Precious metals dealers may avoid accepting bitcoin in payment for gold, thanks to regulatory uncertainty, according to industry insiders.
That’s despite a warm welcome from some gold retailers who will happily trade one of the world’s oldest and most recognizable currencies for a volatile upstart on the global financial stage.
Gold retailer Morgan Gold told IBTimes in an interview that questions over anti-money laundering rules have stopped them from accepting bitcoins as payment.
“My concern with bitcoin and the gold business would be the reporting laws that exist for the current gold industry,” said Morgan Gold CEO David Cloyed to IBTimes. “There’s a lot of questions that haven’t been answered about bitcoin and what it represents in terms of currency transactions as they relate to gold.”
Bitcoin’s anonymous nature and association with illegal drugs marketplace Silk Road make it vulnerable to money launderers, who hide the origins of cash to mask ill-gotten gains.
In an effort to root out money laundering, the Internal Revenue Service requires cash payments of more than $10,000 to be reported by businesses, regardless of what they sell.
Because regulatory stakes are high, gold companies must be cautious about how they deal with bitcoin, said Morgan Gold’s chief strategist, Edmund Moy.
As it turns out, regulators told IBTimes they don’t consider bitcoin payments akin to cash payments.
The relevant Form 8300 is “specific about what is included as “cash,” and those definitions do not include bitcoin,” wrote the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) spokesman Stephen Hudak to IBTimes.
FinCEN, which combats money laundering for the Treasury, contrasted virtual currencies and actual currencies back in March 2013. But a recent high-profile bitcoin bust has refocused regulatory attention on bitcoin, amid complaints from the broader finance sector about the regulatory questions bitcoin raises. FinCEN has sent out letters warning unregistered bitcoin businesses about compliance, Reuters reported recently.
Startup online gold retailer CBMint plans to accept bitcoin shortly. But its chief financial officer, Chris Martinez, told IBTimes that he’d likely submit the relevant Form 8300 for gold bitcoin purchases over $10,000, which regulators say isn’t necessary.
That underscores some of the confusion in the industry.
Martinez also pointed out that accepting bitcoin automatically makes a business a money service business under the U.S. Bank Secrecy Act. That has led to trouble with CBMint’s current bank, JPMorgan Chase & Co.'s (NYSE:JPM) popular Chase arm, which told Martinez it won’t do business with CBMint if the gold seller accepts bitcoin.
“If we decide to accept bitcoin in the future, we will likely have to look elsewhere” for a bank, Martinez said to IBTimes. JPMorgan is not alone in hesitating to provide services to bitcoin businesses, according to MarketWatch.
The bitcoin gold trade may all be moot, in any case.
One prominent national gold dealer who accepts bitcoin told IBTimes: “We have received several inquiries about bitcoin but are yet to have any individuals that actually purchased gold with bitcoin.” The company declined to speak on the record about bitcoin-gold regulations.
On Wednesday, one troy ounce of gold in New York cost up to $1,292, or just less than two bitcoins.
Gold dealers typically accept cash, checks and wire transfers. Some fear fraudulent credit card payments, but bitcoin could help reduce those concerns, according to Moy.
Bullion dealers have other reporting requirements specific to the industry, though these are complex and technical. Multiple forms could potentially be required by government regulators, said Cloyed.
The National Taxpayer Advocate, an internal watchdog for the IRS, said in a January report that the IRS hasn’t yet clarified bitcoin-related rules.
“The lack of clear answers to basic questions such as when and how taxpayers should report gains and losses on digital currency transactions probably encourages tax avoidance,” concluded the report.