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J Taylor's weekly hotline message: Bitgold (V.XAU)

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Click to enlargeClick to enlargeJ Taylor’s WWW.MININGSTOCKS.COM

Weekly Hotline Message (Now in our 34th Year) June 19, 2015

New Recommendation
BitGold Inc.

Click to enlargeBusiness: Runs a PayPal-like payment platform using gold as a single common currency

Traded Toronto: XAU
Shares Outstanding(1): 54,279,885
Initial Recommendation 6/19/15: US$3.27
Price 7/15/15: US$4.60
Market Cap: US$250 million
Founders Ownership (Approximate)(2): >20,000,000
Gold Money Holdings at Closing(3): 11,160,000
Approximately Float(4): <3,000,000
Cash Resources (Approximate): $30 million
Progress Rating: A1
Phone: 800-854-7418
Web Site:

(1)Share count is after closing of a C$21 million bought deal financing on June 16, 2015, and includes 11.1 million shares to be issued to GoldMoney shareholders upon closing of GoldMoney acquisition. (2)Has a three-year hold restriction. (3)Has a one- year hold restriction. (4)Major institutional shareholders include Dundee Capital Partners, Sprott, PowerOne, Sandstorm, Clarus, GMP Securities, Canaccord Genuity, and Soros Brothers Investments.

I had met Roy Sebag, the CEO of BitGold Inc., at the PDAC this past March at the Sandstorm booth. We had a very nice but brief discussion about this new, soon-to-go-public company but it wasn’t until I learned that my long time friend James Turk and his shareholders were agreeing to be acquired by BitGold Inc., that I really started to pay serious attention to this company. And I’m sure glad I did. Both James Turk—founder of GoldMoney—and Roy Sebag—co-founder of BitGold—were my guests on my radio show last week. And I strongly suggest you listen to that discussion here a soon as possible because this is a most exciting story. Here is the link to my thorough discussion with James Turk and Roy Sebag, This discussion provided me with a level of understanding of BitGold that had me rushing out to buy the stock this week through my TD Ameritrade account.

Everyone Needs to Use BitGold Because It Saves Money and Reduces All Manner of Risk

What makes this stock so exciting is not that it appeals to gold bugs. What makes BitGold so exciting to me is that it can do everything PayPal can do, but it can do it far better. The only question is how soon the management of this company can get people to understand that fact and to start using it. With a very low burn rate of about $200,000 per month, BitGold believes that burn level should be adequate to handle the

Click to enlargeClick to enlargeTAYLOR HARD MONEY ADVISORS, INC. PO Box 780555, Maspeth, NY 11378 (718) 457-1426 June 19, 2015

Click to enlargefirst 30,000 customers due to scalable infrastructure. Well guess what! On June 4 the company announced it already had 33,014 users since it started operating in 2014. Because BitGold is in its infancy and because so many soon-to-be-delivered services have not yet been launched, transaction volume is still low. For example, so far this year to June 4, transaction was 28,881 grams of gold, or just under a thousand ounces of gold. To put that in dollar terms, at $1,200 gold that amounts to less than $1.2 million in payment volume. However, this month the company is in the process of launching the following enhancements to the BitGold platform:

• Mobile application for Android and iOS devices
• Debit card in private beta
• Live price alerts in 106 currencies
• Seller tools in beta (BitGold checkout button, seller invoicing)

But here are some of the reasons why using BitGold makes total sense for virtually everyone to use.

1. Over the longer run, the gold in your BitGold account will gain value, vis-à-vis any and all currencies, even the U.S. dollar. In my interview with Roy he told the story of a study he and his partner did where they took the salary net of taxes earned by a secretary and applied the net proceeds to the purchase of gold over a 10- and 15-year period of time. From that gold account, all her bills were paid. At the end of the various periods within 15 years, the account was worth 5 to
Click to enlarge
10 times more than it would have been had her salary been kept in dollars. Of course, if she were paid in weaker currencies, the positive results from exchanging fiat into gold would have been even more positively
Each BitGold holder will receive a credit or debit card, the front and back of which are displayed on your left. The back of the BitGold card states, “We make
gold accessible for savings and payments. Buy • Redeem • Send • Accept • Spend.”

2. When you have gold in your BitGold account, you own that money and it is not at risk from bank failure. You may think you own your money when it is in a bank. But that’s not true. Legally you are an unsecured creditor to the bank. You may recall that when the Cyprus banking crisis took place a couple of years back, bitcoin suddenly took off because people were looking for ways to get their money out of Cyprus and transferred into safe havens. Right now, massive amounts of money are being withdrawn from banks in Greece because the public is aware that the banks are essentially broke and that the depositors’ money is at risk. BitGold is not bitcoin, because when you transfer your fiat money into BitGold you hold physical, allocated, redeemable, insured gold. Because gold’s value does not depend on the ability of other people to meet their debt obligations, your wealth is much safer at BitGold than in a bank. And lest you think you can depend on FDIC insurance in the U.S., think again, because our government along with other Western governments is planning bail-ins for you in the U.S. as well, just in case we have another 2008-09 event.

3. It provides safety for unbanked poor people. Millions of poor people around the world do not have access to bank accounts or to the “strong U.S. dollar,” but a very large and growing number of them have smartphones that can be used to transact business including access to open a BitGold account from which they can buy and sell goods and services. In the U.S. alone there are 30 or 40 million unbanked people who pay extra high fees to have their checks cashed. A system in which

Click to enlargeemployers credit BitGold accounts of their employees could save huge amounts of money for people in the lower income ranks and provide access to safe gold accounts for people who would otherwise be forced to use weaker currency accounts.

4. Merchants can benefit from using BitGold for the following reasons:

a. Fees will be less expensive than for BitGold merchant accounts because BitGold eliminates middle players in the transaction. If two merchants have BitGold accounts there are only three participants in a transaction. For instance, when an Indian farmer is selling tomatoes to a grocery store in Japan, there are only three parties involved—the Indian farmer, BitGold in the middle, and the Japanese grocery store. In a traditional transaction, there would be at least five participants, because in addition to the farmer and the grocery store, the farmer would need an Indian bank to trade rupees for dollars, and the grocery store would need a Japanese bank to turn dollars into yen. Using BitGold, the trade would cost the buyer 1% and the seller 1%, with BitGold earning 2%. That compares favorably with a lowest possible transaction fee for high- volume participants of 2.5% and more often 3% to 4% or higher.
b. The farmer gets paid instantly rather than in three days in a normal account. In the example above, with both buyer and seller holding BitGold accounts, the transaction can be settled at the very moment the buyers and sellers agree to the transaction.
c. Instant settlement negates any foreign exchange risks over the three-day payment period. At the very moment the farmer and grocery store agree on the purchase they can price it off of the gold price at that time in terms of their local currency. And at that instant both parties know exactly what the price in terms of gold (and their own currencies) will be. Over a three-day period of time, a normal transaction can be subjected to enormous volatility, thus greatly increasing the risk of the transaction.

5. Financial transactions can use BitGold thus eliminating foreign exchange risks in high- frequency trading accounts. From the perspective as a shareholder of BitGold, I think this application is very exciting because of the enormity of trades in this sector.

6. Also Gold ETF accounts could just as easily use BitGold as buy a gold ETF through their brokerage accounts.

Potential Profits for BitGold?

I put this question to Roy Sebag in my interview with him. Keeping in mind that BitGold is far superior to PayPal, Roy quoted the following PayPal statistics for me, which I think give some idea of just how big the potential prize may be for BitGold.

• There are 160 million PayPal users
• The average size of their accounts is $64
• That $64 account turns over 25 times resulting in $250 billion of revenues per day
• That results in $4 billion per year in operating income for PayPal

Yes, the PayPal brand is well known and BitGold is just now getting started. So the big challenge for BitGold is scaling up to size. I think given the heavy duty financial firepower behind it, BitGold can succeed in scaling up. Whether it can match or succeed PayPal, only time will tell. But I think that is a possibility, which is one reason I am so bullish on this stock, in addition to the fact that the company has a strong balance sheet and a mere 2 million to 3 million shares in the float.

But PayPal operates in fiat money, not gold. And so it has all the disadvantages noted above for the Indian tomato farmer and Japanese grocer noted above. BitGold will lower the cost and reduce counter party risk

Click to enlargeas well as currency risk over the three-day period that is eliminated by instant transactions in gold enabled by the BitGold platform.

Tax Treatment

In order to get the BitGold system permitted, BitGold had to provide a Know Your Customer system as well as a system that can accurately calculate gains and losses from gold holdings. Both systems are now in place. And BitGold is actually operating in Canada and the U.K. now. Roy told me earlier today that by next Friday the system will be up and running in the U.S. as well. So over the next couple of weeks if you are a U.S. citizen you should be able to obtain a BitGold debit card and use it for any transaction. It is my understanding that BitGold’s system will be able to calculate the sum of all gold-denominated transactions in dollar terms or whatever currency your government uses and make that report available for tax reporting purposes and I believe on an ongoing basis. This was a major hurdle to clear in order to launch BitGold as a legal enterprise. But Roy assured me it is now in place.

Exciting Additions for GoldMoney

If you are a gold money holder, you will soon be able to obtain a gold debit card if you wish to do so. You can use that to spend money from your GoldMoney account, although there is no direct payment system from GoldMoney to BitGold, I believe, to ensure security against what on average are $80,000 sized gold holdings at GoldMoney. However, in addition to an impending debit card, judging from Roy’s remarks, there will be services provided to GoldMoney holders that look very attractive including the following:

• A Noble Metals account in which you will be able to own equal amount of gold, silver, platinum, and palladium
• Price Alerts notices
• Standing orders
• Limit orders
• Mobile applications
• A Trading desk for large institutions

Security Issues – What are the risks of your account being hacked in BitGold or GoldMoney? I would say a lot lower than the risk of having your credit card or bank account hacked, which seems to happen all too frequently. First of all, GoldMoney has operated for 15 years and no one has ever lost any money. To put that in context, even with the recent decline in gold, silver, platinum, and palladium holders at GoldMoney, there has been a lot of value circulating through GoldMoney with pound sterling values well in excess of $2.3 billion worth of metal sales and storage fees taken in by GoldMoney. To not have had a single loss in 15 years is hard to beat.

Click to enlarge
Regarding the safety of BitGold, as a new company it has not had a chance to prove itself yet, but as Roy explained, with gold sitting in the middle of these transactions and by eliminating counter party risks, there is virtually no
chance of any single account losing the physical metal. If I owned a BitGold account, the only person who has access to that gold is me. And there are no counter parties to deal with as you have in normal fiat money transactions so there are fewer possibilities of having password or information hacking taking

Click to enlargeplace in your account than in normal banking accounts. Moreover, the IT people on the staff are among the best in the world, and on top of that, BitGold has their accounts insured. I will be the first to admit IT is not my strong point, so anyone who cares to challenge me on this issue, feel free to do so or, better yet, contact the company because they will be able discuss it with you more knowledgeably. Nothing is sure in this life except death and taxes, but I’m personally satisfied that the IT security at GoldMoney as well as at BitGold is as good as you can achieve within the four dimensions of time and space.


Roy Sebag is the founder and team leader of BitGold. He has been an active investor and portfolio manager for over a decade specializing in distressed, event-driven, and natural resource investments. Throughout his career, he has correctly predicted important investment and economic themes before they materializized resulting in risk-adjusted returns that significantly outperformed market indexes. Roy loves to consume information and iss a voracious reader of all things science, history, and economics.

Josh Crumb is the co-founder and Chief Strategy Officer of BitGold. He is an entrepreneur with a background in early stage global business. Josh was previously the Senior Metals Strategist at Goldman Sachs in the Global Economics, Commodities and Strategies research division in London. He also held various positions within the Lundin group of companies, serving as Director of Corporate Development and SpecialProject Analyst for group chairman Lukas Lundin. Currently, Josh is a director of three Canadian listed public companies and plays a large role in many philanthropic organizations. He holds a Master of Science degree in Mineral Economics, a Graduate Certificate in International Political Economy, and a Bachelor of Science degree in Engineering from the Colorado School of Mines.

Alessandro “Alex” Premoli is the Chief Technology Officer of BitGold. He is the architect of the BitGold proprietary platform, and leads the BitGold development team in Milan, Italy. Over the last decade, he has developed encrypted storage and messaging systems for highly sensitive, data-intensive organizations, gaining comprehensive experience in security, cryptography and digital signature solutions. Alex has been an important member of the cryptocurrency community for several years and has been involved in the Ripple financial protocol since its early days. He is passionate about open-source projects and is an active committer to the FreeBSD Project under the moniker “Alex Dupre.” Alex holds a Masters Degree in Informatics from the University of Milano-Bicocca.

Daniel Crandall is a CPA, CA and is the CFO of BitGold. Dan has provided CFO, accounting, regulatory compliance, and management advisory services to numerous issuers on the TSX, TSX-Venture and other Canadian and US exchanges. Previously, he was a Manager at Collins Barrow Toronto LLP, a public accounting firm where he worked for over five years. He holds an Honours Bachelor of Accounting (Co- op) degree from Brock University.

Jason Loewe is the V.P. of Operations and Compliance with BitGold. He oversees anti-money laundering compliance and overall transaction operations. Jason previously headed corporate compliance at IPC Securities, a subsidiary of Power Financial, one of the largest corporations in Canada with over
$500 billion in assets. He was also the regional compliance manager at Assante Wealth, one of the largest wealth management firms in Canada with over $28 Billion in assets under administration.

Alex Potichnyj is VP of Marketing and Strategy with BitGold. He brings years of experience leading global marketing programs. Alex managed the global display and search marketing for OANDA developing multi-lingual strategies in many different regions within EMEA, APAC, and AMER. He is agraduate of the University of Guelph, and holds a degree in Marketing. He takes pleasure in disrupting the traditional gold market and become a leader in the digital currency space.

Click to enlargeThe Bottom Line

There were many more issues discussed with Roy Sebag and James Turk, including the synergies between the two companies that caused them to merge. What makes me most excited about this company is the fact that it will benefit virtually everyone to use this service in one way or another. For reasons discussed above, BitGold is a superior payment system to PayPal. The key to success for BitGold will be marketing. I have spent a fair amount of time interviewing James Turk and Roy Sebag so I feel I have a good grasp of this company’s potential. But the challenge will be to overcome a human condition known as inertia. If they can do that, the upside is virtually unlimited. Perhaps the best bet will be in high-frequency high- volume foreign exchange traders for reasons of counter party risks and reduction of transaction costs. Not only would traders be able to quickly grasp the advantages of using gold as a medium of exchange but the financial savvy of BitGold’s management combined with the enormous financial fire power of its supporters and shareholders may be able to kick start this company into high gear early on. Then over time, as noted above, BitGold’s services may be used for the advantage of people on the lower end of the income scale as well. This is one of the most exciting IT stories I have been keyed into. It is well funded. The families behind it are among the wealthiest in the world, and the management in my view has the imagination, energy, and genius to turn this into a gigantic success. No guarantees that will happen. But I think there is a good chance for success.

Another event that could fast track BitGold is the impending national bankruptcy of Greece. As I was writing this report and watching the news I’m learning that Greek citizens are removing massive amounts of money from their bank accounts such that the banks may actually not be able to open on Monday morning. You will remember it was the Cyprus banking disaster that ignited Bitcoin. But Bitcoin has had security problems and the biggest problem it has is a lack of intrinsic value. BitGold has intrinsic value. It has gold and you own it. You are not an unsecured lender to a bank. BitGold allows you to step outside of an increasingly vulnerable international banking system. BitGold enables you to move your money around the globe as you wish. I know the management of BitGold wants to downplay the fear trade. But judging by how the markets reacted to the Cyprus run on banks, to the extent the world knows about BitGold, I believe a dramatic appeal for this company’s shares and its services may be closer than anyone can imagine. Thus, I am removing this name from my watch list and recommending purchase of these shares at under US$5.00 for long-term capital gains.

LISTEN to Roy Sebag and James Turk explain their vision for BitGold and how the company can provide a payment system superior to that of PayPal. You can listen here
3.mp3 to a Jay Taylor’s interview of BitGold CEO Roy Sebag and Gold Money CEO James Turk who

Click to enlargeJ Taylor’s Gold, Energy & Tech Stocks (JTGETS), is published monthly as a copyright publication of Taylor Hard Money Advisors, Inc. (THMA), Tel.: (718) 457-1426. Website: THMA provides investment ideas solely on a paid subscription basis. Companies are selected for presentation in JTGETS strictly on their merits as perceived by THMA. No fee is charged to the company for inclusion. The currency used in this publication is the U.S. dollar unless otherwise noted. The material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. The information contained herein is based on sources, which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available information. Any opinions expressed are subject to change without notice. The editor, his family and associates and THMA are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein. No statement or expression of any opinions contained in this report constitutes an offer to buy or sell the shares of the company mentioned above. Under copyright law, and upon their request companies mentioned in JTGETS, from time to time pay THMA a fee of $250 to $500 per page for the right to reprint articles that are otherwise restricted solely for the benefit of paid subscribers to JTGETS.
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