On March 21, Peter Schiff made wildly inaccurate claims in his post that labeled Bitgold a “Secret Taxation Time Bomb“.
James Turk, founder of GoldMoney responded to Schiff in his article March 22 article Peter Schiff’s Taxation Tantrum Post about BitGold.
I responded to Peter Schiff on March 23, with BitGold vs. SchiffGold: Facts vs. Fiction.
Roy Sebag, founder of BitGold, weighed in on the matter later in the day on the 23rd. Sebag now challenges Schiff to a debate.
Sebag’s Response to Schiff
Sebag responded to Schiff in a no-hype article simply titled Roy Sebag Response to Peter Schiff’s BitGold Truth Piece.
His post contains much of what I covered, but with additional details.
In addition, Sebag covers some aspects that I didn’t, including a financial analysis of Bitgold the company, and its profit model.
It would be interesting to see Schiff provide the same type of analysis for SchiffGold, but I rather doubt such a response ever sees the light of day.
My Challenge
I challenge to anyone who believes BitGold does not have a viable business model or viable product to read Sebag’s article and explain where and how it is wrong.
And if it isn’t wrong, how about a retraction?
Sebag’s Debate Challenge
Sebag has a challenge of his own. He challenges Schiff to a debate.
“I therefore challenge Peter Schiff to a one on one debate on BitGold, our platform, our business, or anything really. My only requisite is that the debate be unedited and streamed live on Youtube. I think it could be fruitful for both sides. Maybe, we can even find some common ground.”
Willingness to Debate
I am certain there is common ground, we all promote gold.
Common ground aside, Schiff has backed down from every debate chance he has had with me.
I wrote about Schiff’s backing out of debates with me on November 30, 2012 in Peter Schiff Backs Down from Debate with Mish 3rd Time After Agreeing to Do So.
Peter claims he never agreed to debate me, rather his agents accepted on his behalf, without his approval. Perhaps he should have told his agents that he was not really willing to debate anyone.
Actually there was a 4th time. I recall an NBC local affiliate radio station asking me if I would debate Schiff. The same thing happened. I said Schiff would not be willing but the producer claimed he had a guarantee.
You know the ending. One person backed out and that was not me.
That’s all history, from four years ago and longer.
Question of Legitimacy
One of the reasons Schiff has given for his refusal to debate me has been on the lines of he does not want to provide any legitimacy to me or my views.
But it’s not my views that need legitimacy. His do. He was right about gold and housing but wrong about the dollar, commodities at the peak, decoupling theories, China, emerging market currencies, US treasuries, and out of this world wrong about hyperinflation.
As measured by prices (albeit very briefly), as well as the plunge in the value of credit on the books of banks, we had the deflation I called for. And I expect another plunge in the value of that credit (my key measure of deflation).
Schiff simply cannot get into his head, the overwhelming deflationary effect of debt. Instead, he has a spotlight on the US dollar, effectively ignoring actions of other central banks.
With his myopic focus on the dollar, he continues to promote hyperinflation, even doing so in a ridiculous example involving BitGold.
My willingness to debate Schiff on the idea the US is about to go into hyperinflation or even high inflation any time soon still stands.
Sebag’s Generous Offer
Sebag is equally willing to risk giving legitimacy to Schiff with his generous debate offer.
Peter, are you willing to debate someone or not?
Mike “Mish” Shedlock
Get’em Mish!
BitGold does not have a “cash account” from which goldgrams, gold cubes or gold coins can be purchased at the outset. Rather, all “deposits” are actual “purchases of goldgrams”.
All goldgrams are fully allocated and segregated at various Brinks Vaults. All insurance and storage fees are paid by BitGold, not by its customers as with GoldMoney storage fees.
BitGold [apparently] does not “store” either gold cubes or gold coins, although that “apparent” fact has been impossible for me to glean from the BitGold site despite hours of searching. In contrast, the GoldMoney Channel Islands/Jersey platform allows customers to “redeem” goldgrams into gold bars and then “register” and store those bars in its various vendor vaults.
However, BitGold anticipates some customers will eventually desire to take possession of their gold, and so allows its customers to “redeem” goldgrams for either 10 gram gold cubes, 1 KG bars, or various sovereign coins – which are then “shipped” to the customer, except 1 KG Bars must be physically collected from BitGold.
Peter Schiff’s analysis assumes a BitGold customer can exchange goldgrams for gold bars or coins and then store them at a BitGold vault, and that taxes are triggered on both exchanges.
BitGold’s CEO categorically states that exchanges of fractional interests in fully allocated and segregated large gold bars for 10 Gram Cubes or 1 KG Bars are “like kind” exchanges that do not trigger a taxable event. Exchanges of goldgrams for coins are NOT “like kind” exchanges and therefore are taxable events.
Schiff states that BitGold’s vendor/supplier charges 2.2% to purchase coins, but does not mention the markup for selling coins.
Mish and Turk and CEO Sebag each assume everyone will know that BitGold does not store cubes, bars or coins because that’s not part of their payment processing business model. Therefore, they do not address the assumption error in Schiff’s hypothetical.
Assuming these to be the facts, their assumption has cost me the better part of an afternoon’s research.
Yet still, the unanswered question remains.
If you elect to eventually take physical possession of gold purchased, and held for a while, with BitGold or GoldMoney is it considered to be a sale of gold for tax purposes or simply taking possession of physical gold that you own.
“Your” physical gold is held as a fraction of large bars. I’ve taken possession, in London, of some of the physical gold that I held with GoldMoney. It was presented to me as quite nice 200g bars with “GoldMoney” embossed on them.
This is not the format that “my” gold is held in their vaults though.
So, again, I ask – was “my” gold in vaults sold in order to then purchase these smaller bars that were given to me.
Nobody from GM ever gives me a plain answer for such a simple question.
Very disappointing.
The simple answer is you own a piece of a bar unless you are willing to buy a full-sized bar.
There is no other way to do this.
Nor is there a problem with it.
You have a dedicated percentage of a bar. It could be the middle ounce of a big bar. If you really expect someone to cut out that middle ounce- you are not thinking clearly. Buy a whole bar and that’s a different story.
I will have James Turk reply to you directly.
Mish
Thanks Mish.
So, Schiff is correct when he states that there is a taxable event when you take possession of a small amount of the physical gold that you own through GoldMoney.
Unless of course you actually own a whole bar.
And even then, I expect there would be a taxable event. It’s inconceivable that if you took delivery in London of a whole bar that you had vaulted in Singapore you receive that actual bar. They’d sell off the Singapore bar and give you one that already existed in London.
It’s interesting that this Capital Gains Tax aspect of the arrangement is so obfuscated.
It’s true – “if you don’t hold it, you don’t own it”.
And that’s coming from someone with a $250k+ holding with GoldMoney!
So, Schiff is correct when he states that there is a taxable event when you take possession of a small amount of the physical gold that you own through GoldMoney.
That is false
Should one not receive the exact ounce they had, It would be considered an exchange of like property – a nontaxable event
So – Schiff if totally off base.
Mish
Thanks Mish.
Are they warehousing your gold or are they selling you gold that they then hold for you? If they are returning gold you gave them or gold that you bought and can be specifically identified and is separate and distinct from all other gold on deposit, no taxes are probably due on a gain. Since gold is fungible, if you bought three ounces and they mail you three ounces in redemption, probably no taxes if a gain was made. The basis is the original price of gold.
If you bought gold shares as a partner or discrete investor, then you owe taxes if there is a gain on the liquidation. If you are getting cash, you owe if you had a gain.
If you are redeeming in a form not compatible with the investment, then it is probably a taxable event unless you can swing a like to like trade. You’re just an investor in an investment,
if you bought three ounces and they mail you three ounces in redemption, probably no taxes if a gain was made. The basis is the original price of gold.
If you bought gold shares as a partner or discrete investor, then you owe taxes if there is a gain on the liquidation. If you are getting cash, you owe if you had a gain.
If you are redeeming in a form not compatible with the investment, then it is probably a taxable event
Correct – A question can easily arise if you own bulk gold and get back equivalent value in coins.
Ask your accountant – I will not make a claim. But as I said, if you want gold coins, buy them.
Mish
Assume I have a 1kg gold with Bitgold. Can I walk in to Bitgold and pick up a 1kg bar or do I have to sell my 1kg gold and buy a 1kg bar for it? It’s a pretty simple question and important scenario yet there doesn’t seem to be a clear answer for it on the BitGold’s site.
Why is it important? Because people can be afraid of confiscation, the company going into administration and then all assets frozen, loss of faith in the storage facilities, loss of faith all the gold is there, wanting to transfer gold to a different country with different laws. Only physical delivery protects you from these events.
If you read it, you can get a bunch of 10g gold cubes without the exchange problem (I don’t know how many they have or how fast they can make them or anywhere else they are accepted for use as money).
I don’t remember anywhere Schiff said they don’t have a viable business model.
I don’t remember anywhere Schiff said they don’t have a viable business model.
Hi TZ
Here is an unedited block of text from Schiff
http://schiffgold.com/commentaries/beware-bitgold-ticking-tax-timebomb/
My guess, however, is their real intention is to deceive investors into purchasing the company’s over-priced stock. If investors think the company provides a unique service, they are more likely to overlook huge current losses. The hope is that by being the only company providing an innovative service that those losses will eventually turn into profits. But since BitGold does not have the first-mover advantage it claims and is not the only player in a market that I think will be even more competitive in the future than it is today, I do not believe BitGold’s business model will ever deliver the kind of profits investors expect.
Gold, what’s it worth? One says ‘this’. The other says ‘that’. Is the value of gold based on theory and what everyone knows? Or is is based on the equivalent of a synthetic derivative? Two experts enter, gold couldn’t care less. It’s worth whatever anyone wants to pay for it, just like the bungalow down the street, but less functional.
Gold at the moment is precisely worth $1221.6 per oz.
At any given moment – what a free-market buyer is willing to pay and a free-market seller receive is what something is worth.
This market may not be free – but it is close enough for purposes of my statement
Mish
No disagreement that gold has a value. My issue is that the tone of gold enthusiasts give it a mystical personna. History is use to amplify it. Emotions cloud the discussion because gold is implied to be a special case, when it is just a commodity.
.
Mish Shedlock admits he has a “relationship” with Bitgold.
Oh no! Please say it is not true.
Mish now controlled by the Soros bunch. Next thing someone is going to tell me that the government is also controlled by Soros.
I am controlled by the Soros Bunch
That’s a hoot
Mish,
I think you would do well to acknowledge that Schiff is right about the potential tax consequences of using BitGold for US citizens. My impression from this and your prior post is that Schiff is off base on that, yet the CEO of Bitgold seems to agree with Schiff on potential tax consequences in his response to Schiff. You’d be doing a service to your readers to get informed about these tax issues as someday the IRS may get their hands on these transactions.
Also, in your prior post you questioned why Schiff’s private offshore bank in St. Vincent was never approved for the US. I remember when the bank was created with the deliberate idea of avoiding the US for two main reasons 1. the cost of FATCA compliance 2. avoiding cannibalizing business from Schiff’s US-based businesses.
Keep up the good work; I enjoy your blog very much.
Thanks Zack ..
I already admitted that if someone sold Bitgold to purchase coins it would be taxable.
My point was the strawman proposal was absurd.
Schiff purposely set up a ludicrous example.
This is what I said …
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.
Logically someone would not cash out bitgold, then use the money to buy coins. If someone was stupid enough to do that then yes they would have tax consequences. So would SchiffGold holders. Schiff setup an illogical strawman. But yes, it’s possible. The same applies to SchiffGold. His argument applies to himself.
Schiff may have given his reason for St. Vincent but I believe this is the real reason: He could not meet US regulations. Your reasons come close. He did not want to – or could not meat compliance. BitGold can.
Did you see this comment by Stephane Laporte …
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
I cannot confirm that – but the questions about expense and clunkiness ring true to me.
Mish
Hi Mish,
I don’t see the strawman in Schiff’s points on taxation. It’s germane as many of BitGold’s clients are Americans subject to a capital gain exposure when they sell, whether they take delivery of the physical or not. Of course this applies to Schiff’s clients as well, yet Euro Pacific Bank takes no US clients. If I were you I’d correct/amend the original post which questions Schiff’s comments on taxation in the interest of keeping your readers informed.
RE: Stephane Laporte – what’s your point? I’m not here as an advocate for Schiff’s bank – just adding context to the discussion.
RE: meeting US regulations – you could be right that Schiff’s bank couldn’t meet the requirements, but you’re speculating. For what it’s worth, another bank on the island takes US clients, so it seems to be possible.
I like your work and Schiff’s, but it looks like you’re getting a little carried away with this dispute.
Regards
The gold bugs, which includes Turk and the rest that parade through KWN, have been wrong about gold for the last 4 yrs. It’s not that their intentions are bad, it’s they don’t understand the way the world works. The belief that QE would crush the dollar and send gold to the moon is just one example of their ignorance of global capital flows. One question: what happens to GM if desperate govt’s confiscate gold, again? Dual use items, like bullets and mini bottles may prove more valuable for the average Joe.
Might I point out gold was 250 in 2000. It is 1200+ today. Seems like a decent return to me.
So yes, some people have been wrong for 4 years, and others like Schiff – ridiculously so.
I was clearly on the other side of the high inflation theory since I first started posting in 2003!
The government is not going to physically confiscate gold again. That thought sounds like something that comes from the looney silver camp that believed silver was headed to $200 after it hit $40.
How many gold investors understood the gold story in 2000, or 2009 for that matter? Most jumped on board based on the infinite QE story that started when gold was in the 900’s. In spite of the story that stocks would crash with the dollar and the economy, they have significantly outperformed gold, and will likely continue to do so, because stocks are the only market deep enough to absorb reserves that will flee govt debt.
Who questions their logic, that could never be wrong, and believes conspiracies that can only manipulate gold to the downside and never to the upside? How many gold believers will jump ship when gold test or makes a new low, and misses the big move higher because they heard the same story one too many times?
I am not trying to be critical of you, Turk, Sinclare, Sprott, PCR, and the others who I respect and accurately define the problems. Although, far too many place the blame at the foot of the Fed, instead of govt and especially Congress.
The world is not linear, and most pundits present a one dimensional, if this, than that analysis, and try to make a buck off the masses in the same way a career politician sells hopium for a vote. Whether the govt confiscates gold or not has nothing to do with silver and everything to do with how desperate govt will get to preserve their cushy lifestyle, which based on the current trajectory, looks greater than 50-50. I suppose govt won’t shut down Bitcoin when the time is right, and they want to eliminate cash so the sheeple will have the convenience of electronic money.
How many well-intentioned gold bugs will lose customers for life at just the wrong time because they constantly cried wolf due to not understanding global capital flows? How many establishment hacks will push more people toward Trump because they don’t understand that the masses have finally had enough of the bs.
One has to question why the top financial blogs do not collaborate on a common message to stop the destruction of society by desperate govt’s, hell bent on saving themselves.
One has to question why the top financial blogs do not collaborate on a common message to stop the destruction of society by desperate govt’s, hell bent on saving themselves.
We don’t agree
Schiff is a hyperinflationist so are others
Even Marc Faber thought hyperinflation was coming – He now owns US treasuries
I dismiss calls every day from someone telling me gold is going to $6,000 if not $30,000
On the other side, I openly mocked Elliott Wave founder Robert Prechter for thinking the S&P would fall to 100 or whatever ridiculous call he made
It’s not just well intention gold bugs – Recall Harry Dent’s roaring 2000’s investor – Right at the peak of the market his book came out
After the crash Dent went the other way and is now preaching massive deflation
I have criticized Sinclair many times
Here is one of them
http://mishtalk.com/2009/08/31/countdown-to-dollar-implosion-madness/
How about this timely warning?
I warned Kass not to short treasuries
http://mishtalk.com/2008/01/20/time-to-short-treasuries/
I have made a number of bad calls.
One in particular stands out – I thought the S&P would top at 1500 – oops
But I never told anyone to go short – and unlike others I am not predicting a crash now.
In fact, I warned against that in December. It’s there on the record – in my blog.
A crash might happen and certainly I believe the market is overvalued enough to crash, but I rather suspect the market will do something more like lose 10% a year for four years and chop all the trained dip buyers to smithereens
Will I be right? I don’t know – But I am not like countless others promising Armageddon
I simply state what I believe is a value and what isn’t.
That is pretty much what I have always done.
And I even called the top and bottom of the real estate market in real time. Countless posts can prove that statement.
In private emails I have advised people to buy houses and also not to.
Asking all of us to agree is a mistake. I don’t want to be like them – instead I speak my mind on unions, on republicans, on democrats, on war, and on literally everything.
Speaking out such issues has certainly cost me traffic.
If I was like Schiff my blog traffic would likely go up.
I will take a pass.
Mish
By the way, if every all of us agree – we will all be wrong
You site some of the reasons why you are one of the top two financial blogs, in my mind. When I say “collaborate on a common message” I don’t mean abandon your unique insights. I mean there are common objectives that all sane people could agree – including equally enforcement of the rule of law, term limits, etc. Think of the over-lapping objectives of the Tea Party and OWS, and the current example, Trump, who places the people’s interest above the Party/establishment.