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.
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.
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.
Engineers in Perth, Australia, have created a fully working house-building machine that can create the brick framework of a property in just two days, working about 20 times faster than a human bricklayer.
Named Hadrian (after Hadrian's Wall in the UK), the robot has a top laying speed of 1,000 bricks per hour, which works out as the equivalent of about 150 homes a year. Of course there's no need for the machine to sleep, eat or take tea breaks either, giving it another advantage over manual laborers.
At the heart of Hadrian is a 28 m (92 ft.) articulated telescopic boom. The boom auto-corrects itself 1,000 times per second to prevent interference from vibrations or sway.
The Navy this month will outline what it is looking for from additive manufacturing or 3D printing technology as way to bolster what it terms "fleet readiness."
The Office of Naval Research will on July 15 detail its Quality Metal Additive Manufacturing (Quality MADE) program that will aim to "develop and integrate the suite of additive manufacturing software and hardware tools required to ensure that critical metallic components can be consistently produced and rapidly qualified in a cost effective manner."
The Navy has a number of different ongoing 3D trials and recently partnered with 3D Systems to evaluate and develop evaluate 3D printing technology and materials for military uses.
Meet "Helium" the Software Coding Robot
Helium, a software coding program, can rewrite rotten legacy computer code in an hour. It would take expert programmers months to do the same task.
Moreover, Helium's code is up to 500% faster than legacy code. This is especially true of unoptimized Windows code and imaging software such as Adobe Photoshop.
Last year, MIT computer scientists and Adobe engineers came together to try to solve a major problem that many companies face: bit-rot.
A good example is Adobe's successful Photoshop photo editor, which just celebrated its 25th birthday. Over the years Photoshop had accumulated heaps of code that had been optimized for what is now old hardware.
"For high-performance code used for image-processing, you have to optimize the heck out of the software," says Saman Amarasinghe, a professor at MIT and researcher at the Computer Science and Artificial Intelligence Laboratory (CSAIL). "The downside is that the code becomes much less effective and much more difficult to understand."
Enter Helium, a CSAIL system that revamps and fine-tunes code without ever needing the original source, in a matter of hours or even minutes.
The team started with a simple building block of programming that's nevertheless extremely difficult to analyze: binary code that has been stripped of debug symbols, which represents the only piece of code that is available for proprietary software such as Photoshop.
A particular type of computational kernel popular for such software are "stencil kernels," which allow you to do operations for entire areas of pixels. Stencil kernels are especially important to update because they use huge amounts of memory and compute power, and their performance degenerates quickly as new hardware become available.
With Helium, the researchers are able to lift these kernels from a stripped binary and restructure them as high-level representations that are readable in Halide, a CSAIL-designed programming language geared towards image-processing.
Going from binary to high-level languages was a big leap that the team originally didn't think was doable, according to lead author Charith Mendis.
"The order of operations in these optimized binaries are complicated, which means that they can be hard to disentangle," says Mendis, a graduate student at CSAIL. "Because stencils do the same computation over and over again, we are able to accumulate enough data to recover the original algorithms."
From there, the Helium system then replaces the original bit-rotted components with the re-optimized ones. The net result: Helium can improve the performance of certain Photoshop filters by 75 percent, and the performance of less optimized programs such as Microsoft Windows' IrfanView by 400 to 500 percent.
Question of the Day
Is this simply reverse engineering, or is this the beginning of the end of the programmer?
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
As I further ponder on the Breathtaking Political Capitulation of Greek prime minister Alexis Tsipras, I still seek an explanation for his stunning reversal. Here is a short recap.
Shockingly Stupid Sequence of Events
I am seldom stunned by political stupidity. In fact, I am surprised when I don't see it.
Yet, I have never witnessed a political reversal so shockingly stupid as we saw tonight from Greek Prime minister Alexis Tsipras.
For months on end Tsipras claimed he would not accept blackmail by Germany. He rejected Germany's "final offer" in favor of a referendum.
He encouraged Greek citizens to vote "no" to the bailout referendum. Then they did, by an overwhelming majority.
Tsipras then reversed himself 180 degrees, and accepted the newest "final offer" that was far worse than the one he turned down a short while ago.
The deal was so harsh that I agreed with Paul Krugman's description of "grotesque".
Pritchard's explanation makes for good copy, but does not pass the Mish "smell test". If Tsipras really wanted to lose, he would have made a lukewarm endorsement for 'no'. Instead, he threw every word in the book at Germany including a demand for Nazi war reparations while making overtures with Russia.
Arrogance
I don't accept Pritchard's explanation. To directly campaign, and campaign exceptionally hard, for an outcome one does not want makes no sense.
Instead, I offer a simpler explanation: Tsipras is an arrogant fool. He had far too much confidence in his own ability to make the world see things his way.
Stupidity alone does not provide the answer, but an amazing amount of arrogant belief in oneself to the bitter end, that Germany would eventually bow down and kiss his feet is the likely answer.
Humiliation
Tsipras has humiliated himself while destroying any hope Greeks had. He refused to resign and it's highly likely his coalition splinters to smithereens in short order.
It would be best for Greece if it splinters now, but the likeliest outcome is the coalition busts apart after the Greek parliament votes for servitude and pledges €50 billion in assets.
Tsipras should resign, but arrogant fools don't do that.
The statement merely requires that they be "valuable." After six years of recession and counting, Greek liquid assets are scarce; presumably hard assets like beautiful Islands and national treasures are off limits. One likely source of said assets are the new bank shares that the Greek government will acquire with the money it will borrow from the eurozone's bailout fund to recapitalize the country's banks.
Islands off limits? We will see. Greek banks are not worth €50 billion for sure. In fact, they are bankrupt, with negative worth. Ten years from now will they be worth something? What about airlines, airports, bus terminals, and electrical companies?
The Journal did not state so but any infrastructure assets owned by the government will surely be on the block.
Defeat Snatched From Jaws of Victory
The Financial Times reported the deal nearly fell through at 6:00AM this morning when after 14 hours of negotiation, when both Merkel and Tsipras headed for the door.
A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece's creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union.
In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.
On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a "timeout" as he called it.
I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: not only regime change in Greece, but also regime change in the eurozone.
The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident — and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems.
This brings us back to a more toxic version of the old exchange-rate mechanism of the 1990s that left countries trapped in a system run primarily for the benefit of Germany, which led to the exit of the British pound and the temporary departure of the Italian lira.
What should the Greeks do now? Forget for a moment the economic debate of the past few months, over issues such as the impact of austerity or economic reforms on growth. Instead ask yourself this simple question: do you really think that an economic reform programme, for which a government has no political mandate, which has been explicitly rejected in a referendum, that has been forced through by sheer political blackmail, can conceivably work?
Previously, the strongest argument against any forecasts of break-up has been the strong political commitment of all its members. If you ask Italians why they are in the eurozone, few have ever pointed to the economic benefits. They wanted to be part of the most ambitious project of European integration undertaken so far.
"We will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable".
But if you take away the political aspiration, you may end up with a different judgment. From a pure economic point of view, we know that the euro has worked well for Germany. But for Italy, it has been an unmitigated economic disaster. The country has seen virtually no productivity growth since the start of the euro in 1999. If you want to blame the lack of structural reforms, then you have to explain how Italy managed decent growth rates before then. Can we be sure that a majority of Italians will support the single currency in three years' time?
Once you strip the eurozone of any ambitions for a political and economic union, it changes into a utilitarian project in which member states will coldly weigh the benefits and costs, just as Britain is currently assessing the relative advantages or disadvantages of EU membership. In such a system, someone, somewhere, will want to leave sometime. And the strong political commitment to save it will no longer be there either.
Final Thoughts
In my opinion, that is the best article Wolfgang Münchau has ever written.
Like Economist Paul Krugman, and unlike myself, Münchau was a strong supporter of the eurozone "project".
I maintain that the eurozone has too many flaws to possibly work. That Tsipras caved in at the last moment changes nothing, and it even appears that Münchau has come to grips with that reality.
I am seldom stunned by political stupidity. In fact, I am surprised when I don't see it.
Yet, I have never witnessed a political reversal so shockingly stupid as we saw tonight from Greek Prime minister Alexis Tsipras.
For months on end Tsipras claimed he would not accept blackmail by Germany. He rejected Germany's "final offer" in favor of a referendum.
He encouraged Greek citizens to vote "no" to the bailout referendum. Then they did, by an overwhelming majority.
Breathtaking Political Capitulation
Tonight, Tsipras reversed himself 180 degrees, and accepted the newest "final offer" that was far worse than the one he turned down a short while ago.
The deal so harsh that I agreed with Paul Krugman's description of "grotesque".
Specifically, Krugman said of the latest deal "This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can't accept; but even so, it's a grotesque betrayal of everything the European project was supposed to stand for."
Whether or not one believes in the eurozone, and no matter what side one takes in the debate, there is no question regarding Krugman's description.
Germany demanded, amongst many other things, that Greece put up €50 Billion in collateral (no doubt islands and state businesses at bargain basement prices).
The creditor demands remind me of the war reparations at the end of WWI that ultimately collapsed Germany and led to WWII. That may be a bit of an exaggeration, but that is what comes to mind.
ThisIsACoup
Following months of rants against Germany and the Troika, culminating in a referendum in which the Greek people overwhelmingly agreed the deal was a bad one, Tsipras bowed down and accepted a far, far worse deal.
I still stand by that analysis. The eurozone remains fatally flawed.
Who's Going to Pay
In spite of this stunningly idiotic reversal, I still maintain that one way or another, Germany will pay a price (by bailout, by default, or by destructive breakup).
Only the timeline and who gets the blame has changed.
Tsipras Trades Royal Flush for Draw at Inside Straight
Tsipras won the game. He had the backing of Greek citizens no matter what he did. The opposition party leader and former prime minister resigned following the "no" vote in the referendum.
Blame for Grexit was squarely in the Germany's hands. And it was even in the best interests of Greece to default.
Tsipras traded all that away for nothing!
Questions
Did the US bribe Tsprias with a secret account worth millions?
Is someone holding his kids hostage?
If one of those (or something similar) does not explain the reversal, then what does?
I have often stated that when one of the answers to a question is stupidity, then stupidity is frequently the likely answer.
But stupidity alone cannot possibly explain this course of events.
Tsipras Should Resign
If Tsipras had an ounce of decency left, he would resign, put forth a new referendum, and let the people decide. Apparently, this hypocrite would now tell them to vote yes.
He sure owes Greek citizens an explanation. Instead he will fire all the ministers who do not go along.
Wow.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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