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Gold bugs, Bitcoin believers in bid to supplant dollar

Published July 28, 2014 10:57 am

Currencies • World's newest and oldest forms of money looking to join forces.
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

New York • Call it bitgold.

It's what you get when you combine bitcoin, one of the world's newest would-be currencies, and gold, one of the oldest. Add mistrust of centralized authority, a dash of rebelliousness and a dollop of profit motive and you might have the Independence Coin, the first gold-backed crypto-money, unveiled this month at FreedomFest, a libertarian convention in — where else? — Las Vegas.

"A staunch person who believes in the gold standard says bitcoin is valueless and ultimately a Ponzi scheme, and people who didn't dig gold but really got bitcoin would say that this is ridiculous, it's just a dumb metal," said Anthem Hayek Blanchard, chief executive of Anthem Vault, the company behind the Independence Coin. "We don't need to fight. We can coalesce."

Despite the skepticism, bitcoin and gold make a natural match, like kittens and milk. Gold, a store of value since ancient times, has long been popular with investors seeking a haven and doomsayers rejecting fiat currencies churned out on central bank printing presses. Bitcoin, cooked up by programmers six years ago, has been embraced by hipster anarchists and others eager to trade online while avoiding the constraints of conventional money. There are signs that the two sides are finally meeting cute.

Last month, DNA Precious Metals, which digs for gold and silver residue in Quebec, Canada, formed a subsidiary called DNA Crypto Corp. to mine online. The Montreal-based company, a penny stock that trades over-the-counter, saw its market shifting to a new unit of exchange for the digital age and wanted to take part, Tony Giuliano, the chief financial officer, said in an interview.

Cameron Winklevoss and Tyler Winklevoss, the Harvard University-educated twins famous for their dispute with Facebook founder Mark Zuckerberg, plan to introduce the Winklevoss Bitcoin Trust, an exchange-traded fund reminiscent of the SPDR Gold Shares fund. Their application, which would be the first of its kind, is pending with the Securities and Exchange Commission. An e-mail to New York-based Winklevoss Capital Management wasn't answered.

There's no doubt any marriage, or at least an online date, would be between unequals. Bitcoin, which has endured wild price swings since its introduction, now has about $8 billion in circulation, according to CoinDesk, a news and pricing website. Gold, with centuries of a head start, boasts an $18 trillion-a- year global market, according to CPM Group, a New York-based research company.

Bitcoin originated in a 2008 paper by a programmer or group of programmers under the name Satoshi Nakamoto. It uses a public ledger and cryptography to log transactions and secure ownership. Prices plummeted earlier this year from a high of $1,147 in 2013 after the collapse of the Mt. Gox bitcoin exchange, once the world's largest, and China and Russia moved to block money laundering.

One bitcoin currently sells for about $600, according to Bloomberg's Virtual Currency Monitor.

Gold prices are less volatile. They ranged from $1,182.57 to $1,433.73 an ounce in the past year. The metal has climbed 7.8 percent to $1,294.75 in 2014 after the first annual decline in 13 years.

While bitcoin has drawn attention to the shortcomings of government-issued currencies, it also highlights the advantages of gold, according to John Brynjolfsson, the chief investment officer at Irvine, California-based hedge fund Armored Wolf, which oversees about $671 million. Unlike bitcoin, gold has intrinsic value that can't fall to zero, has a long track record of moving against the dollar, and can survive an electronic disruption, he said.

Bitcoin skepticism is high, according to the latest quarterly poll of 562 investors, analysts and traders who are Bloomberg subscribers. Fifty-five percent said the virtual currency trades at unsustainable, bubble-like prices, and 14 percent said it's on the verge of a bubble. Six percent said a bubble isn't forming, and 25 percent were unsure. The poll didn't measure any investor skepticism of gold.

More recent bitcoin investors have focused on its potential as a payment system. Entrepreneurs such as Coinbase and Circle Internet Financial see virtual currencies as a way for people to make purchases online as easily as they share cat videos, without the costs and risks of bank transfers.

"Gold has always been seen as the ultimate store of value, and bitcoin is seen as the ultimate modern medium of exchange," said Simon Hamblin, the London-based CEO of Netagio, which operates an online exchange for trading among gold, bitcoins and British pounds.




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