Tuesday, August 15, 2017

Important News Note: Per Andrew Maguire - ABX Severs Ties with BullionCoin

Just as the BullionCoin web site launched today Andrew Maguire puts up this comment on his Twitter feed:

VERY DisappointingDigital Gold fumbles golden opportunity to change precious metal markets forever. ABX has a plan B
12:55 PM - 15 Aug 2017


Below I have pasted in the text of the link just above and after that some added comments:

ABX withdraws from its collaboration with Digital Gold Limited

15 August 2017

Allocated Bullion Exchange (‘ABX’) has issued this statement in response to questions from our Members, their customers, stakeholders, potential BullionCoin investors, and the precious metals industry at large, concerning the release of Digital Gold Limited’s (‘Digital Gold’) BullionCoin digital asset product.

Regrettably, and effective immediately, ABX’s Board has today, Tuesday the 15th of August 2017, resolved to cease any further collaboration with Digital Gold.

This action was not taken lightly, but rather, as a result of recently obtained information, as well as ABX’s inability to reconcile material risks to supporters of the BullionCoin product structure due to the following factors:

1.    Against strong advice from ABX, Digital Gold was insisting to structure its metal ownership so that investors in the digital asset would be, in our view, unsecured creditors of Digital Gold. This form of ownership is commonly referred to as an ‘unallocated’ holding, and results in the investor only having a ‘claim’ to the metal, as opposed to having ownership of the asset and being protected in the event of a Digital Gold default. It has long been ABX’s view that this model is inherently flawed and would result in genuine counterparty risk to holders of BullionCoin. A detailed explanation of ‘allocated vs. unallocated’ metal ownership and the substantial risks associated with unallocated metal, can be found 

2.    ABX has been unable to satisfy itself regarding the security and integrity of Digital Gold’s bullion holdings structure and thus ABX is of the view that there are risks similar to other flawed cryptocurrency businesses in recent times where investors have lost significant amounts of money;

3.    ABX have received confirmation that a competitor of Digital Gold intends to initiate legal action against Digital Gold upon the launch of BullionCoin due to alleged infringement of intellectual property rights. This, in our view, would have the potential to put at risk all BullionCoin-backed unallocated bullion, to the detriment of BullionCoin holders and investors;

4.    Digital Gold is insisting on utilising private vaulting networks that, in ABX’s view, would permit external bullion deposits with limited quality verification, thereby circumventing, and being not subject to ABX’s robust bullion framework for assuring the quality of the bullion in its network;

5.    Digital Gold is developing and utilising a non-standard matching engine and order book within its BullionCoin System (‘BCS’) secondary market which, in our view, will result in an atypical trading experience that ABX believes will cause confusion and disputes;

6.    Digital Gold has made frequent and substantial scope of project amendment requests and in ABX’s view, has been unable to meet any mutually agreed project development timelines; and

7.    ABX’s unwavering commitment to allocated and transparent precious metal ownership.

ABX is disappointed that it has been forced to withdraw from this collaboration. Unfortunately, ABX believes that it simply had no alternative as it found itself in the untenable position whereby the mechanics of the business model originally pitched to ABX were not what Digital Gold ultimately delivered.

ABX intends to continue work to support and / or launch its own precious metal backed digital currency. The experience with Digital Gold has resulted in the Board forming a view that they do not have the expertise or experience or professionalism to launch a product or service which will adequately satisfy the needs of ABX's stakeholders. Based on ABX's experience, and the legal advice taken, ABX is recommending to its stakeholders that they do not work with Digital Gold for the reasons stated above.

On a positive note however, ABX has recently been contacted by several other bullion-backed digital currency providers who have identified ABX as the market leading facility for allocated physical precious metals. Now that ABX has withdrawn from the Digital Gold collaboration, the Board has approved collaborations with several other advanced stage allocated precious metal digital currency providers.

To this end, ABX is pleased to announce that it will be issuing a press release to its stakeholders on these new collaborations and partnerships in the immediate future.

Allocated Bullion Exchange

My added comments: This certainly came out of nowhere. The ink was not fully dry from our article just below on the BullionCoin launch when this news broke. I cannot say I am real surprised though because during my efforts to research this as potential news impacting the gold market, I encountered difficulty getting consistent answers to some questions I had asked related to the institutional support for BullionCoin. At this point, there is nothing to indicate such institutional support exists and the comments this year about large gold buy orders remain unexplained and of doubtful credibility. For anyone interested, we documented the full trail of comments on this during 2017 in this article up to 8-15-17 where the trail ends.

If more news surfaces, we will cover it here if it appears to be significant news. Otherwise, our coverage of BullionCoin ends here.

Andrew Maguire adds this additional Twitter comment.

Added note 8-16-17: David Gibson of GoldVu who provided some information by email for our earlier article here released this statement regarding BullionCoin on his web site here.

This information was also sent out:
Important Notice on BullionCoin following its launch on 15 August:
"BullionCoin and the Allocated Bullion Exchange have been collaborating closely with each other until it's launch in order to deliver a gold & silver backed digital currency.
However, a few minutes after BullionCoin's website went live, the ABX issued a statement announcing it was withdrawing from its collaboration with BullionCoin citing several reasons.
Whilst this unfolds, I am going to treat the information as objectively as I can, and so should you.
I strongly suspect it may well turn out to be a storm in a tea cup and not actually be anywhere near as drastic as it sounds, and BullionCoin could well become the digital currency we all want it to be.
Things like this often happen in business and it should not reflect poorly on either party as they both have a great product.
I have spoken to Thomas Koenye, the co-founder of BullionCoin, and it looks like ABX's statement may have been unfairly issued and there are some areas that need clarification which I have added as a pre-face to ABX's statement. Thomas' reply is here.
However, as my primary and overriding concern is the safety and security of client and potential client money and their vaulted precious metals, I will always take the options and decisions that will not expose you to any risks. I will update you as soon as I have completed my due diligence on this matter.
If you have any questions about this then please do contact me and I'll be happy to help. You can also contact BullionCoin and ABX for further clarification from them."
Yours faithfully,
David Gibson, Managing Director
My additional added comments: If you take time to read this point by point response by David Gibson to the statement released by ABX, you will understand what I meant above when I said I had difficulty getting consistent answers to some questions I had asked. It is pretty clear from this statement by ABX Associate Member David Gibson  (GoldVu) that he was not always on the same page in terms of his understanding of BullionCoin. Also, note that he says he was "very surprised at ABX's statement". I have no doubt that is true.

Trying to cover this story has been interesting, but will end with this article unless something truly impacting the gold market arises out of this. The business dispute between BullionCoin and ABX is not the type of news we have interest in covering here. We did cover this story until the BullionCoin launch because of the potential for this to impact the gold market and the price of gold. No such impact appears imminent based on this latest news. Time to move on.

Update 1-29-18: It appears the ABX has announced a new partnership that will produce a gold backed cryptocurrency. I am not sure what the situation is with BullionCoin, but they do not appear to be involved with this new partnership with ABX.

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