A new exchange for trading gold bullion and bitcoin is set to open on 21st February.
The Bullion Bitcoin exchange, based in London, will allow sophisticated investors, as defined by the UK financial regulator, to trade gold bullion and bitcoin. The exchange will not be open to retail investors.
Adam Cleary, Bullion Bitcoin’s owner said:
“It seemed to me we should create an exchange that’s completely free of any fiat currency constraints. There are no fiat currency accounts – it’s directly gold for bitcoin.”
Access to the exchange will be restricted to sophisticated investors, high net-worth individuals and professional clients, as defined by the Financial Conduct Authority, the financial services regulator in the United Kingdom. Traders on the exchange will also have to put up a minimum subscription of 1kg of gold (about $41,000).
Bids and asks
Bullion Bitcoin will ‘fix’ the price of gold in bitcoin terms twice a day. Traders will submit bids and asks for bitcoin and gold during these sessions. The exchange will then attempt to match the majority of the bids and asks. This process is similar to the ‘London gold fix’, a price-setting exercise that takes place twice daily among members of the London Gold Market Fixing Ltd, by tele-conference.
“Twice a day, traders [on Bullion Bitcoin] will have to log in and put in their bids. The system is not designed for high-frequency trading at all. It’s designed to be a more sedate, physical-type exchange,” Cleary said.
Cleary said he would target gold investors new to digital currencies and bitcoin investors seeking to diversify their holdings. He added:
“I’m hoping to appeal to goldbugs who might be looking for a way to move their gold to bitcoin. There are also people have who made a lot of bitcoin from the early years, and want to move into something tangible.”
Bullion Bitcoin has an account with a bullion dealer and storage firm called BullionRock. The firm, based in Guernsey, has underground vaults to store the precious metal as bars or gold grain.
Exchange customers will have the option of collecting their physical bullion from the storage firm, having it delivered to them or having it converted to fiat currency. Traders on the exchange can also make bitcoin withdrawals.
“They have a massive vault underground, they have a number of boxes, and they go in there to count the bars to make sure it’s all there. Most people tend to leave their bars in a box,” Cleary said.
Security and regulation features
Cleary said Bullion Bitcoin has a number of security features built into it. Withdrawals, for example, will require two signatures, from the account holder and the exchange administrator, before they are approved.
Another measure by Bullion Bitcoin to increase transparency is to record all its transactions on the blockchain. A customer who deposits bitcoin to their Bullion Bitcoin wallet, for example, will have his or her transaction recorded on the blockchain. Bullion Bitcoin will charge a 0.5% commission on each trade.
Bullion Bitcoin is owned by Cavenham Capital, which is, in turn, solely owned by Cleary. Cavenham is registered and regulated by the UK FCA. Cleary started Cavenham in 2005 and has used the firm to run its own investment fund and to consult for other funds. Before Cavenham, Cleary was a trader with Dresdner, Mizuho and other banks, and a research analyst at ING.
Paper gold
Cleary said he hoped the security and other measures in place at Bullion Bitcoin would assuage investor fears about the assets:
“The thing we’re trying to avoid here is what’s called ‘paper gold’, where you might have a bank that says it has the gold [to back up an investment product based on gold derivatives], but it turns out to be a load of paper promises. It’s a bit like having bitcoin in Mt. Gox unfortunately. It might be there, it might not.”
In January, a firm called Ripple Singapore launched that allowed users to trade precious metals, including gold bullion, for a variety of currencies, including bitcoin, on the Ripple network.
The relationship between bitcoin and gold was highlighted by venture capitalist Chamath Palihapitiya, who called bitcoin “a better version of gold”, or “Gold 2.0”. Neither bitcoin or gold are centrally controlled by any state body.
Gold Image via Shutterstock