BitGold : What is it Good For?

BitGold is a practical and effective way to own and use gold. BitGold is not a substitute for having physical gold in your possession, but it does have advantages of its own and it is certainly superior to owning a Gold ETF or having your gold stored at a bank. The ease of use, the 1% transaction cost and the fact that you can use your gold at any time through the use of a gold debit card, makes this an extremely practical way to own one of the best performing and safest  investments in the world.

What advantage does BitGold have over cash in the bank?

There are three:  First, gold is a store of value with a 3500 year pedigree. It has maintained its value over centuries, whereas paper money has a history of debasement. The dollar has lost 84% of its value since 1971 when the USA left the gold standard, whereas gold has increased in value from $35 to $1100 during the same period. If you wished to put something of value aside for your descendants in a time capsule to open in fifty years, would you put in paper money or gold? Gold does not rust, decay or change over time. Gold coins buried by the Romans still have value today despite the change of countless governments over the years. Gold has intrinsic value.

Lydian Lion 600 BC

Second, gold is an outstanding investment over time. Recently, gold has dropped in price, however,  since the turn of this century gold has returned roughly 10% per year. The stock market by comparison has returned  just 3.82% per year including dividends since 2000.  Yet the true comparison is with the dollar which has lost 28% of its purchasing power since 2000.

Gold performance vs All Currencies
Gold Outperforms Over Time


Finally,  BitGold is not a bank. Henry Ford said of our banking system: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
The average person assumes that when they deposit a $1000 with their bank, that the bank in turn lends that $1000 to another borrower at a higher rate of interest.  But in fact, that $1000 deposit allows the bank to lend out  $10,000.00. The other $9,000.00 is credit money electronically created by the bank. That is why it is called fractional reserve banking–a fractional of the original deposit, supports the credit money. Now you know why banks are so profitable–they charge interest on money that is simply a digital entry. Everything is works fine until someone defaults on a loan and the bank cannot repay the depositors in full. In short, banks lever up a slim amount of capital and create credit money which exists only on an electronic ledger. That is the core fault of our banking system and that is why BitGold is a revelation. BitGold is commodity money that is 100% backed by the physical commodity. And that commodity is the premier store of value for the last 3500 years.

The video below is one of the best summaries of our fiat money system, ignore it and take the blue pill or watch it and understand the value of BitGold:

In Times of Crisis People Want Gold

Right now this may seem unimportant, but in times of crisis gold always has value. The recent crises in Greece and Cyprus gave evidence to the fragility of the banking system. Greek banks were closed for weeks and then re-opened with maximum withdrawals of 300 Euros. Cyprus was worse, the banks were closed and  the depositors were bailed in, which is simply another way of saying that up to 48% of their money on deposit was stolen by the government. Few people think this is likely in the USA as deposits are FDIC insured. However, the FDIC insures trillions of dollars and holds only 1.1% in reserves. Of course the government stands behind the system, but that simply means more money printing and what does that do to the value of the dollar versus gold?

During the Financial Crisis in 2008 the world was two hours away from shutting the banking system down. The reason for this is that people started to demand their cash. The informed people understood that actual cash in the form of bills and coins  in the US financial system is a little over $1.30 trillion and by comparison, digital money in short-term accounts amounts to roughly 10 trillion; the stock market is roughly 20 trillion; the bond market and other money market instruments  roughly 50 trillion. That is all digital money without substance, so the system is levered 80-1 in cash to credit money. During the crisis, investors who understood the banking system paid to put their money in T-bills rather than the banks, as they knew the truth about fractional reserve banking. y Conversely, a Bit Gold deposit is backed 100% by gold that is allocated in your name and stored at a Brinks location of your choice.

To be interested in Bit Gold, you need to agree that gold is a worthwhile investment and I trust I have demonstrated that. If so, then you need to understand how you buy the gold, how it is stored, how you can spend it and how you access it if you want the physical metal. As well, you need to know that your privacy is protected and your metal is secure.

BitGold Technology is Easy to Use

Opening an account is a breeze. I signed up and had my account operating almost immediately. There was no physical paperwork, Bit Gold simply required a scan of my photo ID and the rest was all done online and security confirmed through a mobile phone link. I was happily surprised at the ease of use.  The gold may be purchased through several different channels: Bank wire, MasterCard, Visa, Interac, JCB and China UnionPay are all accepted. I simply used my Interac card and the interface took me right from the Bit Gold site to my bank site. I authorized the withdrawal and purchased the gold. At once I was informed  by e-mail that a transaction occurred in my account. I then went to the transfer section of the site input my son’s email address and sent him 4.117 grams of gold worth roughly $200. We both received e-mails notifying us that the transfer has occurred. It was very easy and swift.

The e-mail transfer is quite revolutionary in my mind. Not only can you send gold or money to someone who has an account, you can send it to people who do not have one and they will be notified so that they can open an account and receive the deposit. I’m sure that would have been a handy feature in Greece in their crisis. The ability to transfer gold outside of the banking system is a great advantage. Certainly, this will not appeal to the banks, but we are dealing with bailment law here and there are no restrictions on selling an asset for a fixed price provided the government is paid the capital gains tax. To facilitate that, your gains and losses are summarized in your account. Furthermore, there is a clear record of transfer and this works as a security measure as well as a tax record. BitGold have taken great pains to make certain that they abide with all government regulations and all transactions are totally transparent.

Your Gold and Your Privacy are Safe

So it is easy to buy and transfer but how safe is it? First, BitGold is a listed company on an established exchange. Their financials are audited and the firm is required to maintain appropriate insurance to back the gold and the company is audited quarterly by Price Waterhouse. Furthermore, amongst the  founding shareholders are well known individuals such as George Soros, Eric Sprott and Albert Friedberg, multi-millionaires all .

The gold is stored in your choice of six vaults around the world operated by Brinks, an established public  security company founded in 1849 and now operating with 134,000 employees and 650 offices around the world. Brinks also provide the insurance securing any gold loss. Also of some importance, a Bit Gold client has the ability to store their gold in Toronto, New York, Singapore, Zurich, Hong Kong and London and to physically redeem it from those locations in amounts as small as ten grams. They can also change vault locations without charge at anytime with the click of a mouse. Should confiscation become a concern this is a crucial feature.

The auditors of BitGold are Price Waterhouse Coopers a major worldwide firm employing 184,000 people in 776 locations and revenues of 32 billion. Audits are done quarterly, as Bit Gold is a public company. Fraud and theft are a concern in any type of storage business, but the closed nature of the system makes it very simple to trace any transaction and the insurance and integrity of Brinks and PWC stand behind the company.

Finally, remember that BitGold facilitates the purchase of your gold, but under bailment law they never take possession of the gold. The gold is allocated to you immediately. Unallocated gold as offered by the banks is simply a promise to pay. Allocated gold as with BitGold is your gold held by Brinks on your behalf. This is a huge distinction given the questions concerning rehypothecated gold claims and multiple claims to the same gold. Indeed, in 2013 ABN Ambro a Dutch bank effectively defaulted on their gold deposits and against the wishes of their gold depositors they paid them out in cash rather than gold. Bit Gold never has custody of your gold and bailment law ensures your gold is always on deposit for when you want it.

Last but still important is privacy. BitGold uses military grade encryption and every account is password protected. Sensitive information is not accessible and banking KYC rules are enforced. While hacking is always a concern, the CEO is Darrell MacMullin. Mr. MacMullin has driven successful new payment and commerce innovations for the past 15 years, including the launch and leadership of PayPal during its first eight years in Canada. As well, “Alex” Premoli is the Chief Technology Officer of BitGold. He is the architect of the BitGold proprietary platform, and leads the BitGold development team in Milan, Italy. Over the last decade, he has developed encrypted storage and messaging systems for highly sensitive, data-intensive organizations, gaining comprehensive experience in security, cryptography and digital signature solutions. Information on the board can be found here: BitGold Board

Where Does BitGold Fit?

So, where does BitGold fit in the investment scene? In short, they are a facilitator: They sell you gold at spot plus 1% which is a huge bargain compared to physical gold at a 3-4% spread. They store that gold for free in your name at secure Brinks vault in any of six locations in the world. They give you instant access to that gold through a physical redemption, debit card, wire transfer or bank transfer and they allow you to send transfer by e-mail or traditional methods. The record keeping is done for you and the security and auditing are amongst the best in the world. As our financial world changes, I suspect the value of gold will increase and the argument for Bit Gold will only get stronger as more users adopt it. Which becomes more likely every day as our financial system begins to teeter under the weight of increasingly unpayable debt. Where does in fit in? In your wallet next to your credit card.

I own gold because it is the only financial asset that is not simultaneously someone else’s liability. It has intrinsic value and always will. Bitgold is a convenient and inexpensive way to own it. If you would like to get an account here is an affiliate link.

I know that some people do not share my regard for gold and if you are one, then I invite your comments and perhaps you can provide some insights that are unseen by myself. You may e-mail me or post in the comment section below. I am just getting started and any feedback is welcomed.

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Yes, You Should Sell Your Stocks!

Yes you should sell your stocks. Valuations are at the second highest level in history, margin debt is at its highest, world trade is collapsing, sentiment levels are through the roof, the charts  are horrendous and the Federal Reserve wants to raise rates.  Yes that means you will be in cash, but so what? Isn’t that better than watching your account go down day after day and then selling when you cannot stand it anymore? When you are entering a bear market it pays to panic first. Sell your stocks now.

Who am I to make that recommendation, I am a twenty year financial adviser and CFP at a mainstream firm and I get the comfort e-mails from the fund companies five a day. They are worried. Not about your money but about their assets. They make money off of assets under management–AUM. They would prefer that your account increases in value, but what they really fear is you selling your stocks and going  to cash–there are no fees for them if you bail out.

The same goes for your adviser. There has been a huge push by the financial industry for fee accounts, that’s when you pay a fee for money management rather than a commission. Supposedly, the adviser has your interests at heart because the more money he makes for you, the more money he makes for himself. There is no conflict of interest, you are both on the same side of the page.  Right? Wrong! That is only true until the markets tank–do you really want to pay an adviser 1.5% to hold cash? Of course not. Don’t you think your adviser knows that? Demosthenes was a famed Greek orator and he observed 2500 years ago that:  “what a man wishes, he generally believes to be true”. The point: people don’t change! Given the choice between telling you to go to cash where he/she earns no fees and sticking with the invest for the long term mantra which means a great income and is near universally believed, what do you expect your adviser to say? The adviser is on the same page with the finance industry, not you, their interests are aligned and they both want AUM and the fees that come with that.

I am not saying that advisers don’t have your best interests at heart.  But, the average adviser knows only slightly more than the average investor, they are sales people, they are there to hold hands and collect fees and mouth the party line. Independent thought is discouraged and frankly they believe what they say and why not, it has worked for the last seven years. Of course there are good well intentioned advisers, you probably have one and investing for the long term is generally a good idea. But what I’m saying is that if you see a Hurricane on the horizon, the smart thing to do is to stock up on provisions, find a safe place to hide and hunker down. If the hurricane does not hit, you are not any worse off. This financial hurricane is obvious, but your financial adviser in time honored fashion thinks it is simply another squall. Sell your stocks now, you can always buy them back if the squall blows over.

John Maynard Keynes, “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”  Quoted by Michael Pomerleano and Andrew Sheng, “A Failure of Public Governance,” Financial Times Economists Forum, January 26, 2010. Original quotation from “The Consequences to the Banks of the Collapse of Money Values”, 1931.

What about Warren Buffet, what about investing for the long term? You are not Warren Buffet. He could not sell his stocks if he wanted to, he is the market. However, what did he do in 1969 when his fund was still small and he anticipated poor returns? He liquidated the partnership, returned the assets to his investors and waited for better investing conditions. What does he recommend that his heirs do with their inheritance? Invest in ETFs. The single biggest determinant of long term returns is management fees. Winning the Loser’s Game

If you are fifty or above and have your funds invested in equities, give your head a shake. If you are younger and want to invest for the long term, what is your rush? The idea is to buy low and sell high.  Everyone thinks they are a long term investor when the markets are going up; then their portfolio drops and they slowly lose their resolve and sell out one by one as they can’t take the pain.

You have now been through two bear markets that have likely eviscerated your portfolio twice before and you are moving into a third. Since 2000 the S&P 500 has  returned a little over 4% a year and along the way has twice lost over 46%. Maximum Losses of S&P from the highs. Yet after all of that we are at record high valuations, record margin debt, record low mutual fund cash levels and after a seven year bull market every adviser is looking at this as a buying opportunity. What could possibly go wrong?

This is not to say that the markets will fall off a cliff, they will likely  bounce, but remember, the eight largest rallies in history occurred in bear markets. Largest % gains occur in bear markets. The markets rarely go straight down, they have to breath in and breath out. Indeed, given the optimism in these markets and the belief in investing for the long term, there will be numerous rallies as we revert to the mean which is some 40% lower–and there is no saying we don’t go below the mean, its happened many times.

Along the way the most dangerous advice you will hear is “we own quality blue chip stocks and we are in it for the long term”. The sad fact is that in a bear market investors sell what they can, not what they want to. When the margin calls hit, it is Apple, Google, J&J, Proctor and Gamble and the like that are sold. Not because investors want to sell theirblue chip stocks, but because the small stocks have gone no bid, and the margin clerks sell what can be sold, the blue chips.

Those are all good companies, they will all be around for the long term, but will you get your original investment back? J&J is down $18 YTD, that is six years worth of dividends and there are no guarantees that it will get back to the highs in your lifetime. And, what if we get a real sell off?

Dividend stocks are still stocks, they pay a dividend that may or may not continue and there is no fixed date when you will get your original investment back. They are not bond alternatives no matter how much you need income. They are stocks and they have risk, significant risk at this juncture. If you invested in the S&P in 1966 it would have taken you until 1982 to see your capital returned and adjusted for inflation, 1992. There were big rallies in that period but they were followed by big bear sell offs of 25.1, 35.9, 45.1, 26.8 and 24.1%. How many buy and hold investors do you think held on until 1982? Would you, could you? 16 years of volatility and zero returns

TINA is the acronym used to describe our investment landscape, there is no alternative to buying stocks. (Bond yields are a joke and I will write a post on those later, as that is the cause of this whole mess.) As long as the markets were going higher TINA worked, but now it will work in reverse and the new acronym will be SANC–stocks are not cash. Cash is king. But, what about your income…? You won’t get any. You will have to spend your capital. It sucks, but you can sit on a hot stove for a short time.

Have you ever wondered where the money goes when they say that a stock like Apple lost 105 billion from is market value as it recently has? That money was lost by somebody but did it go to money heaven, where is it? In a sense it did go to money heaven, however the purchasing power of that money went to those who hold cash. They can now buy more Apple shares with the same amount of cash.

Cash is the secret to Warren Buffet’s success, he calls cash an option that never expires. He had the cash to bail Goldman Sachs out in 2009 and he struck an amazing deal. No cash, no deal. But Warren Buffet is patient, he knows the value of cash and when to use it. When the margin calls hit, investors will dump stocks to raise cash and the bargains will arise.  Will you have cash or will you be waking up at night watching  your portfolio melt down like ice cream in the sun while your adviser pleads with you to hang in for the long term?

Take a look at this chart, think for yourself, does that look like a top or a bottom?

Margin Debt vs Valuation Extremes

Your comments are welcome.