Tag Archives: cryptocurrencies

Why the SEC keeps rejecting Bitcoin ETF listings

Last week the U.S. Securities and Exchange Commission (SEC) refused to approve nine different proposals for bitcoin exchange traded funds (ETFs). This comes on top of a number of prior SEC refusals of bitcoin-based funds, including the SolidX Bitcoin Trust and two separate denials of the Winklevoss Bitcoin Trust, the first in 2017 and the second this summer.

Why have so many other U.S.-listed commodity ETFs been approved over the years whereas bitcoin ETFs keep getting rebuffed? It is tempting to view the SEC smackdown of these bitcoin ETF proposals as a sign of distaste for this new and anarchic technology. But I don't think this reading is accurate. If anything, SEC vs Bitcoin is less about Bitcoin and more about the SEC's attempt to impose standards in an age where Wall Street is trying to package almost everything into a broadly-available security.

Precious metals buyers will of course be familiar with ETFs. The granddaddy of all commodity ETFs, the SPDR Gold Trust, or GLD, has been around since 2004 and is currently backed by around US$29 billion in physical gold, or 760 tonnes. All ETF units trade on a stock market. A peculiar set of mechanics ensures that they replicate the price of their underlying index or commodity. Using GLD as an example, if the price of the ETF is above the current gold price, then special institutions (otherwise known as authorized participants) can buy physical gold, exchange it for new units of GLD, and sell those units at a profit. If GLD is trading below the gold price, these same authorized participants can buy the underpriced GLD units, redeem them for gold, and sell the commodity for a risk-free gain. Competition among authorized participants for profit ensures that the two prices do not diverge by very much. Regular investors do not have the ability to convert units into gold, or vice versa. (For a more thorough explanation, see Bullionstar's introduction to gold ETFs.)

The SEC has approved ETFs that track gold, silver, platinum, palladium, copper, oil, natural gas, coffee, as well as broader-based ETFs that track baskets of commodities. Virtual currencies like Bitcoin, also known as cryptocurrencies, have been defined by the U.S. Commodity Futures Trading Commission (CFTC) to be commodities. The SEC's refusal to allow bitcoin ETFs thus has nothing to do with bitcoin's underlying nature: like gold, silver, and the rest, it is legally a commodity. Rather, the reason that the Winklevoss Bitcoin Trust, the first of the proposed bitcoin ETFs, has failed to make it through the SEC's doors is that the SEC doesn't like the way that the market for bitcoins is structured.

Cooperation from crypto exchanges - A tall order

Specifically, the SEC is unhappy with the inability of the the Bats BZX Exchange, the stock exchange on which the Winklevoss Bitcoin Trust is seeking a listing, to secure information sharing agreements (ISAs) with important bitcoin exchanges. An information sharing agreement between the Batz BZX exchange and, say, Chinese-based Binance, one of largest bitcoin exchanges, would obligate Binance to share relevant data about market trading activity and customer identities with Bats.

The SEC believes that information sharing agreements with significant exchanges are key to compliance with the Securities Exchange Act, the body of legislation that governs the SEC. Specifically, Section 6(b)(5) of the Act requires the SEC to ensure that the securities exchanges it regulates, including Bats BZX, are designed to prevent fraudulent and manipulative acts and to "protect investors and the public interest."

The SEC has chosen to take a very strict interpretation of 6(b)(5) when it comes to the listing of an overlying security, i.e. securities that derive their value from some underlying security or commodity (much like how units of the Winklevoss Bitcoin Trust overlie, or are underlain by, physical bitcoin). Not only must an exchange like Bats BZX ensure that it has controls to prevent manipulative behaviour of Bats-listed overlying securities, but it must also take reasonable steps to ensure that the underlying instrument to which it is linked is traded on an exchange that is held to the same standards. The SEC deems that an information sharing agreement between the relevant exchanges is sufficient to fulfill this requirement. That way, if there were to be suspicions of manipulation of bitcoin on the Binance exchange, Bats BZX would be able to get data from Binance and use it to conduct investigations into possible trading violations.

In its second refusal of the Winklevoss Bitcoin Trust, the SEC maintained that it has a long history of requiring information sharing agreements between SEC-regulated exchanges that list overlying securities and exchanges that list the underlying instrument. It points to a ruling it made in 1994 in which it required that the CBOE, which wanted to list equity options on American Depository Receipts (ADRs), would in certain cases be required to have a formal mechanism for getting information from the overseas exchanges trading the individual stocks underlying the ADR.

The SPDR Gold Trust as precedent

The SPDR Gold Trust (GLD) provides further precedent. When the SPDR Gold Trust was approved in 2004, the sponsoring exchange, the New York Stock Exchange (NYSE), was unable to establish information sharing agreements linked to spot trading. Securing agreements was deemed impossible since most gold spot exchanges occurs relatively informally via the London over-the-counter gold market.

In lieu of information about spot exchanges, the SEC decided that two factors were sufficient for the proposal to meet its requirements. First, it claimed that gold OTC markets are very liquid and thus difficult to manipulate. Second, the NYSE had an information sharing agreement with NYMEX, whose COMEX division listed the most popular set of gold futures contracts. Since the COMEX market is a regulated exchange that the SEC deemed "significant", the sharing of information between the NYSE and COMEX would help ensure that manipulation could be caught. The meaning of "significant" is sizable relative to overall trading volumes.

In the case of the Winklevoss Bitcoin Trust, the Bats BZX had entered into an information sharing agreement with the the Gemini Exchange, a New York-based bitcoin exchange that allows for spot trade. However, the SEC has decreed that this agreement is not sufficient to meet its requirements. The SEC maintains that bitcoin trading is dominated by unregulated non-US exchanges (like Binance). In this context, Gemini accounts for only a small fraction of global bitcoin trading, and therefore if a manipulation attempt were to succeed in causing a large change in the price of bitcoin, it would likely be carried out on a dominant exchange, like Binance, and not Gemini. Thus, an information sharing agreement with Gemini simply won't be effective for sniffing out manipulators.

A quick perusal of Coinmarketcap.com, a website that tracks bitcoin trading statistics, confirms that unregulated non-U.S. bitcoin exchanges dominate bitcoin trading (see screenshot below). On 31 August 2018, for instance, Gemini ranked 74th in terms of 24-hour bitcoin volume, at $18 million, whereas Binance clocked in near the top at $295 million.

Exchanges with the most bitcoin spot trading

Nor is the existence of information sharing agreements with a regulated bitcoin futures market sufficient to change the SEC's opinion. This is relevant because two large U.S. futures exchanges, the CBOE Futures Exchange (CFE) and CME, both launched trading of their bitcoin futures contracts in December 2017. Given that an information sharing agreement between the NYSE and NYMEX was sufficient to allow GLD to list, would an equivalent agreement between Bats BZX and either of these two futures exchanges constitute enough support for the Winklevoss Bitcoin Trust to proceed? Not so, says the SEC. In the case of other commodity ETFs like GLD, the SEC had sufficient evidence that the U.S. futures market for that commodity was large enough to be "significant." Regulated bitcoin futures still constitute a relatively unimportant part of overall bitcoin trading.

This logic used by the SEC needn't just apply to bitcoin. It might explain why there is no rhodium ETF in the U.S., for instance, whereas there is one in both Europe and South Africa. Since there is no exchange that offers rhodium futures and the spot market is relatively opaque, it would not be possible for an SEC-regulated exchange to set up the information sharing agreements necessary for SEC approval of a rhodium-based financial product. This echoes what I said at the outset: the SEC's decision is less about bitcoin and more about grappling with the complexity of market structure in an age in which financial magicians are trying to package everything into an exchange-traded product.

Dissent within SEC: underlying asset out of scope?

Interestingly, one of the four SEC Commissioners, Hester Pierce, dissented from the regulator's decision to disallow the Winklevoss Bitcoin Trust to be listed. Her reasoning is that a reading of Section 6 of the Exchange Act does not permit the SEC to focus on the underlying market for a proposed security, whether that underlying market be the bitcoin or gold spot market. Pierce believes the SEC only has the right to regulate the market for the overlying asset, i.e. units of a Bitcoin ETF or a Gold ETF. Pierce has previously advocated a Hayekian view of markets, in which the dispersed nature of information leaves no roll for a single "omniscient" regulator:

"Regulators are people, and they are people without great access to information, so we're asking them to do a task that they're destined to fail at... not because they don't have good intentions and not because they don't work hard... they do... they're hard working people but they're just not going to be able to succeed at the task."

Pierce's criticism would constitute not just a roll-back of the SEC's bitcoin decisions, but would also throw out a decade or two of previous SEC decisions related to information sharing practices of proposed commodity-linked ETFs.

The next Bitcoin ETF - Further rejections likely

The next big bitcoin ETF that is slated for an SEC decision is the CBOE Exchange's proposal to list the VanEck SolidX Bitcoin Trust. Given that Pierce's dissent is unlikely to sway the three remaining SEC commissioners, I don't expect this ETF to be approved. Let's look at the part of the proposal that has to do with information sharing agreements:

From VanEck SolidX marketing material (source)

The creators of the VanEck SolidX Bitcoin Trust point to a number of information sharing agreements into which the sponsor, the CBOE, has signed (or expects to sign). We already know that those with the CME, which lists bitcoin futures, and Gemini will not be sufficient to establish significance. What about the agreements signed between the CBOE and Bitcoin over-the-counter trading desks? The creators claim that the relevant OTC markets account for around US$250–$500 million in trading per day. But with overall exchange-related bitcoin volumes said to come in at around $4 billion per day, it will be difficult for the creators to prove that OTC trading constitutes 'significant'.

Lastly, the creators of the trust point to "other USD-bitcoin spot markets." I interpret this to mean that they may succeed in getting other U.S.-based bitcoin exchanges to join Gemini in sharing information. But if it can't get some of the largest actors in the list above, say Binance, Bitfinex, or OKEx, all of which are based outside of the US, it's hard to see how the SEC will provide its stamp of approval.

BullionStar adds Ethereum, Bitcoin Cash, and Litecoin as Payment Options and Currencies

BullionStar is pleased to announce that it has added Ethereum, Bitcoin Cash and Litecoin as transactional currencies for both buy and sell orders on the BullionStar website.

Ethereum, Bitcoin Cash & Litecoin are now accepted as payment options and currenciesMany BullionStar customers are already be familiar with using Bitcoin when buying and selling gold, silver and platinum bars and coins, as BullionStar has been accepting Bitcoin as a form of payment since May 2014. BullionStar was one of the first bullion dealers worldwide to offer customers the ability to buy and sell physical precious metals using Bitcoin. Now with the addition of Ethereum, Bitcoin Cash and Litecoin, BullionStar is again one of the first bullion dealers in the world to offer customers the ability to transact in these other leading cryptocurrencies for both buy and sell orders.

With the addition of these three additional cryptocurrencies, BullionStar customers can now buy and sell physical gold bars, gold coins, silver bars, silver coins, platinum bars and platinum coins using Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BTC) and Litecoin (LTC), and by using any of six traditional currencies, namely Singapore Dollars, US Dollars, Euro, Australian Dollars, Japanese Yen, and Swedish Krona.

BullionStar constantly aims to add innovations to its product and service offerings, and the addition of Ethereum, Bitcoin Cash and Litecoin comes after careful analysis and following customer feedback. The addition of Ethereum, Bitcoin Cash and Litecoin now gives BullionStar customers extra choice when buying physical precious metals using cryptocurrencies, and allows for faster cryptocurrency transaction confirmation times.

Settle Bullion Orders in Ethereum, Bitcoin Cash & Litecoin

To pay using a cryptocurrency, select the preferred cryptocurrency in the "Currency" drop-down box at the top right hand section of the BullionStar hompage. Upon selection, all prices in the product listings will be displayed in terms of your selected cryptocurrency.

Select to pay in Bitcoin Cash, Ethereum and Litecoin

To purchase precious metals on the BullionStar website, you simply add the desired items to your shopping cart, go to the checkout and place your order.  If you have selected a cryptocurrency as currency, the checkout payment option will default to the selected cryptocurrency as well.

Upon placing your order, the order confirmation page and order confirmation e-mail will detail the cryptocurrency address to which you must initiate your payment within 20 minutes.

BullionStar will update you with a payment confirmation e-mail and an SMS text message as soon as we have received and processed your payment.

Likewise, for customers selling precious metals to BullionStar, proceeds can now be received in Ethereum, Bitcoin Cash and Litecoin as well as in Bitcoin.

Bitcoin, Bitcoin Cash, Ethereum & Litcoin as Currency

On the BullionStar website, all product prices for gold bars, silver bars, gold coins, silver coins, BullionStar Savings Program (BSP) and other precious metals products can now be displayed in Ethereum, Bitcoin Cash and Litecoin as well as in Bitcoin.

2.5 gram PAMP Gold Bar denominated in Bitcoins

Customers can also view spot prices, portfolio values and account history directly denominated in the newly added cryptocurrencies. For example, if you select 'Litecoin' from the Currency drop-down box on the top right of the BullionStar homepage, the spot prices and charts on the right hand frame for gold, silver, platinum and palladium are then displayed in terms of Litecoin (LTC) values. When logged in to your BullionStar account, your vault balance and cash balance will also be displayed in LTC if the Litecoin currency option has been selected.

BullionStar Charts

Ethereum, Bitcoin Cash and Litecoin have also been added as currencies within BullionStar Charts.

BullionStar Charts is a comprehensive charting facility which provides the ability to create price charts for precious metals, currencies, commodities, stock indexes, individual stocks (equities) and also in terms of the prices of BullionStar products.

BullionStar's charting functionality allow any two prices to be selected. For example, on the charting page select 'Precious Metals - Gold' then select 'Currency - Bitcoin Cash' to view a price chart of the gold price in terms of Bitcoin Cash.

Gold Price in Bitcoin Cash

Why Ethereum, Bitcoin Cash and Litecoin?

BullionStar has added Ethereum, Bitcoin Cash and Litecoin as transactional currencies  alongside Bitcoin because each of these three cryptocurrencies is widely-known and widely-used, and each of these cryptocurrencies is now firmly established in the marketplace.

Since its commercial launch in 2015, the Ethereum blockchain platform and its Ether coin have become a dominant force in the cryptocurrency space, and as well as transaction processing, Ethereum also supports smart contract functionality and the development of other cryptocurrency platforms.

Bitcoin Cash emerged in early August 2017 as a hard fork when it was split off from the Bitcoin blockchain. Bitcoin Cash has a larger blocksize than Bitcoin and facilitates higher transaction rates than Bitcoin which generally translates to faster payments and confirmations. In the 9 months since its launch, Bitcoin Cash has seen large-scale adoption by merchants and is now a stable and expanding competitor to Bitcoin.

The Litecoin platform and its coin, launched in 2011, are also based on the Bitcoin blockchain design, and Litecoin is now well established and known for its high-speed transfers rates and short confirmation times.

In terms of cryptocurrency market capitalization (market cap) or total outstanding market value of each coin, Ethereum, Bitcoin Cash and Litecoin have among the highest values of all crypto coins next to Bitcoin, and the global cryptocurrency trading market values the infrastructure of these cryptocoin networks, and most importantly, given that exchanges are forward-looking pricing mechanisms, the crypto currency market is signalling confidence in the longer term future prospects of these four cryptocurrencies.

Trade Directly between Cryptocurrencies and Precious Metals

With the ability to buy and sell precious metals using Bitcoin, Ethereum, Bitcoin Cash and Litecoin, BullionStar customers can now trade directly between investment precious metals and cryptocurrencies without having to first convert to fiat currencies. Traders can also now take profits from these cryptocurrencies and directly buy precious metals using their Ethereum, Bitcoin Cash, Litecoin and Bitcoin.

Trading between Ethereum and bullion for example, you can now buy gold bullion bars and gold bullion coins through BullionStar using Ethereum and hold these investment grade bars and coins in BullionStar's vault. All you have to do is transfer Ethereum from your Ether wallet or crypto exchange account wallet to the Ethereum address as indicated on the order confirmation from BullionStar. The same applies for Bitcoin Cash, Litecoin and Bitcoin.

Then in the future If you want to sell these gold bars and gold coins and take the proceeds in Ethereum, you just sell the precious metals for Ethereum and have the Ether transferred to your personal Ether wallet or crypto exchange account wallet. There is no need to first convert the Etheruem to US dollars to buy your chosen gold bar and coin products. Thus the intermediate step of converting the main crypto currencies to fiat currencies, such as US dollars is redundant.

The Role of Gold as Turmoil hits wider Financial Markets

As market turmoil hits both equities and cryptocurrencies, the heightened volatility in these assets underscores gold’s unique role as a safe haven, store of value and portfolio diversifier.

Stock Market Selloffs

With major US stock indices falling again sharply on Thursday (DJIA - 4.02%, NASDAQ - 4.08%, S&P -3.41%), last Monday’s equity market selloff and spike in volatility looks set to be a more prolonged affair than a one-off plunge and recovery. The Dow’s Thursday close of 23860 is 2756 points, or 10.3% lower, than the all time high of 26616 from 26 January, and the Dow is now officially in correction territory. This week also saw two records added to the history of stock market selloffs, Monday’s biggest ever points drop in the Dow, and Thursday’s second biggest ever Dow points drop.

Similarly the S&P 500 index closed on Thursday at 2581 and is now 292 points, or 10.1% lower than its all-time high of 2,872.87 from 26 January, again in correction territory.

The NASDAQ composite, which also reached its all-time high of 7505 on 26 January, is virtually in a 10% correction zone below 6755, as it closed just a few points over this level at 6777 on Thursday.

Finally, the CBOE Volatility Index (VIX), the widely used measure of stock market volatility - which is also known as the investor fear gauge - had spiked up massively late Monday and into Tuesday to the 35-40 range, and critically was again seen approaching those levels at Wall Street market close Thursday.

Equity market indexes across the globe, as normal taking their cue from Wall Street trading, have also been falling in tandem, with markets in Europe, Asia and the Americas all lower on the week.

Whatever the reasons for the shift change in market sentiment, from macro factors to algorithmic trading, these abrupt index plunges and the rise in volatility have spooked investors across the globe and have led to panic selling and active profit-taking. With a low volatility environment less certain than before, market consensus on ever-increasing stock prices may be beginning to unravel.

Clouds over Cryptocurrencies

In cryptocurrency markets, the price euphoria seen in December and early January led by Bitcoin and some other large alt coin rivals has also given way to deep corrections and unclear price direction.

Until earlier this week when Bitcoin rallied back to above $8000 from below $6000, Bitcoin’s price had been on a consistent downward trajectory for nearly a month. From its intermediate high of US $17,000 on 7 January, in less than 30 days, the price had collapsed to below US $ 6,000, an approximate 65% drop. From the ultimate high of just over $20,000 on 17 December to the recent low of below $6000, Bitcoin’s price collapse exceeded 70%. Similar price movements were seen across the board in other crypto coin prices, both large and small cap.

Coupled with Bitcoin’s equally sharp price gains in late 2017, the short-term price movements of Bitcoin, both up and down, are hugely volatile. As recently as a year ago in early February 2017, Bitcoin in US dollars was still trading in the $1000 range. It was only in May 2017 when the price first breached the $2000 mark and August when it initially hit the $3000 range. As its meteoric rise continued, by late October the price had again doubled to $6000, and it was just mid-November 2017 (less than 3 months ago) when the Bitcoin price first traded in the $8000 range, a similar price range to where it now finds itself back at now.

Mid-November is also arguably the point at which Bitcoin’s dizzying ascent really got going, shooting up to over $11,000 before the end of November. It was at this point that hundreds of smaller alt coin prices started to really explode upwards also, taking the broad cryptocurrency market and the overall sector MarketCap much higher.  Within a week between 1 December and 8 December, the Bitcoin price had again exploded to over $18,000, and the ultimate peak of $20,000 was reached less than 10 days later on 17 December.

After this, a series of lower highs and lower lows saw the Bitcoin price oscillate wildly in the $12,000 - $18,000 range before its prolonged fall from 7 January onwards to below $6000 on Tuesday 6 February, and its subsequent bounce  to $8000. This high price volatility must raise the question of Bitcoin as store of value, and to what extent it is primarily a payment system versus a dependable store of value.

Gold's Attraction in Market Turmoil

Investors in financial and other asset markets prefer predictability and stability. Hence investor apprehension at the growing uncertainty and heightened volatility in global stock markets and the recent pump and dump chart patterns of many cryptocurrencies.

But it is during market turmoil that gold’s safe haven qualities come to the fore. Since gold has no counterparty or default risk it is a universally known and universally used safe haven for preserving wealth during market crises. Gold's high liquidity also adds to its safe haven appeal. During financial market turmoil, gold's price therefore generally reflects this movement out of risk assets and into the safe harbour that gold provides. The below chart plots a relatively comparison between the US dollar price of gold and the S&P 500 index, over the week beginning Monday 5 February, showing gold's outperformance as the US stock market suffered a series of selloffs.

USD Dollar Gold Price in terms of the S&P 500 Index, Week from 5 February 2018. Source: BullionStar Charts

Gold is also one of the traditional and best-known stores of value, some others being land and property. A reliable store of value asset will allow you to park your wealth and retrieve it at a later time knowing that it will still have value and will have retained the value that it had when you converted some of your savings or wealth into that asset. A reliable store of value will also adjust for inflation and retain its purchasing power relative to inflation. Physical gold in the form of gold bars and gold coins does just that and retains its purchasing power over long periods of time precisely because the gold price, as an inflation barometer, adjusts to reflect expected inflation.

Finally, gold can also reduce the volatility of a portfolio of investment assets such as stocks and bonds. By adding an investment in gold, the resultant portfolio displays less volatility of returns, and can also exhibit higher expected returns. This is due to the gold price having a low to negative correlation with the prices of securities such as stocks and bonds.

28 Reasons to Buy Physical Gold

Throughout human history, gold has constantly emerged as an unparalleled form of savings, investment and wealth preservation. Due to its unique characteristics and features, gold has inherent value and cannot be debased. When holding physical gold, there is no counterparty risk or default risk. Wealth in the form of gold can also be held and stored anonymously.

From its ability to retain its purchasing power over time, to its safe haven status in times of financial turmoil and uncertainty, to gold's ability to diversify investment risk, there are many and varied reasons to own physical gold in the form of investment grade gold bars and gold coins.

1. Tangible with Inherent Value

Physical gold is real and tangible. It is indestructible, impossible to create artificially, and difficult to counterfeit. Mining physical gold is arduous and costly. Physical gold therefore has inherent value and worth. In contrast, paper money doesn't have any inherent value.

2. No Counterparty Risk

Physical gold has no counterparty risk. When you hold and own gold bars and gold coins outright, there is no counterparty. In contrast, paper gold (gold futures, gold certificates, gold-backed ETFs) all involve counterparty risk.

3. Scarcity

Gold deposits are relatively scarce across the world and difficult to mine and extract. New supply of physical gold is therefore limited and explains why gold is a precious metal. Gold's scarcity reinforces it's inherent value.

4. Cannot be Debased

Because of its physical characteristics and features, gold cannot be debased, and gold supply is immune to political meddling. Compare this to fiat money supplies which are constantly being debased and destroyed via deficit government spending, central bank quantitative easing and financial system bailouts. On a survivorship scale, gold has far outlived all fiat currencies by thousands of years.

5. A 6000 Year History

Gold has played a central role in society for thousands of years from the early civilizations of ancient Egypt, right up to the contemporary era. Gold has facilitated international trade throughout history, has been directly responsible for the economic expansion and prosperity of numerous civilizations throughout history, and has even been, due to gold exploration and mining, the direct catalyst for the growth of some of today’s best-known cities such as San Francisco, Johannesburg, and Sydney.

6. Store of Value

Gold is a preeminent store of value. Physical gold, in the form of gold bars or gold coins, retains its purchasing power over long periods of time despite general increases in the price of goods and services.

In contrast, fiat currencies such as the US Dollar are not stores of value and their purchasing power consistently becomes eroded by inflation or the general increase in the price level. Fiat currencies have a long history of either becoming totally worthless and going out of circulation, or else becoming completely debased, such as the US dollar, while remaining in circulation.

Since the creation of the US Federal Reserve in 1913, the US dollar has lost over 98% of its value relative to gold, i.e. the US dollar has lost over 98% of its purchasing power relative to gold.

Since 1913, the US Dollar has lost more than 98% of its value, while gold has retained its value.

7. Long- Term Inflation Hedge

Physical gold’s ability to retain its purchasing power over time is sometimes referred to as the “Golden Constant”. This reflects the fact that gold’s purchasing power is constant over long periods of time. This ‘constant’ exists because the gold price adjusts to changes in inflation and future inflation expectations. Therefore, physical gold is a long-term hedge against inflation.

8. A 2500 Year Track Record as Money

Because of its ability to retain value and act as a store of value, physical gold has been used as money for over 2500 years. Gold coins were first issued in the Lydian civilization in what is now modern Turkey. Subsequently gold was used as a stable form of money in Persia, ancient Greece, ancient Rome, the Spanish and Portuguese Empires, the British Empire, and right through to the various international gold standards of the 20th century.

It was only in August 1971 that the US famously suspended the convertibility of the US dollar into gold, a move which triggered the debt fueled expansion that is still having repercussions within today’s monetary system.

To put gold’s monetary importance into perspective, for 97% of the last 2500 years, gold has been chosen by numerous sophisticated civilizations as the form of money par excellence and an anchor of stability, precisely because of its ability to retain its value.

9. Safe Haven

Physical gold acts as a safe haven asset in times of conflict, war and geopolitical turmoil. During the financial market stresses and heightened uncertainties caused by wars, conflicts and turmoil, the counterparty risk of most financial assets spikes. But since physical gold does not have any counterparty risk, investors rush to gold during these periods so as to preserve their wealth. This is analogous to sheltering in a safe harbor. Gold can thus be seen as a form of financial insurance against catastrophe.

10. Portable Anonymous Wealth

Gold bars and gold coins combine high value with high portability. In times of conflict and war, gold bars and gold coins are ideal for transporting wealth and savings across borders and within conflict zones in an anonymous fashion.

11. Universal Acceptance

Gold is universally accepted as money across the world, with the highly liquid global market always providing ample sales opportunities for gold bars and gold coins. This means that whichever city you are in across the world, you can always sell or trade your gold bars and gold coins.

12. Emergency Money

Military personnel are often issued with gold coins that they carry with them in conflicts zones as a form of emergency universal money. For example, the British Ministry of Defense often issues RAF pilots and SAS soldiers with Gold Sovereign coins to carry on their persons during combat missions and activities, such as in the Middle East.

Worthless paper Currencies vs the Inherent Value of Owning Physical Gold

13. Outside the Banking System

In the current era of global financial repression, physical gold is one of the few assets outside the financial system. Gold is not issued by any monetary authority or central bank or government. Because its not issued by any government or central bank, gold is independent of the banking system. Fully owned physical gold, if stored in a non-bank vault or held in one’s possession, is outside the banking system.

14. No Default Risk

Unlike a government bond, there is also no default risk with gold because it is not issued by any authority that could default. Gold bars and gold coins are no one else’s liability. Physical gold cannot go bankrupt or become insolvent. Therefore, there is no need to have to trust any other party when holding physical gold.

15. Portfolio Diversification

Adding an investment in gold to an existing portfolio of other investment assets such as stocks and bonds, reduces the volatility (risk) of the investment portfolio and can increase portfolio returns. This is because the gold price has a low to negative correlation with the prices of most other financial assets, because gold is less influenced by business cycles and macro-economic cycles than most other assets.

Numerous empirical studies by financial academics, as well as industry bodies, such as the World Gold Council, have validated gold’s role as a strategic portfolio diversifier. Optimal allocations to gold in multi-asset portfolios have found to be in the 5% to 10% range.

16. Currency Hedge

There is generally an inverse relationship between the gold price and the US dollar, in that the gold price generally moves in opposite directions to the US dollar. Therefore, holding gold can act as a currency hedge of the US dollar, and help manage the currency risk of portfolios denominated in US dollars.

17. Gold's Metallic Properties

Gold has many and varied metallic properties. These properties provide gold with many technological and commercial applications and uses, which in turn contribute as additional demand drivers in addition to the investment and monetary demand for gold.

Gold is highly ductile (can be drawn into very thin wire). It is also highly malleable (can be hammered and flattened into very thin film). Gold is a very good conductor of electricity and heat. Gold does not corrode or tarnish. It is chemically unreactive and non-toxic to the human body. Gold has a high luster and shine, and an attractive yellow glow.

These properties explain gold’s use in electrical and electronic wiring and circuits (e.g. computers and internet switches), its use in the medical and dental fields, gold’s use in solar panels, space travel, and gold’s traditional uses in jewelry, decoration, and ornamentation. With new technological uses being found for gold all the time, gold's demand pattern is diversified and underpinned by its commercial importance.

18. Physical gold - A tiny fraction of Paper Gold

The London wholesale gold market and the US-based COMEX gold futures market generate huge trading volumes of paper gold that dwarf the size of the physical gold market. However, these markets only trade derivatives on gold (futures and unallocated positions), representing fractionally-backed and unbacked claims on gold that could never be convertible into physical gold by claim holders.

In a scenario under which these paper gold markets became unsustainable, the prices of paper gold and physical gold would diverge, with the paper gold markets ceasing to trade and collapsing, and only physical gold retaining any real value. Physical gold is therefore an insurance against the collapse of the world's vast paper gold markets.

19. By Definition - Not an ETF

Physical gold Provides all the benefits that gold-backed Exchange Traded Funds (ETFs) do not. ETFs provide exposure to the gold price, not to gold. Holding physical gold is by definition direct exposure to gold. With most gold-backed ETFs, you cannot convert the units into gold and take delivery of the gold, and in many cases, the locations of the vaults are not even known. If holding physical allocated gold bars or gold coins in a vault, such as with BullionStar in Singapore, you can always take delivery.

Gold ETFs have many counterparty risks since there are many moving parts in an ETF such as a trustee, a custodian, and a sponsor / issuer. Physical gold has no counterparty risks. When you hold a gold-backed ETF, the quantity of gold backing the ETF declines over time due to management fees being offset against the gold holdings. When you hold physical gold, you always remain with 100% of the actual gold you first purchased. There is no erosion of holdings.

20. Anonymous Storage

Gold can be stored anonymously, either in your possession within your house or property, or in a vault in a jurisdiction, such as Singapore, that has no reporting requirements. Since gold has a high value to weight ratio, storing gold does not take up much space.

21. Independent of Internet

Owning physical gold is not reliant on having internet access and access to electronic wallets and cryptocurrency exchanges. Furthermore, gold cannot be stolen by hacking an electronic address or by transferring or deleting a number in a computer.

The Benefits of Owning Gold Coins and Gold Bars

22. Real Gold is Measured by Weight

Physical gold is measured in weight, not through a number set by a politician or central banker. When you buy a 1 Kilo gold bar, or a 10 Tola gold bar, or a 1 troy ounce gold coin, or a 5 Tael gold bar, you will always have that gold bar or gold coin, irrespective of the fluctuations of fiat currencies.

While thinking of the value of physical gold in terms of a fiat currency might be convenient, a better way is to think of a gold holding in terms of weight.

23. Coins and Bars - Build a Collection

Buying investment gold bars and bullion gold coins allows you to build a diverse collection of bars and coins that are at the same time a fascinating pastime and a form of investment and saving.

Bullion gold coins from the world’s major mints are beautifully illustrated and often have a connection to history. Investment gold bars from the world's major gold refineries are distinctively different from each other and you can vary a collection by cast or minted bars, and a selection of weights.

24. Physical Gold Feels like Real Wealth

Physical gold feels like real wealth. When you hold ten 1 ounce gold coins in your hand, you intrinsically know that you are holding real wealth, gold that is scarce and that has been costly to produce.

25. Gold as Loan Collateral

Gold can be used as loan collateral. Since gold is highly liquid and valuable, it can be lent and used as a form of financing, and as a way of generating interest. The wholesale gold lending market between central banks and bullion banks is highly active. Likewise, retail gold holders can also in various ways lend their gold to receive financing or interest, with new innovations to do this arising all the time.

26. Central Banks hold Gold

Although the world’s central banks like to downplay the importance of gold because it competes with their fiat currencies, most central banks continue to hold substantial amounts of physical gold bars and gold coins in vaults around the world. They hold this gold as a reserve asset on their balance sheets, and they value this gold at market prices.

Like private gold investors, central banks hold physical gold because it is highly liquid, it lacks counterparty risk, and because gold is a safe haven or ‘war chest’ asset that acts as a financial insurance in times of crisis. Central banks also hold gold for the unpublished reason that if and when gold re-emerges at the centre of a new monetary system, these very same central banks will not be caught out having no gold.

27. Gold for Gifting

Gold coins and small gold bars make great gifts and presents, and gold is a traditional form of gifting in many societies around the world. Gifting a gold coin or small gold bar to mark a birth, or anniversary, or a wedding or other special occasion, is an ideal present that will be highly appreciated by the recipient.

28. Gold for Inheritance

Gold bars and gold coins are a great form of inheritance for your children and family members. Because gold is real, tangible, valuable, and has a highly liquid trading market, it is an ideal asset for inter-generational wealth transfers. Because physical gold is fabricated in convenient weight denominations, such as troy ounces and kilograms, it can be distributed equitably among recipients, and specified equitably in wills and trusts.