BitGold surges on TSXV debut

If you believe, as Roy Sebag and Josh Crumb do, that the real value in gold is not holding it as an investment but using it as money, then you should check out BitGold (TSXV: XAU), the company they founded that uses an Internet-based technology that connects free vault storage with payment networks.

Sebag, a 29-year-old former hedge fund manager, and Crumb, a 35-year-old former senior metal strategist at Goldman Sachs, have created a financial services platform that allows users to buy gold, store gold and pay for goods and services using gold as the currency, anywhere in the world.

Investors seem to buy their view that gold is a better store of value than currencies, and that the time has come for a new payment system using the precious metal.Since listing at 90¢ on May 13, BitGold’s share price has been rising rapidly, closing at $6.68 on May 19.

“We launched on May 4 and we have about 10,000 users,” Sebag said in an interview on May 15. “In the last two minutes that we’ve been talking, we’ve had twenty sign-ups.”

BitGold doesn’t accept users from the U.S., but it has users from almost every other country, Sebag says, with the most active being Canada, followed by Japan, Germany, the Netherlands and the U.K. BitGold also sees people signing up from Chile, Argentina, Vietnam, Indonesia, Malaysia and Australia, among others. “It’s nuts,” he says. “It’s going viral.”

Early investors backing the idea include the Soros Brothers, Sandstorm Gold (NYSE-MKT: SAND; TSXV: SSL) Sprott and PowerOne (NASDAQ: PWER). The company says it will publish performance indicators each month, including the number of users, cumulative transactions in weights of gold and the number of gold deposits.

“The math of gold is unequivocal,” Crumb says, who holds a degree in engineering and a graduate degree in mineral economics from the Colorado School of Mines. “If people use gold as a currency they are better off, and that’s the important part that we need to educate people about. It’s less understood in the West, but if you’re in a place like Southeast Asia or India, they get it immediately. Even if they don’t understand economics, they understand that gold lasts.”

The BitGold technology allows users to choose where in the world they want their gold physically stored, and connects the securely vaulted gold to international payment services like Visa, MasterCard, Interac, American Express and SWIFT wire transfer, among others.

Sebag explains that as a global asset, gold is recognized as a long-term protector of value, “but has been a poor medium of exchange compared to the advances in money technology.

“We felt that gold needed the modernization and mobilization that’s now happening in the global payments revolution. We have built a financial services platform that is as close to being counterparty-free as possible, enabling economic transactions within the existing global financial system to be settled in full, reserved gold bullion.”

The company’s mission is to make gold accessible and useful in digital payments and secure savings. Setting up a BitGold account is free, and BitGold provides users with a secure vault account to buy gold electronically, or with currency through an ATM network. The platform also allows instant cross-border payments, merchant invoicing and processing for gold, debit-card spending at traditional points of sale and physical gold redemptions.

Users can deposit funds and get gold stored in vaults that are administered by Brinks and insured by Lloyd’s of London, in six different cities: Toronto, London, Zurich, Dubai, Hong Kong and Singapore. Users can pay for goods using that gold, or redeem physical gold from one of the vaults in the form of a 1-kilogram bar, or order gold for delivery in the form of 10-gram cubes that are worth $400.

BitGold makes a 1% fee on every purchase or redemption.

The company applied for a patent for its AURUM technology in October and expects the whole process will take 18 months.

“One of the top-five arguments against gold,” Crumb says, “is that you can’t buy your groceries with gold. They say it’s valuable but not useful. That’s been the biggest impediment. So we thought, ‘Why don’t we solve it?’ Now no one can say you can’t use gold to buy groceries. We’ve solved the problem with technology.”

Dundee Capital Markets notes that the company is not a deposit-taking institution. “BitGold does not take deposits or hold user funds in any way,” analyst Aaron Salz clarifies in a research note. “The company simply offers a platform to acquire, store and transact with gold. Therefore it has no liability or indebtedness to a customer.”

Salz notes that there is little counterparty risk, because the technology only buys and sells gold through the London Bullion Market and COMEX, “meaning each gold bar has a verifiable chain of custody, beginning with the refiner and assayer.”

The analyst also believes that there could be many different avenues for future growth. “AURUM’s utility could go beyond its current use and evolve into a stock trading platform (like Interactive Brokers, iTrade, Questrade, etc.), financial planning software and much more. Once users trust the platform, ancillary services at higher premiums could be offered.”

Together, Sebag and Crumb own 60% of the company’s shares.

When asked if they’re afraid of competitors, Crumb says no. “We truly believe that nobody has thought about it this hard and this long.” Sebag and Crumb met in 2008, “and have been refining the idea for quite a long time.”

“Neither of us need this [financially],” he adds, “but we believe someone’s got to do it. The technology exists to do it — it didn’t before. So we felt obligated to do it. We’ve got to do it.”