SchiffGold, the precious metals brokerage service run by noted gold bug Peter Schiff, plans on expanding its platform capabilities and launching a gold-backed digital currency later this year.
Schiff is well-known for his bullish views on gold, criticisms of quantitative easing and bold predictions on the markets and economy.
Schiff told Finance Magnates that his offshore bank is partnering with another company to launch the currency, envisioned to circulate freely online using Bitcoin’s blockchain. It would be redeemable for real gold or cash through his offshore bank, Euro Pacific Bank, based in St. Vincent and the Grenadines. Customers will also be eligible to spend their physical gold holdings with a mobile payment app, planned for launch in the near future.
The currency’s launch will be the latter stage of SchiffGold’s platform expansion. Since 2012, Schiff’s customers have been able access their gold and silver holdings using pre-paid debit cards tied to their accounts. Later this year, Schiff says those prepaid cards will convert to debit cards, allowing account holders to spend their gold in real-time. They will also be able to use their gold to buy stocks and bonds through the bank’s brokerage subsidiary.
In order to save on fees, when customers use their debit cards, the platform’s default setting will be to spend available fiat balances before liquidating gold. In cases where the merchant actually wants to be paid in gold rather than fiat, account holders would use the mobile payment app instead of using their debit card.
2014 saw the launch of a number of small startups looking to digitize gold through the blockchain. None have really taken off, the only possible exception being BitGold. It has invested heavily in its platform and marketing, securing funding from a number of large investors including Sprott Asset Management.
It too offers the ability to purchase or transfer gold online, and appears to also leverage Bitcoin’s blockchain. Schiff argued that the startup has been overhyped, and questioned the startup’s business model. Some have pointed at BitGold’s lofty valuation, which gained another 14% to $238 million on Monday, and alleged its shares are in a post-IPO bubble. The startup has been giving away free gold to woo users, but it remains to be seen if this will translate into more transactions and greater revenues.
Schiff pointed to BitGold promoting users to convert fiat to gold, only to convert it back to fiat when spent. Nobody really wants to spend gold, he argued further; people buy gold to save it. They may spend it eventually, but not until it is far more valuable than it is today. Having the flexibility to spend gold, but at the same time having the option not to, is the ideal combination, Schiff explained.
Until now, software limitations in his platform made for a cumbersome 2-step process when transacting with gold, which resulted in higher fees. The company is employing upgrades such that the spending of gold is immediately executed on the open market as debit cards are swiped, cutting out the middlemen and bringing down the cost.
He added that while both he and several competitors don’t charge for gold storage, he incurs no costs at his end for the service.
However, the ability to make purchases with SchiffGold is limited to clients of the offshore bank, which is not available to US persons. The new gold-backed digital currency, however, will be available to Americans on the secondary market. They can buy, save and spend the currency, but can’t redeem it for gold. BitGold recently enabled gold purchases in the US, where it plans on adding its mobile app and prepaid card, but gold payments are not available.
Schiff added that technically, there is nothing proprietary about what he, BitGold or other similar services are trying to accomplish. Rather, they are looking to capitalize on what they anticipate as an increasing demand for reliable stores of spendable deposits.
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Still Bullish on Gold
Schiff is known for his bold predictions, some of which have gone well, such as the 2008-09 recession, and others which have not.
Despite gold’s struggles during the past few years, Schiff believes that there are fundamental forces that should push it higher in the long-term. The US economy “is in its worst shape ever,” and in reality, it has not recovered from the financial crisis.
He indicated that a dollar figure for gold prices is hard to predict, and furthermore, the rise may be delayed due to continued negative sentiment on the precious metal and false beliefs that the economy is recovering.
Still Bearish on Bitcoin
Last year, his company, then called Euro Pacific Precious Metals, began accepting bitcoin for payment through BitPay. Like with most merchant integrations, the company receives such payments as fiat, the bitcoin absorbed by the payments processor.
Schiff believes in the power of Bitcoin’s blockchain, but sees no value in bitcoin as a currency or investment. Over time, he sees bitcoin falling in value due to its increasing supply and what he anticipates as decreasing demand.
In the past, parallels have been drawn between gold and bitcoin due to their constrained supply. Indeed, several of the startups marketing both have drawn this parallel in touting them as long-term stores of value. Schiff argues that bitcoin and most other digital currencies are not backed by anything of intrinsic value, whereas gold is physically sought for real-world use.
He added that the main value-add of accepting bitcoin to date has been the speed of transaction execution. Payments are settled in near-real-time, whereas wire transfers can take several hours. He hasn’t realized much savings in credit card fees, since most gold purchases have been made via wire transfer.
Bitcoin will eventually be entirely regulated, he predicted. But regulation will be its downfall, as its whole raison d’etre is to skirt government control.
Silver has even greater upside than gold, according to Schiff, although it costs more to store through his firm than gold. Silver has traditionally amplified gold’s moves in both directions, analogous to litecoin’s moves relative to bitcoin.
He sees potential short-term weakness in the equity markets, but they will be propelled higher by additional rounds of quantitative easing. The era of near-zero interest rates will continue well into the foreseeable future, although the Fed may “ceremonially” raise rates for a brief period.
Foreign markets reacted more than necessary to fears of a rate increase, he said. Therefore, one can expect an even greater bounce than with US equities, once it becomes clear that the era of quantitative easing will stick around for a while.