Reader Q&A On Bitgold

In response to BitGold Now Available in US! Why BitGold? I received many questions from readers.

Apologies for the delay. I was in Iceland for a 17 day vacation when the questions started coming in.

Reader questions and answers from BitGold follow.

Reader RP writes ....

Mish,

Thanks for the post on BitGold. I have gold with Goldmoney but when I called them they couldn’t tell me much about the significance of the merger with BitGold. Your post helped.

I’d love to see a little more. Specifically what does establishing a BitGold account have to do with my gold stored at GoldMoney vaults in Switzerland. My guess is that there is planning going on about how to let a BitGold card link up to the gold in my Goldmoney account. I read your post twice looking for an allusion to that but saw nothing. Can you share with your readers anything Turk has hinted may be coming along those lines?

Thanks!
RP

BitGold Response to RP

In the immediate future, GoldMoney customers must open a separate BitGold account to access BitGold’s full range of services. Going forward however, GoldMoney account holder benefits will include:

• Access to prepaid debit cards operating on the MasterCard network
• Lower precious metals storage fees
• Lower dealing rates
• An Active Trading Platform
• Simplified User Interface with Mobile Phone Application.

Keep in mind, BitGold will remain the high velocity payments engine of the combined entity, while GoldMoney will continue as the precious metals vaulting and investment firm. Think of it as your bank and Visa with Visa powering payments. We want our customers to have the option of using gold in real-world and online payments. It’s their choice whether they want to embrace this option or not. As James Turk has noted, “I really see the combined company as a true 1+1=3 situation - the whole is greater than the sum of its parts”. We couldn’t agree more, and users will experience these synergies and more in the coming months.

Reader Roy writes ....

Hi Mish,

I just finished your article on Bitgold. Sounds wonderfull. Hope it will spread.
Do you know if GoldMoney or Bitgold will issue a silver debit card? Like you, I do not want to sell gold but silver is a different story.

Best Regards,
Roy

BitGold Response to Roy

Hi Roy,

BitGold has no plans to introduce a silver debit card option at this time but this doesn’t mean you cannot fund your card with silver proceeds. Remember, the card is loaded with currency using proceeds from metal sales. At BitGold that means  gold metal sales. With GoldMoney, that could mean any metal (Gold, Silver, Platinum or Palladium) . 

We appreciate your interest in BitGold.

Reader Tom Writes ...

Hello Mish,

I'm a little embarrassed to admit this, but I still don't understand how BitGold works. And where there's one, there must be many more like me. So please help me understand this.

Let's say I want to dip my toes in here and get started and see how it goes first.  If I had $100 that I was willing to put up to begin, how would this work?  Or, is $100 not even close to what it would take to get started?

Would my $100 be like at the price of gold, as soon as I deposited it?  So that if gold went up 1% tomorrow my account would then be worth $101?  Or, if it went down 1%, then my account would be then worth $99.  And so forth each day thereafter?

Meanwhile, would I be getting charged some sort of user fees for having the money in the account, as well?  Or does it somehow work out that it's like a free checking account with no minimum deposit, only the balance varies with the daily price of gold?

I think once I had the account and held on to it awhile and saw what was happening that I would then be more willing to add to it over time. I can deal with - and plan for - daily changes in the price of gold.  I would only invest what I felt comfortable with in that respect.  But I'm just not anxious to open an account that I'm later going to find that I just looked up and saw other costs being taken out in the meantime besides the gold itself.
 
I'm psychologically prepared to ride with the gold once I buy it for physical possession.  But if I'm going to have other fees attached, then I am more hesitant to jump in this right now.

Also, if I wanted to cash out at any moment from the gold, do I just say, "Send me what the gold is worth right now and liquidate my account?"

I'm thinking that this is kind of like a debit card, only the value of the account is calculated by the daily price of gold. Is that correct thinking on my part?

I am appreciative for all your insights,
Tom

BitGold Response to Tom

Tom, thanks for your inquiry.

There is no minimum deposit amount to open a BitGold account. Simply visit www.bitgold.com, enter an email, select a password, and click ‘Create Account’.

The Sign Up process can be complete in less than five minutes, free of charge. You may then proceed to fund your BitGold account in an amount of your choosing and you can start with as little as .01 gold grams or $.03 cents.

Once funds are deposited into your account (let’s use $100 USD as an example), the ‘value’ of your holdings is derived from the weight of gold you purchased. When you “fund” your bitgold account, you are parting with fiat currency and acquiring physical ownership in vaulted gold at the location of your choosing. From that point forward, the US Dollar value of your account is simply the value of your weight of gold purchase multiplied by the current gold price. If the USD price of gold rises 5% in a given month, the value of your holdings will rise proportionally; with the inverse concept in a market decline. While price volatility is a certainty over shorter durations, no fiat currency has ever gained purchasing power over gold in the long-term (20 year+ period).

In terms of fees, BitGold adheres to a ‘1% in, 1% out’ model. We charge a 1% fee to fund an account, and a 1% fee to redeem your gold. We do not charge storage or insurance fees, or any holding or monthly fee for that matter. Gold can be redeemed via bank wire, credit card or we can even deliver physical anywhere in the world if you prefer to hold it in possession. We allow for as little as 10 grams to be redeemed from the platform through our BitGold 10g Cubes.

Reader Tariq Writes ...

Hello Mish,

I read your post on BitGold. I have a GoldMoney account but I have always had a big issue with one thing... when you deposit/send money to your GoldMoney account, the funds are held at either RBS or HSBC, two banks which I feel are high risk in the event of another crisis.  Where does BitGold keep client money?

Tariq

BitGold Reply to Tariq

Hi Tariq,

All client funds are arrive at a segregated customer account at Royal Bank of Canada where they are held intermittently for the purpose of purchasing gold which is located in a Brinks vault. Every metric gram, kilogram, or tonne of gold that a customer has acquired through BitGold is owned and allocated to the customer once transactions have settled. Settlement, occurs once Brinks has confirmed your metal has been received. That is why transactions on the platform have two states (Pending and Settled). A pending state confirms your price but not yet delivery. A settled state confirms both price and delivery. At that point, you have an actual gold balance corresponding to a physical bar of gold at the location of your choosing. BitGold Inc. Customer Agreement and Terms of Service unequivocally state that all customer assets are held by BitGold Inc. as bailee for the benefit of customers. A "bailment" occurs when a person (the "bailor") delivers personal property into the possession of another person (the "bailee") for safekeeping but retains legal title to the property. We are merely a software operating system for your vaulted gold.

Reader Darrell Writes ...

Hi Mish,

Your description of Bitgold did not address the issue of asset security.  There have been numerous stories about Bitcoin accounts being plundered by hacker/thieves and government agencies that make me extremely leery.  Also, you said you wouldn't use the card for large purchases and that the minimum purchase is about $370 depending on the gold price.  Whose valuation are they using to price gold and what type of purchase would you use this card for-assuming the merchant would accept the card?  Also, you didn't make clear whether or not they like Bullion Vault also handle silver.

Regards,
Darrell

BitGold Response to Darrell

Hello Darrell,

Unlike a digital exchange such as Bitcoin, BitGold accounts cannot be ‘hacked’ since gold is allocated and stored in a physical vault.  Thus, the only way to achieve value destruction would be to elevate an attack from cybercrime to real world crime by attempting to penetrate the physical vaults. This risk is mitigated with 100% insurance coverage and the world’ most prestigious security firm.

In terms of our pricing engine, we measure our gold price in gram units, using our proprietary Aurum price engine, which aggregates the best bid & offer prices from COMEX/LBMA members quoting on the platform. This price would be similar to the widely quoted COMEX price at any given time.

Lastly, BitGold does not engage in silver dealing and does not anticipate this will change in the future. Because silver is more abundant in the earth’s crust, it has a much lower ratio of value per density. Said differently, it costs a lot more to store the same physical dimension of silver. This makes silver an unattractive element for high velocity payments as we subsidize the storage fee from our own operational balance sheet.

Reader Mike Writes ...

Hi Mish,

Thanks for the blog on BitGold. I hold a decent amount of gold through GoldMoney and have been meaning to do some research on the acquisition. Your analysis answers many of my questions.

I am wondering about the tax consequences now. I figured I’d avoid cap gains indefinitely because I had planned on accumulating gold in Gold Money for a long time without selling. Now, if I have a debit card it changes the parameters because I’m withdrawing gold that may be sitting at a gain/loss to my basis.

Feel free to tell me to go talk to an accountant but I’m just wondering if this situation came up in your discussion with BitGold.

Appreciate your work. I read your posts religiously.

Best Regards,
Mike

BitGold Response to Mike

Hello Mike,

To make purchases with the BitGold debit card, users must load it with proceeds from gold in a BitGold account. Therefore, the taxable amount is the portion of account proceeds used to load the debit card (as opposed to individual transactions generated from the card itself). Users can view the taxable portion in the ‘Transactions’ tab once debit card funding is complete.

Reader Christopher Writes ...

Hi Mish,

What are the reporting requirements for a US citizen with a Bitgold account? Is it an offshore account reportable under FACTA? How will the cap gain - loss (taxable at 28%) be reported on each "gram sized: transaction? FIFO, or ?  Will BitGold provide year end tax US reporting?

Kind regards,
Christopher

BitGold Reply to Christopher

Hello Christopher,

BitGold does not give tax advice and we urge you to consult with your local tax advisor as we’re a global platform and circumstances will differ depending on region. However, BitGold does supply a tax tool to calculate gains and losses in FIFO/LIFO for your account for a given time period. We recommend consulting with a trusted tax advisor before filing a return.

U.S. customers are not subject to FATCA provisions at this time as we are a Canadian company.

In a follow-up Email Christopher writes ...

Mish,

I see no provision exempting the obligation of a US person to report a Canadian Account to on FBAR (FinCen 114) and/or tax return (form 8938). The argument could be made that it is not a financial account if it is allocated gold only. However, when it is monetized as in the credit card program, I believe this argument would become tenuous. Using BitGold transactionally; i.e. small gold sales to cover payments would give rise to capital gains and losses. ...  If I am incorrect in any of the above I would appreciate being enlightened as to the correct view.

I responded to Christopher ....

Christopher, ask your broker or banker a question about taxes - any question - and you will get a "we do not give tax advice" answer.

BitGold did go one step further and say ...

• BitGold does supply a tax tool to calculate gains and losses in FIFO/LIFO for your account for a given time period
• U.S. customers are not subject to FATCA provisions at this time as we are a Canadian company.

Nonetheless, I forwarded Christopher's follow-up question to BitGold.

BitGold Response to Christopher's Follow-Up

Hello Christopher

As we previously indicated, it's upon you to consult your local tax advisor and proceed accordingly. We concur that any gains stemming from transactions in your account will be subject to capital gains. Those gains will need to be reported and included as part of your total Adjusted Gross Income.

With respect to whether the account should be reported on FBAR or Tax Form 8938, again we stress that this decision should be made along with your tax advisor. As you noted, there can be nuances in the tax-code that treat each account holder differently depending on the type of activity they pursue. This validates the position we are taking that each individual account holder should seek personalized advice per their activity, domicile and tax status.

Instead, we focus on providing the tools necessary to effortlessly calculate the net delta over time whether that delta is positive (resulting in a gain) or negative (resulting in a loss).

With respect to gains and their tax rate, we view these as akin to historical interest rate returns where you would be required to include these gains as part of your adjusted gross income.

Mish Further Comment on Taxes

I am not a tax advisor, nor does this constitute tax "advice", but in my view, BitGold tax accounting is theoretically no different than that of a US taxpayer holding a debit card based in Euros, Yen, or BitCoin.

With each, there are potential gains or losses over time.

With BitGold, here is the key sentence:

We focus on providing the tools necessary to effortlessly calculate the net delta over time whether that delta is positive (resulting in a gain) or negative (resulting in a loss). 

Reader Mark Writes ...

Hello Mish,

In your post you mentioned Gold can be redeemed in as little as 10 gram increments (approximately $370 at today's price). What precisely does that mean? Can I use it as a debit card and buy a $50 item?

Thanks,
Mark

BitGold Reply to Mark

Hi Mark,

You can use your BitGold card for transactions of any size. There are no storage or insurance fees. We operate on a ‘1% in, 1% out’ model.

Redemption of "as little as 10 gram increments" refers to cashing out or taking physical delivery of grams of gold.

BitGold users may redeem funds from their BitGold account at any time, up to the value of their account balance. Redemption times are dependent upon the method and the time of day the withdrawal is initiated. Redemptions can be initiated through bank wire, credit card, China UnionPay, Interac, Bitcoin or physical gold redemption.

Physical gold can be redeemed in the form of BitGold 10 gram cubes or 1kg .9995 bullion bars. Please see Redemption fees, processing times & policies for additional details.

Mish Comments

Compared to very high markups on coins, 1% fees each way provide a convenient way to purchase gold in small amounts.

For sizable amounts, opening an account at GoldMoney makes more sense.

Disclosure

As I have noted before, I have a relationship with both GoldMoney and BitGold.

Storage fees at GoldMoney are the lowest in the industry. I get a tiny percent of the tiny storage fees collected. There is no difference to the account holder.

At Bitgold, I get a small signup fee, and again that comes out of BitGold's pocket, not the account holder.

I do not enter relationships to collect fees. I turn down such offers all the time.

I reiterate what I said in my first BitGold post.

My reputation is very important to me. I do not enter relationships easily. If I genuinely thought there were major issues with GoldMoney or BitGold, my relationship with them would be over.

Instead, I have taken the time to research this matter thoroughly, and have concluded the GoldMoney/BitGold deal is a good one for the industry, for merchants, and individuals alike.

Want to promote gold as money? Then please Sign Up for your BitGold Account today!

If you were hesitant to open a BitGold account based on any of the questions above, I believe they have been fully explained.

If you have further questions, fire away. I will forward them on.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com