Precious metals pulled back sharply today, with gold down $20 or 1.5% and silver off by $0.60 or 3.5%. But shares of one company building their business around gold rocketed 60% higher today!
We first reported on the explosive potential of the newly-listed company BitGold (XAU) on Thursday of last week. They are an internet platform for acquiring, holding, and making payments in gold. If you bought shares on Thursday, you are sitting on profit of roughly 77% in the past three trading sessions. The stock blasted 60% higher today on strong volume of 1.7 million shares.
BitGold enables users to purchase gold using various electronic payment methods and then store gold and pay for goods and services using gold as the currency. The simple way to think about it is Paypal, but with gold.
Once fully operational, the platform is intended to provide various transactional capabilities, including instant cross-border payments, merchant invoicing and processing for gold, debit card spending of gold at traditional points of sale, conversions to a customer’s external digital wallet or bank, and physical gold redemptions.
BitGold plans to eventually have a network of ATMs, allowing users to open accounts or deposit local currency in exchange for vaulted gold, which will be accessible for digital transactions. It is an innovative business model that could thrive even if they are only able to grab a small share of the enormous digital payment market.
I don’t view BitGold as a replacement for physical gold, but an interesting compliment to the metals that competes with the conveniences of digital payments.
While some have expressed concerns that the government could shut them down, the company is backed by a true government insider, George Soros, and has secured a listing on the Canadian Venture Exchange. Many hedge funds are in on it, so its emergence probably will not ruffle as many feathers as the company E-gold. Despite growing to millions of users in over 100 countries, the government eventually shut down E-gold citing money laundering crimes and operating an unlicensed money transmitting service.
BitGold is essentially following in the footsteps of Douglas Jackson, the visionary founder of E-gold. Will they be able to avoid the same fate? It is probably too small at this point to get much attention the banks and credit card companies. Or it is possible that the government and their largest donors have some type of control over BitGold or back-room assurances.
Quite a bit of money is betting that BitGold will indeed succeed. Others believe the stock is overvalued and was listed quickly so that investors would have no hard data to value the company properly. A back-of-the-envelope calculation comparing BitGold to Paypal seems to suggests that BitGold needs in excess of 2 million current customers to justify their market capitalization.
It is a great idea and could catch traction rapidly, but shares may have risen too far, too fast (167% in under a week). That being said, there are still plenty of investors that have yet to hear about the company and could bid up the limited number of shares outstanding rather quickly. I could see this happening with BitGold, as E-gold has proven there is significant demand for such a product and Bitcoin has increased awareness of digital currencies by magnitudes over the past few years.
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