A Need Creates a Golden Opportunity: Connecting Crypto to GoldBy Joshua Rotbart, Managing Partner, J. Rotbart & Co.
Published on March 28, 2019
J. Rotbart & Co. recently celebrated its third anniversary. Although we are well known in the precious metals industry, few of our peers are aware of our sister company, JR-Crypto, which assists cryptocurrency investors by offering them a secure way to move funds from the volatile and virtual market of cryptos to the stable and safe world of physical gold. JR-Crypto offers a robust ecosystem that allows a two-way market from gold to crypto and vice versa, without compromising on strict anti-money-laundering (AML) and know-your-client (KYC) policies. In addition, JR-Crypto offers cold storage services in over ten locations globally.
In 2016, we encountered an unusual client request: “I trust you when it comes to helping me buy and store precious metals. Would you also be able to source for me a virtual coin named Bitcoin?” We looked into this “new” asset class and sourced 1BTC for our client through a Singapore-based peer-to-peer platform. After completing this transaction, we received similar requests with increasing volumes. In the crypto heyday of 2017, several of our bullion clients asked us to liquidate a part of their physical precious metals holdings and transfer them bitcoin in return. We recognised this opportunity and looked into the matter more seriously, which is how we established JR-Crypto.
There are several similarities between cryptocurrencies (mostly bitcoin) and gold. Both can be viewed as global decentralised currencies, as they are traded globally and are not issued by any central bank. However, cryptocurrencies are a new uncharted asset with a low public acceptance rate, lack of regulatory framework, and extremely volatile prices. Traditional investors use gold as a “safe haven” but considering the unrealistic appreciation in the price of cryptos, it was clear to us that there is an even greater need for crypto investors to have a way to easily and securely move from these volatile new assets to the stability and safety of physical gold.
Although some of our industry peers already accept bitcoin as means of payment, the fact that we serve mostly high-net worth individuals and investment firms mean that the transaction values we deal with are usually higher, which entails additional legal and logistical issues. The challenges we have encountered include:
- Finding the right crypto trading partners. As the crypto industry matured, a few key players emerged, some of them backed by big financial firms. JR-Crypto only trades with the most innovative crypto OTC companies via advanced trading systems.
- Compliance and KYC procedures. Due to the anonymous nature of holding cryptocurrencies, this was our biggest concern. We assigned a Singapore-based law firm to design strict, up-to-date KYC and compliance SOPs to ensure clients are screened properly. We also use innovative tech solutions to conduct enhanced due diligence on the coins, trace their origin and make sure they are not derived from illicit or illegal activities.
- Banking. Opening a bank account was perhaps the most difficult task we encountered. Although cryptos have become more popular, many industries still refrain from embracing it, especially the banking sector. Many crypto enthusiasts claim that the banking industry is the one that will suffer the most from the mass adoption of digital coins, as this will eliminate the need for a third-party intermediary.
Due to the above, and the fact that cryptocurrencies are a new asset class that requires additional KYC and AML procedures, the majority of banks have completely banned new accounts for crypto-related companies, as well as receiving remittances that originated from any crypto-related activity. The few banks that are tolerant of crypto-related activities shunned us completely as we are also involved in precious metals trading. Eventually, we found a solution. JR-Crypto now enjoys solid banking relationships.
Challenges still exist, of course. The general ecosystem is fragile, and all the required components, such as banking and professional insurance coverage, are not accessible to everyone. That said, the success of JR-Crypto proves that solutions can be found.
JR-Crypto is now gearing up for the next challenge: contributing to the two technological leaps our industry requires. Both derive from blockchain technology. First, using blockchain to track gold from its origin to the end client. Second, digitising gold so that investors can buy, sell and even spend gold-backed tokens. We call on our friends in the industry to support one another in these efforts.