Gold bugs around the world got a shock a few weeks ago when a tiny Canadian start-up called BitGold bought venerable GoldMoney, the second biggest (after BullionVault) precious metals storage firm.
Now come the questions. Is this a case of a flashy tech company using its temporarily-inflated stock to buy real assets, a kind of AOL/Time Warner deal which goes sour when the new tech turns out to be a bubble? Or are these the young visionaries who finally solve the puzzle that eluded their elders?
First, a little digression: Back in the late 1990s while writing mostly about the excesses of the dot.com bubble, I was looking for a more optimistic theme. After interviewing GoldMoney’s James Turk for a couple of magazine articles, I fixated on his and others’ attempts to use the Internet to turn gold back into a functioning currency. This was a libertarian fantasy made real, allowing people to keep their spare cash in sound money while bypassing the increasingly dysfunctional, predatory banks with their hidden fees and stupid rules.
Lots of magazine articles and book proposals followed, but despite gold’s decade-long bull market, its digitization failed completely. eGold, the first mover, soon discovered that anonymity meant money laundering and was shut down by the police. GoldMoney required its users to disclose their identities, thus avoiding that legal minefield, but still ran up against regulations designed to limit the ability of alternative currencies to compete with central bank fiat. It eventually gave up, focusing instead on the boring but lucrative storage business.
Now, at the dawn of the age of cryptocurrencies, BitGold is reviving and updating the concept by storing bullion for customers and letting them spend their gold online or via debit cards. Among its cool new features is a tax calculator that figures users’ capital gains/losses for the countries that tax gold as a commodity.
It’s too soon to tell whether BitGold will succeed where its processors failed, but the early debate is, as you’d expect, lively. On the negative side, UK financial journalist (and author of a book on bitcoin) Dominic Frisby makes a cogent case for its probable failure. Here’s an excerpt:
