Gold News

Tulips, Railways and Why We Don't Take Bitcoin

No stocks, bonds, seashells or Yap stones either please...
 
ONE KEY requirement of money, writes Adrian Ash at BullionVault, is that it doesn't drop 27% of its purchasing power inside 4 days...
 
...only to regain all that drop again in the following 72 hours.
 
This kind of hyper-volatility signalled the death of the German Mark amid the country's economic collapse following World War I. 
 
It's also what has happened to Bitcoin since its latest all-time high of Wednesday last week. 
 
"Bitcoin: Money of the future?" asks this neat little video which just won a competition run by the European Central Bank. 
 
"Nope," comes the video's answer...and pretty much solely by way of Bitcoin's huge volatility to date.
 
Table of daily volatility vs. the US Dollar (last 5 years) for Euro, gold, S&P500, Bitcoin. Source: BullionVault
 
But while crypto currencies more broadly are failing to find much monetary use outside the trade in illicit stuff online (for which even politicians can see they are perfect), they will no doubt play some role in our legal monetary future.
 
  • Coins began replacing unwritten social debts in the 7th Century BC...
  • Paper notes acted as a receipt for gold coin from the Middle Ages...
  • Today's contactless cards now make both coins and paper redundant (as well as the cashier at the till) as far as the vast majority of shoppers are concerned. 
Whatever the social, economic and political risks of blindly choosing to abolish cash like this, the fact is that money is a tool which humanity has constantly changed and re-invented.
 
Indeed, the blockchain technology underpinning today's crypto-currencies...with separate systems all processing and recording each transaction rather than a licensed bank getting in the middle with its fees...is showing strong appeal to central banks like the ECB itself. 
 
There's no idea so hot, in other words, that central bankers can't try to make it dull. But meanwhile, as a handful of customers are asking again, why doesn't BullionVault accept Bitcoin...so that you can trade crypto for gold, silver or platinum on the internet's No.1 precious metals exchange? 
 
Well, BullionVault seeks to help people get out of currency...and into gold or silver or platinum... as a secure and cost-effective store of value. 
 
Liquidity on the way out is paramount, back into cash that's ready for spending or converting into other assets elsewhere as you choose. Building new payment mechanisms, or enabling customers to store value in currencies different from the 4 funding and trading currencies we offer (or indeed in other assets) is not what we do. 
 
If you want to sell your gold to buy stockmarket shares or a new house, BullionVault will enable the first leg of that trade at the very lowest costs. For the second part, you will of course want to find the best value process for yourself. 
 
That's why, for instance, we don't offer Swiss Francs as a funding or trading currency, despite frequent requests over the years. 
 
We don't accept equities, bonds, seashells, cigarettes or 5-ton lumps of stone either.
 
Time was that a customer would say "Gold is a safe haven, and the Swiss Franc is too. Why can't I trade the one for the other on BullionVault?" 
 
The Swiss central bank has since worked to destroy the Franc's reputation for stability, of course. Like every other monetary authority, it wants cheap money to juice the economy...no matter the cost to wage-earners and savers and the country's international standing.
 
But replace "Swiss Franc" with "Bitcoin" in that question...and replace "safe haven" with "beyond government control"...and the essence of the occasional customer question is the same. So too is BullionVault's reply.
 
Dollars, Euros, Sterling and Yen are the currencies quoted and dealt by the professional wholesale bullion market. It's the deep liquidity and low costs of that market...free from costly FX transactions...to which BullionVault seeks to give its users access. 
 
Equally important, private households in the UK, Eurozone and Dollar-zone countries between them represent by far the largest markets currently available to us. (Most other Asian households remain precluded by exchange controls.) We couldn't hope to achieve the same depth of bids/offers from customers in other, smaller currencies...and open competitiveness and orderly markets are a critical part of our low-cost proposition to gold, silver and platinum investors like you. 
 
Indeed, outside the 3 major currencies we've accepted since launching in 2005, only the Japanese Yen has been added...and only because it has the depth and liquidity we need to ensure low friction and low costs for ourselves and our users. 
 
So, while we haven't missed the interest, excitement and innovation building around Bitcoin since its invention in 2009, we still don't believe it currently offers BullionVault any commercial opportunity. 
 
Together, our expertise and narrow focus are what enable our world-beating liquidity and low costs. Add what clients repeatedly tell us is great customer service, and we believe it is BullionVault's small ambition to be the best in physical precious metals which makes us the largest provider to private investors anywhere on the internet. 
 
All this said, there is most definitely something potentially world-changing in blockchain and perhaps crypto-currency technology. This latest bubble (and bubble it is) also maps the boom-bust seen at the birth of other revolutionary technologies and tools in history. 
 
Think of listed shares and government bond markets (the French Mississippi and then South Sea Bubble 1720)...or railways (the British bubble of the 1840s)...investment trusts (Wall Street's bubble and then Great Crash 1929)...or of course the internet (the DotCom Bubble and crash of 1996-2003). 
 
So which is it for Bitcoin? Tulips or railways? 
 
Again, we are not experts in this new realm. (For someone who is, check out Beyond Bitcoin by David Birch.) But useless tulips and very useful railways both destroyed herd investors who bought too late into the initial hype...and didn't get out before it burst.
 
As a profitable and sustainable business meantime, committed to serving customers the very best we can, we remain highly cautious. Our experience and success to date both suggest that our customers really wouldn't want it any other way. 
 
From launch in 2005 (and that was after 3 years' development) we only added silver in 2010, with platinum following only this year. Our sister business WhiskyInvestDirect...whilst offering a very different store of value to clients...is a low-cost applicaton of our existing technology and business model. 
 
Secure storage of physical goods...fully insured in professional facilities...all ready for resale at very low cost, and for full market value, the moment you choose.
 
This explains our reticence. Good luck if you buy Bitcoin by selling some of your precious metal. BullionVault makes the first part simpler, safer and cheaper than anywhere else. And for transferring funds out, back to your direct control within your own full-service bank account, the world's existing and dominant cash-clearing systems work very well...at relatively low cost...with reversible payments enabling deep trust and confidence billions of times a day. 
 
Crypto-currencies are, at present, a very long way from offering any competition to that. 
 
Well, not outside all those clickbait headlines at least.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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