If you were to ask most investment professionals to explain the difference between (bitcoin) (lowercase) and Bitcoin (upper case) they would probably stare at you blankly.
But for Jan Skoyles, recently promoted from Head of Research to CEO at The Real Asset Company, who provide a platform for retail investors to gain access to the gold bullion markets, the distinction is the basis for a new kind of wealth-management that provides an alternative to the regulated financial services industry.
Bitcoin, upper case, refers to the technology behind the online currency, the fabled “block chain”, rather than the currency itself (bitcoin, lower case), and there are distinct advantages for an investor in the way the technology was built by the mythical Satoshi Nakamoto, Bitcoin’s creator.
The block chain is the public ledger where every bitcoin transaction, however large or small, is recorded; it is updated by so called “miners”, who process transactions at high speed and are rewarded for their efforts with freshly mined bitcoins.
Bitcoin Differences
The bitcoin system is widely acknowledged as the most successful attempt yet to create a digital currency operating outside of, and therefore bypassing the fees of the traditional banking system. Additionally, the limited supply of bitcoins is an excellent feature that differentiates it from fiat currencies, sparing it the vagaries of inflation and deflation caused by government manipulation of the money supply.
So how can Bitcoin, the technology, complement the Gold bullion markets and help investor’s better utilize their assets? Jan Skoyles wrote her dissertation on the importance of precious metals to the monetary system, arguing that historically unbacked currencies have tended to last approximately 48 years, but always revert back to the precious metals markets, of which there is a finite supply, as the true determinant of value.
One of the chief issues that has prevented investors embracing bitcoins as readily as they might have done lies in the wild fluctuations in price caused by market sentiment, often in reaction to some of the doubtful uses which the digital currency has been put to, think Silk Road, or due to doubts about its long term future, or because of government intervention. But there are no such doubts about precious metals, which have been regarded as a safe haven almost since the dawn of time.
Purchasing gold is generally regarded as a cautious move by Western finance standards, but has become an increasingly popular trend amongst the Chinese and Indian emerging middle classes, who are more risk averse and generally interested in keeping hold of what they have rather than speculating with it. In the US and Europe in particular, austerity has persuaded many to follow suit.
Room For Both
Jan’s argument therefore that there is demand for both a gold-backed currency and a fully transparent and accessible gold-trading system is a persuasive one. By recording gold purchases on a block chain style ledger, the currency can be used not only as a medium of exchange, but also to facilitate gold ownership, and challenge the status quo for clearing and settlement in the gold market. In other words, you can buy your gold, and you can spend it too.
‘People don’t like to think about the fact that once you have deposited your money into a bank account, it is no longer legally yours”, Jan explains, “as more people realize this they are encouraged to divert their funds elsewhere”. She cites as evidence the recent spate of “bail-ins” carried out by the Cypriot government, where money was lifted directly from people’s bank accounts to ensure the government did not default on its spiraling debts.
“The lack of real alternatives when it comes to depositing excess cash is what props up the existing banking system, but Bitcoin technology and gold can complement one another. I often hear people discussing their finances, bemoaning the fact that rates of interest are going up, “but what can you do?” they shrug. A gold-backed currency is an alternative way to diversify your savings.”
The Real Asset Company platform allows investors to purchase gold bullion outside of the traditional financial markets, which are normally leveraged out of all proportion to the underlying supply of the asset via the futures market; a similar kind of house of cards effect triggered the collapse of the financial markets in 2008, when mortgage backed securities unravelled to such catastrophic effect.
When you deal with The Real Asset Company you are buying actual bullion, kept in warehouses located in London, Singapore and Geneva, and once purchased, you become the legal owner of the physical asset. As such there is no liquidity risk, and as the trade price is updated every minute, little in the way of arbitrage opportunities either. This is not a get rich quick scheme, in fact, quite the opposite. The system does not allowed for leverage of any kind.
Is It Really Necessary?
But why the need for a digital crypto currency? Jan explains “This isn’t just about demand for an alternative currency but also about demand to own gold, and bringing the offering into the 21st century.”
Jan sees it as a 3 stage process; first, the currency is created, second, it starts to become the means to buy more gold or sell your existing holding, and finally it becomes a means of payment that is accepted at high street stores and restaurants, but the transactions are still recorded on the block chain ledger, so there is complete transparency.
Jan has enlisted the help of self-confessed digital currency nut Luke Mitchell, who has deferred the final year of his Computer Science degree at Bristol University to help mimic the Bitcoin technology on behalf of the Real Asset Company. He is helping to make the system “Real Asset Company verifiable”, creating the public and private keys that prevent against online fraud, and packaging the product to make it easier for investors unfamiliar with how Bitcoin works to participate.
The Real Asset Company do charge fees to cover insurance and storage costs, and a one off transaction fee applies, plus the price of gold itself may fluctuate in the short term, but it has arguably held its long term value. In fact, Jan points out that after the price of gold dropped sharply back in April 2013, by 15.5% in two days, the company feared the worst, only to see customer purchases double over the next 2 months, a best ever performance.
Outside The Banking System
There is no doubt that early adopters are increasingly looking outside of the banking system when they look to protect their assets, and indeed the rise of peer to peer lending or crowdfunding sites are further evidence that the public are prepared to trust one another and be more innovative, as the activities of investment banks and high street lenders are demystified, playing right into the hands of the crypto currencies.
Jan is realistic and anticipates that the banking industry will inevitably, have a part to play. The Real Asset Company will seek to work collaboratively, outsourcing its auditing to a “big four” accountancy firm, and finding a processor to “run the book” for payment processing, but she is proud to have turned investors heads and gained their trust. “It sounds complex, but at heart it’s a simple idea”, she says.
“We are at the forefront of a move away from the traditional investment model; now the right kind of money is the kind that people want”. Her aim is for the Company to become the number one resource for retail gold investment in the UK. They are already in the top 3 in terms of gold owned and registered users.
At just 27, she is already a well-known figure on the gold bullion scene in London; she hosts her own show on Youtube, “Get Real”, where she regularly discusses the implications for a gold backed crypto currency with her guests, drawn from hedge funds and trading desks, alongside other investment related topics.
She has appeared on the Keiser show and as her ideas come to fruition, so her reputation is growing. She is a fan of Nassim Taleb, the maverick financial expert, and has adopted his philosophy that you should “never turn down an invite to a cocktail party as you never know who you might meet.”
If Jan can successfully launch her as yet unnamed crypto currency, she will be well one step further on the path to becoming a Fintech disruptor, and a key contributor to the debate about how the retirees of the future will choose to invest their savings.