When I wrote about gold two weeks ago, one of our members asked my opinion as to whether the recent takeover of GoldMoney by a Canadian company, BitGold, should be a concern to GoldMoney customers. I was on vacation when the acquisition was announced and had missed the news. As a GoldMoney customer myself, and because we had introduced the company to our readers (scroll down to the section headed Digital Gold Currency) in 2009 as a player in the digital gold niche, I wanted to find out more.
First, who is BitGold? It's a relatively new Canadian company that aspires to create a way to pay for goods and services with gold rather than currency. Imagine a debit card linked to your holdings in a gold-storage account rather than your checking account. It has also been suggested it would function something like having a PayPal account. Here's an excerpt from a review I found at BitCoin Magazine:
Founded in 2014, BitGold launched with the mission to make gold payments practical by digitizing them through Bitcoin’s payment network. Since then, the startup has received a lot of attention, as well as investment. The gold payment network has raised several million dollars from large players in the gold and financial industries, including Alex and Gregory Soros’ fund, Soros Brothers Investments, and Eric Sprott’s Sprott Inc....
According to a video produced by the startup, the payment network will serve three main use cases: greater gold functionality for gold investors, online payments, and international money transfers (remittances). In the video, Sebag [CEO of BitGold] said users will be able to send gold to any other BitGold user for free, no matter where that user is (after an initial cost of one percent to get the gold into the network). The founders of the company envision a future where migrants would avoid fees charged by remittance providers by sending gold through the startup.
For some, the mention of the Soros' connection (the fund is run by George Soros' sons) is a negative. I don't know if that's merely a reaction to his famously liberal politics or due to some concern that he will somehow profit at the expense of BitGold shareholders. On the other hand it could be interpreted as a positive, because George Soros has proven to be a very savvy global investor over the years. If his family sees promise in this new endeavor, I would assume it has some merit. Either way, at this point I see no reason to be concerned by the Soros' involvement. After all, GoldMoney clients are merely using its gold storage service; we're not becoming shareholders in BitGold.
Here's the leadoff from the recent announcement by GoldMoney:
We would like to advise you that on Friday 22 May BitGold Inc., a publicly traded Canadian company, entered into an acquisition agreement to purchase the operations and intellectual property of GoldMoney Network Limited and its subsidiaries… GoldMoney will continue to operate as usual and offer an easy method for its customers to buy precious metals online and safely store them. Over time synergies between the two companies will be leveraged to improve the customer offering with new products and more competitive services and pricing (emphasis added).
Of course, the big question is" Will there indeed be synergies that will improve GoldMoney's service and pricing? Not everyone thinks so:
The deal has a number of aspects which absolutely demand comment.... GoldMoney's recent trading history was (recently) published by BitGold. It had to tell the stock-market what it had acquired. Those results made scary reading.
GoldMoney's sales have collapsed – by 78.7% over three years.
It lost £9.4 million in just one year – 2014.
Its net assets fell from £25.4m in 2013 to £13.1m in 2015.
At its March 2015 year-end it is still posting losses.
The first thing we should understand is how GoldMoney lost so much money in 2014. The answer is presumably a combination of things but mainly that they bet their balance sheet on gold....
In my view the least attractive aspect of the deal is that the working capital in the business is being stripped, leaving GoldMoney operating on much thinner buffers than it has been – even since these significant losses.... So instead of combining financial strength for the two businesses going forward, the effect of the asset strip on GoldMoney is to reduce the capital buffers down from £20.5m to £9.5m across both GoldMoney and BitGold businesses. With 870 tonnes of customer metal to look after, and bold investment and expansion plans for BitGold, this is seriously light on capital.
The linked article makes several other negative comments regarding GoldMoney. However, as Proverbs 18:17 points out: "In a lawsuit the first to speak seems right, until someone comes forward and cross-examines." It turns out that the critical evaluation above was written by GoldMoney's chief competitor, Paul Tustain (CEO of BullionVault), hardly an unbiased observer. The very next day, BitGold fought back:
Every one of (Tustain's) attacks at our financials and business are easily rebutted, but as a fiduciary, he should have been much more cautious about throwing rocks from a glass house.
BitGold and now GoldMoney, once the transaction is closed, are publicly traded on the Toronto Stock Exchange. We have an independent board of directors, a code of ethics, and we are audited by two big four accounting firms: PwC and Deloitte. On the GoldMoney side, we complete an ISAE Audit regularly, as one of our fundamental governance practices to provide our customers with assurances of integrity that their metal is being safely stored for them. GoldMoney is licensed and regulated by the Jersey Financial Services Commission, the only major precious metal dealer to have this additional supervision beyond a company's internal controls....
However, most bizarre is the financial comparisons made by Mr. Tustain and that somehow BullionVault is more financially formidable than BitGold/GoldMoney. BitGold/GoldMoney's market valuation is a quarter of a billion dollars and is backed by investors who are some of the world's most successful wealth managers and families. If we needed to, we could raise more capital than BullionVault's cumulative earnings since inception from our own board of directors....
Our service at BitGold is significantly less expensive than BullionVault. They charge a minimum storage fee of $4 per month for gold and $8 for silver. That means if you own $1000 worth of each metal you are paying 4% and 9.6% per annum respectively just for storage! That same $1,000 worth of metal would carry no storage fees at BitGold and between 0.12%-0.39% fees through GoldMoney.
James Turk, founder of GoldMoney and the one with whom I had several conversations back in 2009, also weighed in:
BitGold just completed a financing for C$18 million, which included some top name institutional investors.... With its IT expertise, C$35 million of cash in the bank and other resources, the combined BitGold/GoldMoney has resources far beyond what GoldMoney alone was able to put together. So I really see the combined company as a true 1+1=3 situation - the whole is greater than the sum of its parts.
All of us in GoldMoney and Roy and his team in BitGold have the same objective - to enable digital gold currency to circulate in global online commerce as an alternative choice to national currencies. My expectation is that our combined company will take GoldMoney up to the next level.
So as you can see, the back-and-forth between BitGold and its critics has been, as one article described it with a fair degree of understatement, "lively."
Most of the articles I found addressed the pros/cons of BitGold as an investment, as if I was considering becoming a shareholder. But as I indicated above, that's not my intent. I'm using GoldMoney for the ease and low cost of storing a small amount of physical gold that I own.
And as James Turk has pointed out: "GoldMoney will continue to operate in Jersey as a wholly-owned subsidiary of the Toronto parent. It will have the same governance procedures and controls that enabled GoldMoney to build its business. So nothing really changes in that regard."
At this stage, I see no reason to move my business from BitGold/GoldMoney elsewhere. I must admit a bias, however. Based on my experience with Turk, I view him as a knowledgeable and honest man. I don't believe he would do anything to damage the integrity of GoldMoney or the legacy he built there. So, a large measure of my current contentment to continue with GoldMoney is colored by that assessment.
Feel free to weigh in below with your comments. Contrary opinions are welcome.