In a recent article, Peter Schiff blasted Bitgold as being a “Secret Taxation Time Bomb“.
Schiff laid out improbable strawman arguments based on tax consequences that as a practical matter do not exist in the real world.
Ironically, his tax arguments would equally apply to “SchiffGold” purchases.
Usability and ownership are the heart of the matter, not taxes. Let’s start our discussion there.
First Mover Advantage
Citing a “first-mover advantage” Schiff states “There are several other companies offering gold-backed, prepaid debit cards, including my own company, Euro Pacific Bank, that first began offering them over three years before BitGold copied the concept. In fact, my bank even offers silver-backed prepaid debit cards, a service not currently provided by BitGold.”
What “first-mover advantage” was that?
BitGold has 800,000 accounts and $1.75 billion assets in those accounts. What are Schiff’s numbers?
Schiff notes “BitGold accepts American customers” but his bank does not.
Excluding US customers is a big deal. Schiff was never able to get US approval. Why is that?
BitGold has first-mover advantage in the US and many other countries as well.
Regardless, the question is not who is first, but rather who the market has selected as the legitimate answer.
Taxes, Possession, Hyperinflation
In his article, Schiff went way off the deep end with a strawman attack on BitGold involving taxes, hyperinflation, and physical possession.
In the attack, Schiff gave a preposterous example in which a bitgold purchaser would choose to redeem his purchase for physical gold. Schiff went on to calculate the taxes one might have to pay were hyperinflation to occur.
In real life, someone would not redeem BitGold to purchase physical gold. They already own physical gold!
And BitGold customers can use their physical gold to make purchases in the US, something SchiffGold customers cannot say.
Finally, here’s the curious thing about Schiff’s tax argument. If and when SchiffGold cardholders make purchases with their card, they too are subject to the same tax consequences that Schiff rants about.
BitGold provides full audit history for tax purposes. What does Schiff provide?
James Turk’s Response
James Turk, founder of GoldMoney accurately responded to Schiff in his article Peter Schiff’s Taxation Tantrum Post about BitGold.
Turk questions Schiff’s tax advice.
Peter Schiff purports to give tax advice to US citizens on the purchase and sale of gold coins. I am not aware of his qualifications to do so, and there is no mention of his training in this specialized field.
Maybe he is a trained tax attorney or expert tax accountant. I am neither of those, but I can spot as good as anyone attempts to pull the wool over people’s eyes.
Despite Schiff’s attempt to put them at center stage, taxes are not the issue here. There are always taxes that need to be considered. Rather the real question is how to buy physical gold. Taxes are a consequence of what gold you buy and how you buy it.
There are only two ways to buy physical gold. You buy it and store it yourself. Or you buy it and have someone store it for you, like BitGold and of course GoldMoney.
Wrap-Up
Schiff finished his article with a preposterous statement “under a worst-case scenario, having gold stored at BitGold will be virtually identical to having no gold at all.”
That is precisely the kind of hysterical, as well as nonsensical rant for which Schiff is famous. Anyone recall his comparisons between the US and Zimbabwe?
Once again, Peter Schiff has stepped well over the bounds of common sense into complete Fantasyland scenarios.
The market selected BitGold, not SchiffGold for a reason. Is Schiff himself part of the reason?
The sad part of discussions like this is we are all on the same side, or rather should be.
Roy Sebag, founder of BitGold; James Turk, founder of GoldMoney; and Peter Schiff founder of SchiffGold should all be on the same side promoting gold as money, not bickering over who was first with various products.
- Squabbles over who was the “first-mover” are irrelevant.
- The market has decided the winner of this debate is Bitgold.
- Using a BitGold or Schiff “goldcard” to buy things logically have the same tax consequences.
- Theoretical discussions about hyperinflation tax consequences make hyperinflation proponents look silly.
- There are ample reasons for owning gold. Let’s focus on those reasons, not egotistical sideshows that unfortunately require rebuttals like this one.
Disclosure
In the sake of full disclosure, I have a relationship with GoldMoney and BitGold.
As I have stated on many occasions, 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.
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.
Mike “Mish” Shedlock
It is true that when you buy gold through GM you are buying a fractional interest in larger bars that the company stores on behalf of all of its customers.
So the question still remains unanswered:
Is redeeming bitgold in order to take physical delivery of gold that “you already own” considered a sale for tax purposes, even if you are not selling that gold and retain physical possession when you receive it?
I have a substantial holding with GoldMoney and am very familar of their operating method.
I guess when the time comes that everybody who thinks they have ownership of gold actually want to take physical possession all the shenanigans going on under the surface of the gold market will be revealed.
“If you don’t hold it, then you don’t own it” – I hope this isn’t the case with GoldMoney. It certainly was with gold held in what clients thought were segregated accounts at MF Global – they lost their physical gold!
A couple people said Goldmoney fees increased. They have not. From GoldMoney ….
Dear Mike,
I confirm that the storage fees remain as they always have – they have certainly not been increased. Our Loomis and Malca-Amit vaults have a 0.12% pa rate for gold while all other vaults are 0.18% pa for gold. We also do not move gold between vaults other than by instruction from our clients. The website sets out all of the fees here – https://wealth.goldmoney.com/images/media/Files/Our-Fees.pdf.
I also confirm that we will recommence publishing the ISAE audits within the Goldmoney Holding (after log in).
Please do let me know if you have any further queries and I’d be happy to answer them for you!
Kind regards,
Katy
Katy Millington
DIRECTOR • GOLDMONEY WEALTH
GROUP GENERAL COUNSEL • GOLDMONEY
When the government comes for the gold, large accumulations in non-private hands will be the first, richest and easiest targets. Every prospector will go after the mother-lode instead of the labor intensive process of washing it out of the ground.No Bit Gold, Schiff or anybody else will have the guts or the means to defend their holdings in any meaningful way. No western country will resist, not Britain, not Switzerland, not Japan, not Singapore, not Australia and most definitely not the USA.
Shaking down every private household at gun point, in order to collect a few ounces at best, poses significant logistic challenges and the potential for violent confrontations. It’s simply not worth the effort.
You are so right Yoski!
Depends what you mean by “non-private hands”. There is no possibility that Switzerland, for example, would allow a foreign government to confiscate gold held in independent vaults.
None.
They will. All the US Government needs to do, is have some “Judge” or “Court” drum up a story about the legal owner being a ‘money launderer”, “deadbeat dad” or some other currently fashionable bogeyman.
Switzerland ain’t what it used to be. And idiocies like negative interest rates aren’t the only symptoms of that.
Nope. Won’t happen. It would devastate their economy, and the U.S. has no leverage, unlike with the banks, when they used the SWIFT threat.
Why on earth would anyone store valuables in Switzerland if they were to allow foreign governments to seize those assets? There are hugely valuable holdings in Swiss vaults, not just precious metals.
People will continue to store valuables there, as long as they remain gullible enough to believe there is some basis of truth, to their own state and legal apparatus’ claims that Joe was a drug dealer, Jane a tax cheat, James a money launderer, Tony a terrorist funder, blah, blah. So it is OK for the Swiss to cooperate and hand over those guys’ stuff. But my stuff, now that! is really safe……
until they come for me too.
Be sure to alert us when there is evidence that a private individual’s holdings have ACTUALLY been confiscated from an independent vault in Switzerland, and especially without a very good reason.
It is true that a foreign government could petition the Swiss government in an effort to confiscate, but the chances of them being successful are extremely small.
Your implication is that the U.S. would abuse their power to claim that certain people had broken laws. I don’t doubt that they might try to do that, but do not believe that the Swiss government would be willing accomplices.
Again, if there were any hint of that type of reckless behavior, and with the Swiss government rolling over, confidence would be lost in Switzerland as a safe haven for valuable goods, and that would devastate the economy.
I have never understood why someone would purchase any gold aside from physical coins which they held in their own possession. It doesnt take up much space, can be insured, remains fairly liquid, can be bought and sold easily person to person without records, and is more difficult to confiscate.
I view gold as a last resort paranoid meltdown scenario insurance policy. As an insurance policy I hope to never use(sell) it.
I guess if one is a trader and looking for primarily short term profits then gold backed financial products suffice…but I personally have no interest whatsoever in that. Maybe I’m simply not trusting enough,
With Bitgold one can accumulate gold over time in very tiny amounts. Not everyone can afford 1-ounce bars.
Not everyone wants physical possession. I don’t.
Mish
Fair enough. I didn’t consider fractional amounts as a reason even though I hold 1/10 oz to 1oz coins. Tax reasons without recorded and submitted basis values is enough reason for me to hold physical. I can give it to whomever I please without any record or permission. It’s basically physical cash in that aspect. It’s also basically an off-the-books asset like many collectibles tend to be, rightfully or wrongfully. Rule #1 is that “they” can’t take from you what they don’t know exists. And yes I consider it a small but real possibility of seizure. I guess one must balance that against theft and maintaining security and ensuring integrity of the AU to start with. I have plenty of paper assets that can be frozen or taxed to the moon. Physical (only) gold has a special place in my portfolio bc of the above. Another negative is certainly transactional costs as dealer spreads exist as expected and can be substantial.
You can accumulate gold held as a fractional interest in a large pile of gold bars in a warehouse somewhere which depends on the internet and financial system to do transactions. They can also suspend your account for any time for any reason including quite specifically just being asked by a government bureaucrat (they don’t require a warrant or subpoena).
In real life, someone would not redeem BitGold to purchase physical gold. They already own physical gold!
Untrue. I might want a large amount of gold in a secure warehouse, but might want to keep a bit at home or in a local safety deposit box where I have access to it if something brings the grid down (Ted Koppel talked about this). That is when I would need it most.
If I really owned the gold, the frictional costs of getting the physical gold out should be far smaller and not create a transaction record beyond the debiting of the balance including the shipping and handling charges. This is important. When I go to the bank, they give me bills and a receipt. They don’t have to convert a balance in $100 bills to smaller bills.
Assume I owned BitGold slightly in excess of one of the bars in their warehouse. Would they send me a bar with minimal frictional costs? They I say I own part of the pile, and there is a bar that I could get off that pile that could be sent to me in redemption. I don’t think they will do even that. I don’t think they would do it even if I have an account in the same warehouse they are storing the gold at so it would just have to be moved a short distance, or if I brought an armored car to pick it up.
Owning something is utterly different than owning shares of a collectively owned pile of something, and you do a disservice to all by trying to confuse the two.
You do NOT own any gold. You own a claim on a portion of Gold being kept for you at a warehouse. It is more convenient than the other alternatives, but has risks the alternatives don’t have. BitGold should stand or fall on what it actually is, not by trying to fudge the facts. You can accumulate a larger claim over time, but you must redeem the claim to actually own actual gold. Schiff points out (though with his own excesses) there are large frictional costs in doing so.
You don’t even have a physical paper receipt and title to that gold. It is all electronic. That involves a lot of trust. RSA itself was hacked. Apparently the NSA left a trojan in Juniper Networks’ routers that let the Russians and Chinese in to get the OPM sensitive records of 20 million federal employees and contractors. BitGold is using some hyper-vetted software no one else knows about?
You cannot send physical gold through bit-gold. You can only move gold between bit-gold accounts.
The only aspect is convenience and that it is non-fractional reserve (though I worry if some of the bars might have been claimed).
Why not have a US branch that avoids all the capital gains and just put piles of federal reserve notes in a warehouse – that would be equivalent for those who want to hold cash but not in a fractional reserve bank.
I agree with TZ. If you have a gold account, you do not own anything except a warehouse receipt. This is equivalent to your money in a bank account. If the company (or bank) goes bankrupt you are merely an unsecured creditor. This was proven in court when MF Global went out of business.
If you don’t want counter party risk you buy gold coins or hold paper cash.
There is virtually no counterparty risk at BitGold, GoldMoney, or for that matter OUNZ (the latter perhaps dependent on where you trade – not the idea itself).
There is risk of theft holding gold yourself.
Mish
Comparisons between Bitgold and GoldMoney to MFGlobal or other schemes are preposterous.
There were signs and agreement in the contract itself that proves as such.
Mish
Not a goldbug
But OBVIOUS to me you either own “physical” … or else you’re just holding (someones) paper.
I’m sure the audits look legit enough, though …
I have a question. Let’s say you have a Bitgold card backed by $10,000 worth of gold, and you go out to dinner for, let’s say $120.00. While you’re there, your card gets skimmed, and someone buys a $5,000.00 flat screen TV with your card. Is Bitgold going to give you your gold back, or are you just out?
I would also like to add, that it would be easy to confiscate gold. I’ve bought pm’s through Blanchard, and they have a record of every sale. The government could just send me a letter saying their records show I have “X” ounces of gold and silver. The IRS could give me a deadline to turn them in, with escalating fines till i comply, or as some states do with taxes, you can’t renew your drivers license till you pay, or in this case surrender your precious metals.
Gig
I will try to get BitGold to chime in as well, but skimming cards with chips is not doable. And controls on unusual debit card purchases likely come under very tight approval procedures. Note that the same question you asked applies equally to any debit card. I see no specific BitGold concerns off the top of my head.
Why rely upon a system that can and will be gamed, that ignores the fact that there are additional flows of costs in the economy over and above interest and that not only isn’t “into” pain and obsessive moralism, but can integrate both individual monetary abundance and price deflation at the same time?
The market has decided the winner of this debate is Bitgold.
Then you don’t know how markets work. WalMart hasn’t won over Target, nor Target over WalMart. They are sufficiently different that some prefer one, some prefer the other.
Some prefer an online, grid-up, government groveling, but very convenient claims on gold in a warehouse. BitGold provides that extremely well.
Some prefer to have physical gold in their possession, accessible even when a disaster – a terrorist attack, Katrina or Sandy, a Major earthquake – occurs, and where it will be safe from a “bail-in” or government seizure. BitGold provides NONE of those things intentionally. Others do.
It will be interesting when the Civil Asset Forfeiture people – Illinois among them – find out how Government friendly BitGold actually is. You have lots of gold? Must be a money launderer or drug dealer. Where is the form for over $10,000 – oh, you were structuring your deposits. Seizure! All done from a computer terminal .
Let’s be serious here.
SchiffGold failed the market test.
Hardly anyone uses it.
The market did decide which product is more viable and proof is the number and value of the accounts.
You are comparing a lemonade stand to Walmart – Not Target to Walmart … When the lemonade stand had visions of being Walmart.
Mish
Who is the lemonaide stand, you or schiff?
You!
Basically, owning BitGold is not much different than having a brokerage account full of GLD shares, most have debit cards and online transactions, and some even have checkbooks. Sometimes the transaction costs are even lower. If I own GLD, I have the same kind of claim on a pile of Gold. But I can also do other ETFs like silver and Platinum.
Not quite.
You cannot use GLD or OUNZ (the latter is better) to buy things.
You cannot easily add to GLD or OUNZ either.
You can easily add $100 a month to BitGold if you want.
Depending on your broker, transaction costs of GLD or OUNZ could be lower or far higher.
If you have to pay a $10 fee to buy shares – GLD is way higher.
There are reasons for both types of structures. You can own OUNZ or GLD in an IRA.
There is a reason for Goldmoney as well, especially for large accounts.
Mish
It’s funny that Mish criticizes companies like Netflix but supports Bitgold. The two basically have the same operating model. Bitgold is giving away gold for free to get customers and present growth to get more people buy their shares. Shareholder equity is subsidizing operational losses. This is more or less a Ponzi scheme. Would you want to keep your money with a company that is making a loss on purpose just to show growth to investors? What happens to your gold when the company goes bankrupt? Perhaps it’s not a big deal for a $50 account but would you keep $50,000 there?
When I heard about their program of free 5% gold for money you deposit there it was pretty clear to me to stay away from this company.
I never heard that before. That would also keep me away. If I wanted counter party risk, I’d choose a FDIC insured bank. My gold is in coins that I hold.
If you have coins and your intent is merely to hold gold it is certain you overpaid.
For coins and bars it’s even worse. What they call redemption is really buying a gold bar with your bitgold money. That’s what Peter Schiff referred to as a taxable event. So you are not really redeeming but selling your bitgold gold, get fiat currency and buy a bar or coins with it. And of course you pay all the fees on the way. A complete marketing fraud.
I have gold at the Perth Mint. If I want the bars I go there and pick them up. There is no selling and buying involved. This is real redemption.
A friend of mine told me about Shiff’s post.
All I have to say is what he wrote is dishonest at best.
What Europac offer is a Perth Mint unallocated storage that they join to a pre-paid card, and it ain’t cheap.
And what all this has to do with investor losing money on Bitgold stocks?
Sounds like sour grapes to me. (Because Bitgold is eating Shiff’s lunch).
Newsflash: It’s not the idea that counts, it’s the execution!
I’m a client of both Bitgold and Europac Bank, but as of tomorrow I will certainly drop Europac (their service is cluncky and expensive as hell anyways, so no worries). Everytime I go to a branch of my bank to do one of these archaic wire transfer, they wonder where the hell where the hell St-Vincent-and-Grenadines is…
Stephane Laporte
Utah has its own version that might be better for some
https://upma.org/items/index/5159/2
If you wish to take Physical delivery of your Bitgold in the form of soverign gold coins.
1% on gold you buy at BitGold
1% on gold you sell at BitGold
Tax at applicable rate of booked profit if their is one.
Mark up to buy coins from a third party.
Shipping and insurance cost.
The fact that you have to sell your Bitgold and produce a taxable transaction before you can re-buy your gold in the form of coins is game changer for me.
The same is true universally – with OUNZ, with SchiffGold, with Perth, With Bullion vault.
If you want coins – buy coins, and pay the huge markup on coins.
If you are happy with generic cubes or bars, there is no tax penalty to take delivery.
I find it hard to believe someone actually thought they could buy bulk products and redeem for coins.
Mish
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After several thousands worth, I have stopped using BitGold, because of Peter Schiff’s explanation. Your article merely attacks SchiffGold without addressing the concerns he raised with BitGold. Definitely, BitGold is not an economic alternative for buying physical gold. For example, one should not deposit a few hundred dollars a month into BitGold and then hope to collect after six months, one ounce of physical gold from your nominated vault. It would be too expensive, with potential tax implications because the large number of unnecessary transactions involved. The large number of BitGold accounts is pure marketing gimmick. BitGold effectively pays customers to open accounts by giving them a small amount of free gold.
Once again this information is wrong. You have been duped by Schiff.
You can take possession of gold-gram cubes and it is not a taxable event.
Mish
Investors don’t buy gold to spend it, so i don’t understand how Bitgold business model can be profitable in the long run. Problem is they store in the name of all their clients so if they are not profitable how will they pay the storage fees ? Free storage is always suspicious to me.
Ans let’s assume there will be a gold monetary reset at some point, why would you use Bitgold when you know the new currency is backed by gold ?
Gold storage is cheap because volumes small.
That is why they do not offer silver.
Mish
The advantage is to use your BitGold card . To the coin dealer who realizes to those in the trade the more who buy and sell these are the best parity accounts
My understanding is that bitgold has been the genuine, long-term attempt at moving all the right legal and political pieces in order to provide an ideal currency for our age: a pay-pal like experience for the masses using real money with blockchain technology. I’ve used it and it works as designed, but there obviously isn’t the large user base like bitcoin. Nevertheless, it’s impressive, and it would be ashamed if it didn’t grow and gain popularity; hopefully conversion stories of going from bitcoin to bitgold will start occurring; currently they are not.
Schiff’s retort was probably premature, miscalculated, and overly defensive. He ought instead to join the bitgold team and become its biggest advocate; everyone would win. Am I the only one who thinks this way?
If businesses that already trade in bitcoin (e.g., overstock.com) simply switch to bitgold, where there is no transfer into other currencies, combined with Tor and other NSA-free (truly private) software projects, I don’t see how taxes would even be possible to trace much less enforce in this system (similar to state-sales tax on purchases from Amazon that most people don’t pay). Governments would then perhaps default to old-school property taxes – taxing for whatever possessions a person acquires through whatever means he/she acquired them, but that would prove even less effective than the current system…
My understanding is that bitgold has been the genuine, long-term attempt at moving all the right legal and political pieces in order to provide an ideal currency for our age: a pay-pal like experience for the masses using real money with blockchain technology. I’ve used it and it works as designed, but there obviously isn’t the large user base like bitcoin. Nevertheless, it’s impressive, and it would be ashamed if it didn’t grow and gain popularity; hopefully conversion stories of going from bitcoin to bitgold will start occurring; currently they are not.
Schiff’s retort was probably premature, miscalculated, and overly defensive. He ought instead to join the bitgold team and become its biggest advocate; everyone would win. Am I the only one who thinks this way?
If businesses that already trade in bitcoin (e.g., overstock.com) simply switch to bitgold, where there is no transfer into other currencies, combined with Tor and other NSA-free (truly private) software projects, I don’t see how taxes would even be possible to trace much less enforce in this system (similar to state-sales tax on purchases from Amazon that most people don’t pay). Governments would then perhaps default to old-school property taxes – taxing for whatever possessions a person acquires through whatever means he/she acquired them, but that would prove even less effective than the current system…
When BitCoin combined with GoldMoney I was in two minds whether to close my GoldMoney account. James Turk rang me and we had a very interesting 45 minute conversation. I didn’t close my GoldMoney account instead I converted my holding into 1 Kilo numbered Gold bars held in Switzerland which is part of GoldMoney service. BitGold card is more expensive for me than using a normal debit or credit card so it’s a non starter. GoldMoney and holding Gold coins both have their advantages. With GoldMoney there is ease of accessibility without having to carry Gold over country borders.
You mean Bitgold not bitcoin
It seems that Jeff Nielsen views BitGold and GoldMoney in some bad light. You will notice probably my comments under Baron.
http://www.bullionbullscanada.com/index.php/commentary/gold-commentary/26706-bitgold-s-biggest-deficiencies-peter-schiff-part-ii