

 

This is the same problem with things like bitcoin. You never know how much you have you are going to have in your account from day to day.

 

Ordinary fiat cash does not have this issue as it's movement in value, (via inflation / deflation), occurs over a longer period that is almost unperceptible to most people.

 

Joe Public  like to know the money they have in the morning is still going to be the same money in the afternoon, and no techno-wizzkid with their "I'm going to change the world with this new type of currency / finance" is going to change their minds.

 

To be honest, things like this and bitcoin are just gimmicks, something that people at the edges of society will play around with, espousing the virtues and superiority of their monetary systems to any like minded person who will listen. While 99% of the population will just happily carry on with their "inferior" fiat currency, for the next thousand years.  

[Pipers]

I understand what you are saying HT, and you are right today.  I am thinking in the future if and when Gold is worth considerably more.  Lets say you wanted to liquidise some of your holding to buy a car, or a kitchen, you could use the card with a discount instead of using fiat, I believe that's what the game is about not a pint of milk or a weeks shopping.  

 

In the end Goldmoney/Bitgold is a gamble and it may fail as we do not know when the current fiat system will deteriorate to the point when the money herd want Gold.

[Bumble]

In the case of gold, I don't think using the attached card means that you are transferring your gold to the party you are purchasing from. You are transferring a fixed amount of fiat currency. It is more like a debit card from a special kind of bank that doesn't practice fractional reserve lending and all of whose accounts are 100% covered by vaulted physical gold. Certainly the daily movements in the market price of gold will affect the amount that you have available to spend, but I expect the bank would work round this by insisting you keep a minimum amount of gold in vault so that you are never close to being overdrawn. As such, this could work, and indeed there are gold banks around that provide this kind of service, but I incline to think the market is small. I would only envisage buying into this if one of three things hold:

1. You are such an ultra gold bug that you don't want to hold any more fiat currency than the minimum needed to pay your bills and taxes.

2. You regularly do business in distant countries where the locals won't accept standard debit/credit cards from western banks, but are willing to accept cards backed by gold.

3. You are anticipating a major financial meltdown and expect that the conventional banks will stop functioning because nobody will trust them any more, and you hope that people will understand the difference between conventional banks and gold banks and continue to accept payments through the latter.

 

In the case of bitcoin, the situation is different because when you pay for something with bitcoin you are transferring your bitcoin directly to the other party. Any risk arising from daily movements in the price of bitcoin is borne by the vendor.

[HelpingHands]

With bitcoin through the payment processor bitpay the vendor's funds are instantly converted to their local fiat so there isn't a risk of price move.

[HelpingHands]

If you have pms held with these groups can you transfer between other holders.

For example, I want to sell my bicycle to somebody and we both have allocated pms. Could they pay me for the bike with a transfer of pms from their account to mine?

[HighlandTiger]

If you have pms held with these groups can you transfer between other holders.

For example, I want to sell my bicycle to somebody and we both have allocated pms. Could they pay me for the bike with a transfer of pms from their account to mine?

 

No, 

[HelpingHands]

OK.  I'll keep my bicycle then.

[Danny-boy]

No,

Really, I'm sure I read somewhere that you could transfer on bitgold between holders for no fee.

Edit - from the Bitgold website......

"Send & Receive gold as payment to & from any BitGold user or seller for free. "