The War on Crypto
Regulatory offensives have been coming for crypto in waves ever since the sector’s first boom-and-bust cycle in 2016-2017. The US “taxman” was the first to raise an eyebrow and then to issue stern warnings to anyone who thought they could make a profit with Bitcoin without declaring it to the IRS. But after that initial implosion, the whole crypto space was prematurely declared dead by many mainstream analysts, causing a lot of investors and the general public to lose interest. The regulators did as well, or so it appeared at least.
However, the nascent asset class didn’t take long to make a comeback thereafter. Instead of pouring cash into fraudulent IPOs and worthless coins, more savvy and long-term oriented investors emerged to fund the much-needed infrastructure that would support the real growth and adoption of crypto. Exchanges, serious and regulated funds, and other services and products paved the way for the sector’s “maturity”.
It didn’t happen overnight, but happen it did: Larger, more conservative retail investors entered the fray as did institutions eventually. The wild price fluctuations were still there - to an extent, "the nature of the beast" - but it wasn’t a “Wild West” type of landscape anymore. Crypto was finally getting close to offering reliability on top of its inherent privacy and decentralization advantages.
The most recent escalation
Fast forward to the end of last year when the sector started making headlines for all the wrong reasons. The first and largest domino to fall was the cryptocurrency exchange FTX, the third-largest exchange by volume with over one million users. The FTX scandal shook not only the crypto space, which lost billions and fell below a $1 trillion valuation as a result, but it impacted the entire investment world too. Once the magnitude of the fraud became clear, namely the misappropriation of around $8 billion in customer assets, prosecutors accused the platform’s founder and CEO, Sam Bankman-Fried, of conducting "one of the biggest financial frauds" in US history.
That was certainly and justifiably more than enough to grab the regulators’ attention. Calls for more transparency, for more stringent checks and balances, and for more oversight were heeded and the SEC descended upon the entire industry like the proverbial ton of bricks. As the BBC reported, “The campaign has yielded a steady drumbeat of charges against crypto firms and executives, alleging violations ranging from failing to register properly with authorities and provide adequate disclosure of their activity to, in some cases, more damaging claims such as mishandling of consumer funds and fraud.”
The scope of that campaign soon widened, and widened, to an arguably indiscriminate extent. Up to the middle of this year, the SEC had filed around 130 crypto lawsuits, largely targeting smaller companies, many of which had to shut down before they ever had their day in court as they were unable to shoulder the cost of litigation. And then, in June, SEC chairman Gary Gensler targeted two of the biggest platforms, Binance and Coinbase. Both exchanges have been widely used by individual, smaller investors and have heavily contributed to the adoption of crypto by “ordinary” people, allowing them easy and affordable access to this asset class. As a result of the lawsuits, customers withdrew billions of dollars, while US banks cut or limited their relationships with the platforms. The SEC chairman’s own comments fueled the panic. Defending the agency’s moves, he responded: "Hucksters. Fraudsters. Scam artists. Ponzi schemes. The public left in line at the bankruptcy court."
A lot of crypto investors and industry experts have objected to this exceptional treatment by regulators. They point to the repeated efforts by the industry itself to propose new rules and the level of compliance and adaptability that so many companies have already shown to all the changes and new regulatory burdens imposed on them so far. They also highlight the fact that the SEC has refused to acknowledge the important distinctions between different kinds of firms and the technologies they use, instead lumping more risky structures together with totally decentralized ones that by nature cannot be vulnerable to fraudulent activities like those of FTX.
There is no doubt that there are bad actors in this space, but it is also quite hard to understand why the SEC has singled out this relatively tiny corner of the finance and investment industry as uniquely dangerous to the wider public. The agency’s fervor appears even more perplexing if we bear in mind that a lot of it was unleashed at the same time that a banking crisis saw US lenders go bust and required the government’s full and prompt backing in order to avoid a full-on bank run. Were there no “hucksters” or no “Ponzi schemes” to be investigated then? What if we look further back, at the causes and the perpetrators of the 2008 global financial crisis? Was the public not “left in line at the bankruptcy court” then?
The sheer scale of the abuses, the fraudulent activities and even the actual convictions by companies in the conventional banking and investment industry makes the crypto cases, even the mammoth FTX one, pale by comparison, yet the SEC seems intent on challenging the latter with a single-mindedness that has rarely been displayed before by regulators.
One coin to rule them all
If we zoom out for a moment and consider the bigger picture and what else has been going on in the digital currency realm, the whole “war on crypto” issue has revealed itself to be an even more tangled web. At the same time that the SEC, under Biden appointee Gensler, has been targeting crypto firms large and small, the US government itself has been working on the introduction of its very own “coin”. The digital dollar, and the rise of Central Bank Digital Currencies (CBDCs) in general, is a topic we have extensively written about in previous editions of the Digger, and it is slowly but surely now transitioning from theory to practice.
Specifically, the FedNow system, which we also recently wrote about and is widely seen as the precursor to the digital dollar, is set to go live in late July, with fifty-seven firms already certified to use it. As Reuters reported: “41 banks and 15 service providers, including large firms like JPMorgan Chase, Bank of New York Mellon, US Bancorp and Wells Fargo, have completed formal testing and will be ready to provide instant payments after the new service is live.” The Fed’s new system is meant to increase liquidity and provide instant payments capabilities for businesses, allowing banks, businesses, and consumers to send and receive payments within 10 seconds, 24/7.
On the surface, it might sound like it offers the same convenience and efficiency that leading crypto coins promise, only with the backing and trustworthiness of the US government itself. However, there is one particularly important distinction: Unlike the decentralized crypto alternatives it aims to compete with, the FedNow system is very much centralized and entirely under the direct control of the Fed itself. Thus, whatever convenience it might be able to offer, must be weighed against serious concerns over privacy, state overreach and individual financial sovereignty.
At the end of day, it doesn’t really matter if the regulatory attacks on crypto are in fact concerted and aimed at paving the way for the digital dollar by eliminating the competition. All that matters is that if they are successful, the average citizen will be left with no other choices or alternative currencies to bank in, to save in, and/or to trade in within the increasingly important digital realm.
Why BFI Bullion was Created – More Relevant Today Than Ever!
BFI Bullion celebrates its 15th anniversary on August 20th, which evoked a bit of nostalgia and stirred an urge to look back at our history and the reasons BFI Bullion – or “Global Gold”, as our company was known for a large part of that history – was started. Our beginnings had a lot to do with clients at the time looking for a safe and ultimate crisis-proof solution, based in Switzerland. 15 years later, the reasons BFI Bullion exists are more relevant today than ever.
If you’ve received emails from me or anyone else in the BFI Capital Group in the past month, or read our blog, you’ll also know that our BFI Capital Group is celebrating it’s 30th anniversary this year. And now, we are thrilled to share that we are turning 15 this August as well. We may have done our first trades for our clients in 2009, but BFI Bullion had its beginnings officially on the Swiss commercial registry, on August 20th, 2008. Lots to celebrate this year, that’s for sure!
BFI’s group, before BFI Bullion ever existed, was a strong proponent of investing in precious metals, and physical metals in particular. BFI Bullion was founded with a primary focus on uncompromising security. Back in the mid 00’s, some of our Group’s clients were losing trust in the global financial system and were looking for a solution to keep their gold physically, safely, and in Switzerland, but not with a bank or a fund, and not in a solution with fractional or unallocated ownership.
And so, our CEO, Frank Suess, set out to find a suitable solution for our clients. But after looking into all the options available at the time, he simply wasn’t satisfied with what he saw. So, he and the team decided to create what we all felt was missing and what our clients really wanted: BFI Bullion. I too was fortunate enough to have been around at the time, already working with BFI Consulting, and helping many of our clients gain access to metals stored in Switzerland and outside of the banking system.
Which Brings us to Today…
BFI Capital Group just published their latest Special Report titled, Deeper Into the New Era – Navigating the Shifts & Turning Points Ahead. This report, building on earlier publications from 2020 and 2021, that had already described financial markets and the global economy as “artificial, bloated, and overdue for a correction” thanks to steep monetary tightening by the US Fed and the growing risk of a credit crisis, describes how we now find ourselves neck-deep in this New Era.
The past few years have produced new complexities for the big picture. It used to be that the main indicator to keep an eye on was monetary policy, but now more factors have been thrown into the cocktail: geopolitical shifts, extreme polarization and a lack of common values in the West, and a world that is drowning in debt.
One of the main “New Era” investment themes mentioned a few times throughout the Report is physically allocated gold. In fact, it is identified as one of three “fail safe” measures that need to be included in a necessary risk management strategy today. Gold throughout history has been a valuable commodity and it is actual money. Does any other investment have a 6000-year history? Gold has traditionally been an inflation and deflation hedge, a hedge against currency weakness, a hedge against crises and volatility, and thanks to those qualities, acts as an essential part of a diversified portfolio.
Anyhow, I’m not going to continue preaching to the choir; you are more than familiar with why gold and precious metals are important.
…and Why BFI Bullion is More Relevant Today than Ever
Over our 15-year history, we’ve had different iterations of how we phrased them, but BFI Bullion has carried along what we refer to currently as the Critical Features of a Safe and Crisis-Proof Precious Metals Solution, which you can find under the 10 Unique BFI Attributes on our website, in comparing BFI Bullion to others.
These “Unique Attributes” have never been more relevant than they are today, and not only for precious metals owners, but many of them also apply to all long term investors and ordinary savers that urgently need to consider the current big picture realities we are dealing with today.
Physically allocated coins & bars.
No paper gold or gold claim products like an ETF or other products backed only by promises instead of by what’s most important: actual gold. Physical gold provides security, as there is no default or counterparty risk.
With no hedging, pledging, loaning or other use of our clients’ metals possible, prompt pick up or delivery of our clients’ metals is always possible.
Direct & unencumbered ownership.
One-to-one ownership of metals; what you put in is exactly and only what will come out through a sale, delivery, or pick-up. If you buy 50 x 1oz gold Maple Leaf's, you always own 50 x 1oz gold Maple Leaf’s.
Fully insured & audited.
Storage of our clients’ metals is fully insured with the industry standard coverage, and coverage applies way over the current value of metals we have in storage. Monthly reconciliations buttress an annual, physical and financial audit done by one of the Big 4 accounting firms.
Free of “back-door” limitation clauses.
What you see is what you get. There are no cash settlement clauses, unless of course our clients choose to sell their metals. And there is only bold print – no “fine print” – as to purchasing and storing physical metals.
With Loomis Switzerland, in the same facilities AAA-secure rated vaults that were ViaMat before them. And, we have storage options outside of Switzerland, and are contracted with other high-secure storage facilitators in the event a “Plan B” were ever needed.
Storage of our clients’ metals is done outside of the banking system helping to ensure continued access, even in the event of bank holidays or market shutdowns.
While we prefer using our highly secure Client Portal for communications, and BFI Bullion is always interested in the type of technology that can bring gold quicker into the hands of our clients, if clients prefer, they can still mail in their forms or instructions. And yes, we even still have a fax machine!
Those with holdings can come any time to see their metals, visit the vaults thanks to the special relationship BFI has with its storage partners, and even pick up their metals in hand.
Swiss legal framework.
BFI Bullion is a 100% Swiss company. The contract we have with Loomis Switzerland is under Swiss law, even if storing with BFI in other Loomis locations around the world.
As I mentioned, while these points are key as to why BFI Bullion remains relevant for the physical gold investor, many of these attributes extend more broadly to how investors need to be thinking, and acting, in this new era. As detailed in the Special Report and as highlighted amongst the requirements for a solid wealth plan, it has again become increasingly important to look for investment options outside of your home country. Countries in debt tend to resort to financial repression as one of the ways of keeping capital within their borders. Jurisdictional diversification, along with diversifying to a place one feels as good as, if not better than, how they feel with their assets in their home country, gives the investor the benefit of time, if not the ability to follow their assets if their assets cannot follow them.
Safety is paramount again. Putting together a strong wealth plan today requires picking the best custodians and providers, ones that are time tested, and picking those that are in safe jurisdictions. Safest doesn’t always mean largest, as we’ve learned all to well.
Convenience and ready access should also come in high on your wealth planning needs. Here again is where it is important to work with partners that have been in the game a long time. Know the investments you are getting into, and if they meet the kind of access that you need should conditions get worse and you need flexibility.
Of course, this isn’t an exhaustive list, but I think you get an idea. Even if you aren’t interested in buying physical metals now, the fact is that there is plenty to think about.
Mark your calendars for August 20th and be sure to join us in raising a glass to our 15th anniversary. When we created BFI Bullion 15 years ago, we did so as a way of bringing what we felt was the ultimate crisis hedge for what was going on, and what our clients were looking for, at that time.
Yet here we are today, remembering why we started, and considering how we are more relevant than ever!
Why Does the Gold American Eagle Always Cost More Than Other Coins?
If you’ve ever shopped around a bit when wanting to buy 1oz gold coins, you’ve undoubtedly done some comparing between coins like the Canadian Maple Leaf, the Australian Kangaroo, or the South African Krugerrand. But in looking at the American Eagle, have you ever wondered why the premiums over the spot price are more than any other, making it far-and-away the most expensive 1oz gold coin to buy?
It’s not unusual for us at BFI Bullion to get these kinds of questions about price differences, and to get them from non-US persons regarding the American Eagle's high price tag. But what prompted me to write this article was the fact that I got this question from more than a few Americans in the past couple of months. They came to us wanting to buy Eagles, but then saw the price differences.
So, what is “so special” about the American Eagle that makes it the highest priced among all other coins?
Before I answer this, let me clarify: When I mention the “American Eagle”, or “Eagle”, from here on out, I’ll be referring to the 1oz gold American Eagle coin. I want to make this clear, as it is the one of two American Eagle coins (1oz gold and 1oz silver) that we offer here at BFI Bullion. Gold American Eagles also come in one-half, one-quarter, and one-tenth of an ounce sizes.
While I have some of my own practical reasons for why I believe the Eagle is always more expensive, and I’ll get to those later, we could probably safely assume that off the top, they are more expensive because they are in higher demand. So perhaps the question might be why are they in such high demand?
Looking for somewhere to start, I simply Google’d it. Here were the reasons I found from numerous different websites:
“The quality is guaranteed by the United States Government.”
“The US Mint is amongst the most storied coin manufacturers.”
“Due to their secure nature, high quality, and American orientation.”
“22-karat gold, with small amounts of alloy, making the coin harder and more resistant to scratching and marring, retaining a high resale value.”
"By law, the American Gold Eagle coins can only be made with gold mined within the United States.”
All compelling reasons for sure, but nothing that personally jumped out at me as to why the Eagle should be more expensive. I mean, the Royal Canadian Mint has a rich history of minting coins too. And did you know that apparently, in the 1980’s, the Krugerrand accounted for nearly 90% of the gold coin market?
In practically thinking about it, first, the American market of investors is enormous, and having spent the first 30 years of my life in the US, I can tell you first hand that there is a deep-rooted patriotism for all things “American”, making it perhaps obvious that we would gravitate to the Eagle. The US gold coin market is one of the largest in the world. It also shouldn’t surprise you that when looking at any precious metals dealer’s website in the US, the first coin you’ll see is the Eagle.
What few non-US persons might realize is that the American Eagle is approved – and heavily advertised – in the US for being able to be included in an IRA (individual retirement account). While the Australian Kangaroo, the Canadian Maple Leaf, and the Austrian Philharmonic are as well, in any list that is done in alphabetical order, the “American Eagle” will always show up at the top.
While the Eagle’s popularity has made it one of the most counterfeited bullion coins in the world, according to a survey in 2018 by the ACTF (Anti-Counterfeiting Task Force), the good news for investors is that even if they pay a higher (or the highest) premium when purchasing, they’ll also get more for the coins over spot when selling them again. That can certainly be an advantage, although it isn’t a guarantee, as how much you get back in premium will depend on the usual supply and demand for gold and for the Eagle at that time.
Is the greater expense worth it to buy the Eagle? Personally, while I certainly like them, I tend to purchase the coins with the best premiums at the time I’m purchasing. I’m not thinking about the resale value, as my plans are to hold my metals for years, not weeks or months. As many of our clients know, I always like getting the “most bang for my buck”, as Americans like to say.
At the time I was finishing up this article, gold spot was sitting at around $1904/oz. I had a quick look online at a few dealers in the US offering the Eagles – 20 x 1oz gold Eagles - and for the dealers that even showed their prices, I saw prices as high as $2,155/oz. I was quite surprised as at the very same time, we could offer them all-inclusive of our providers’ premium and our standard brokerage fee for a purchase this size, for $2,031/oz. To compare, the absolute lowest priced gold coin we could offer at this moment was the 1oz Australian Kangaroo, for an all-inclusive $2,003/oz!
To be clear: I’m not poo-pooing the Eagle at all. I do have a couple of them myself. But for my long-term holdings, I’m quite happy with the Kangaroos, Maples. Britannias, and even Noah’s Arks. But then again, that’s just me: always after the most bang for my buck!
Setting a Dangerous Precedent with Student Loan Forgiveness
At the end of June, the US Supreme Court struck down President Biden's plan to cancel billions in student debt. In a 6-3 ruling, the court sided with conservative states that had brought suits against the proposal on the grounds that the President had overstepped his authority.
In response to the ruling, Mr. Biden announced that “Today's decision has closed one path. Now we're going to start another.” He was alluding to his “Plan B” that involves using the Higher Education Act, a 1965 law on federal student loan programs, to sidestep the court’s decision and use a separate pathway to debt relief. While the US President seems confident that this approach will work, telling reporters that “this new path is legally sound. It’s gonna take longer, and in my view, it’s the best path that remains”, it is too early to tell if it will prove viable.
If it does, however, it will undoubtedly set a terrible precedent and provide a dangerous new tool to the present and future administrations as they find themselves in more and more dire financial positions.
The most obvious argument against the student loan forgiveness is the fact that it is unfair. Naturally, not everyone comes from a family that can financially support whatever future they envision for themselves. In most cases, going to college when one cannot afford it makes for an extremely hard choice.
Countless young Americans are forced to make it every year and many of them manage to do it without taking on debt. They either work during their studies, they get scholarships, or they chose schools or degrees that are less prestigious or more affordable. Or perhaps, most detrimental of all, many of them simply give up their dream of a higher education and they select professions that don’t require it.
Whether this system is just or not, or whether the Europeans got it right with their public universities, is not the question here. The fact remains that these are the circumstances that all prospective students have and are still facing in the US. This is why so many opponents of Biden’s plan have argued it is unfair to those who made the aforementioned sacrifices.
However, the risks that this proposal brings are not merely ethical. Debt forgiveness of any sort, be it student, or commercial, or consumer, is essentially a form of wealth redistribution. The debt doesn’t just vanish into thin air, simply relieving the borrower and affecting nobody else. Any write-off obviously impoverishes the creditor, as it literally writes off their property. And when this write-off is forcibly imposed by the State, it also sends a message that honoring one’s debt commitments is actually optional.
Last, but certainly not least, it is not difficult to imagine how such a precedent could be abused as we move deeper and deeper into the New Era. As governments get increasingly indebted and as they run out of ways to get out of the financial corner they’ve painted themselves into, debt jubilees could be a politically viable path forward. Hiking taxes on the rich is bound to be pointless when there are no rich left to tax and doing so on the general public is political suicide.
Erasing debt, however, is not only an extremely popular measure with voters, but it also has the added bonus of being inflationary, which is particularly helpful for the government’s own debt. Freed from their future debt obligations (be it student loans, or perhaps certain mortgages or other loans one day), consumers can spend more today, “stimulating” the economy, and further debasing the currency in the process.