Trading Gold For Bitcoins: Dubious Trade Or Digital Trend?

  @natrudy on December 30 2013 12:53 PM
Bitcoins
Bitcoins Reuters

Bitcoin Sept 2013 Bitcoin enthusiast Mike Caldwell poses in his office in Sandy, Utah, September 17, 2013.  Reuters

Sellers of the world’s favorite precious metal may start accepting bitcoin in exchange for their gold, driven by investment interest in China and a desire to integrate digital sales.

Nevada’s Anthem Vault, which sells gold and silver bullion, already accepts bitcoin payments of up to $5,000 per day per account, company CEO Anthem Blanchard told IBTimes.

Smaller gold startups, like e-commerce precious metals retailer CBMint, plan to accept bitcoin by the second quarter of 2014.

Bitcoin payments will help CBMint avoid payment-processing fees and may attract gold buyers who are wary of government-backed currencies, CBMint Chief Financial Officer Chris Martinez told IBTimes in an email.

“While many of our competitors in the precious metals retail space are behind the times, we believe that bitcoin will become a standard for online commerce,” he said. CBMint launched in November, aiming to fuse e-commerce with precious metals retailing.

“As for the risks, they don’t worry us. Bitcoin is volatile right now, but the hedging options available are getting better every day. The regulatory environment is also uncertain, but we are keeping our ear to the ground with regards to new legislation.”

Anthem Vault accepts bitcoin partly because there’s no risk of bad payments, unlike risky debit and credit card payments, especially crucial for large orders of gold and silver.

Market synergy in China, the world’s largest bitcoin market and likely the world’s top consumer of gold in 2013, is another key attraction. China hosts BTC China, the world’s largest bitcoin exchange by trading volume.

“Given the [foreign] exchange controls in place in China and Chinese affinity to gold as a store of value, I think there is much potential,” wrote Blanchard in an email. His company plans an international push in the first quarter of 2014, including in China, and has sold $1 million worth of inventory since its April 2013 launch.

Both bitcoin and gold have seen wild volatility in 2013, with bitcoin tumbling more than 50 percent in one day earlier this month. It has traded from over $1,000 per bitcoin to lows of $380. On Monday the digital currency traded at $732 per unit. Gold prices have fallen more than 25 percent this year, to open at $1,214 per ounce in New York on Monday.

BTC China stopped accepting Chinese yuan deposits earlier in December, however, reports the New York Times, dealing another blow to prices.

But Anthem Vault defers its exchange rate risk to processing company Coin Base, said Blanchard, meaning the company is immune to bitcoin’s wild rate fluctuations.

Larger precious metals sellers are more skeptical of bitcoin, though.

“We want stability in our currencies…Bitcoin is not stable. Whether it’s a bubble or not, I think it’s a very dangerous form of currency,” Lear Capital CEO Scott Carter told IBTimes. Lear Capital earned $350 million in sales in 2011 and doesn’t accept bitcoin.

Even if bitcoin owners may benefit from speculating on price movements, accepting bitcoin for commerce is a terrible idea, said Carter.

Both bitcoin and gold are sometimes viewed as a hedge against conventional currency fluctuations. Gold is supposed to protect against inflation, which experts predicted would rise in an era of global quantitative easing but which hasn’t yet materialized in the U.S.   

Major precious metals seller Kitco doesn’t yet accept bitcoin for its bullion and precious coins, according to its website, though it keeps tabs on the currency’s exchange rate. Bitcoin has even been priced directly in gold on one website, reports Business Insider.

Others in the gold-for-bitcoin trade have faced banking problems. San Diego’s Coinabul, a marketplace specializing in bitcoin and gold, had bank accounts shut down in July, reports Forbes. Other players in this space include Agora Commodities, which sells a silver bitcoin dollar, and Gold Silver Bitcoin. Anthem Vault sells gold via bitcoin in increments as small as $25.

For brave but trendy entrepreneurs, bitcoin represents a major selling opportunity, despite skepticism from industry veterans.

“We view bitcoin as the greatest opportunity in our industry since the advent of the Web,” said Martinez. He’ll track bitcoin gold sales metrics to see what gold investors think of the payment channel. Gold and silver did well on Bitcoin Black Friday, reports Business Insider. 

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