Precious metal bitcoins a complete scam or am I missing something...

[bitcurious333]

Hi All,

I have had a look through the collectibles section of the forum and have a few questions about physical precious metals bitcoins as I'm rather puzzled.

I hope you all don't mind enlightening me briefly....

I notice that the prices paid for these physical items - e.g. Denarium coins seem to be incredibly high relative to their actual value - for example a 1oz fine gold coin from Denarium currently costs EUR 3087. BTW I am singling out Denarium here for the purposes of creating a worked example, so my criticism is not leveled at them specifically. Let's go on...

A brief search of bullion dealers in Europe reveals many 1 oz fine gold coins for sale at an average of EUR 1100 per piece - so why is this Denarium item being sold for nearly three times the price?

OK I accept there will be a cost for tooling, packaging, applying the hologram, marketing, storage, funding costs etc. but surely this is an utter rip off? There is making a profit and then there is just scamming people. I could contact one of the many mints in Europe and they would charge me around EUR 250 for the tooling to produce the item plus a premium of around EUR 15 per piece over and above the intrinsic metal value to mint each coin, EUR 10 to ship them to me, then I could purchase the packaging and holograms online and put together the item and come on this website and sell them for half the cost of Denarium and still make a healthy profit. I know this because I have asked 2 of them and added it all up. The same principle applies to their silver coins by the way which are also hugely overpriced.

Furthermore, Denarium charges VAT on the gold coin they are selling which is actually illegal within the EU - there has been no VAT on investment grade gold in the EU for many years. I find this troubling...

Even more worrying, since there is no indication on the item of the mint that has manufactured it (and whether that mint is reputable or a member of the LBMA) how can you know that the item is even real gold / silver or whatever it purports to be. There is an obscure symbol and .999 engraved on the edge of the Denarium coin which frankly indicates nothing and can be replicated by anyone. Most of the crypto coins I have seen don't even have this...

Unlike a genuine mint, there is no mintage control over these companies - i.e. they can produce as many of the items as they wish so the collectable value is effectively zero.

Astonishingly, many of these coins also have the private key attached to them. How can anyone trust these companies with exposure to their private keys? What am I missing here.... do people actually use these items as offline wallets or are they just for fun... in which case they have zero utility which further undermines the high price charged.

Can some of you with more knowledge please enlighten me on any of the above... I would be very grateful to know your opinions... even better if a representative of the above company could post here I would also be interested to hear their response.

Thanks in advance

A concerned and confused newbie.

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[johnny211]

Addicted hoarder here. I pick up items I like at a price I like them at, whether the acquisitions make sense or not is a rather personal thing and opinions obviously will differ on this, but that's what a market makes.

As for the VAT on gold, that seems slightly off to put it mildly, but not all pure gold is VAT free in Europe though. Stuff like http://www.edelmetall-handel.de/gold/goldgranulat/goldgranulat-1g.html is not excempt. I wonder if reclaiming the VAT on Denarium coins would work? Anyone with insight in this matter?

[SaltySpitoon]

I can field this one pretty well I believe. I can't speak about Denarium in particular, but I can kind of bring up where the premiums come from. Limited batch precious metals are very expensive for a reason. If you consider all of the setup fees involved, design, having dies created, contracts with the mints to produce them, machining fees, etc, there are flat rate costs and cost per piece costs. I'm just using round numbers for examples, but if there is a 1 BTC flat rate setup cost and a 0.1 BTC per piece cost from the manufacturer, and you produce 1 piece, its going to be a total of 1.1 BTC for 1 piece. If you have 10 made, its going to be 0.2 BTC per piece, etc. Independent coin producers do not have the capital to be able to make any sort of deals with mints.

The 15 euro over spot pieces you are talking about are produced in the hundreds of thousands or more. The more you make the cheaper it gets to do so, so the premiums get lower and lower. When you are getting a contract with a mint to produce coins for you, the blanks are probably around the same cost as those 15 over spot coins. The buying power you need to get a competitive price in the bullion market is in the millions of dollars typically, likely higher.

As for the markings and such, those are actually really strictly regulated marks. If a coin says .999 Fine, Sterling, Britannia, Argentium, or 24/18/14 whatever Kt and it isn't, its a major crime. The companies that produce it aren't that big of a deal as long as it does test as its marked properly.

Could Denarium release a coin in a series of 50, and produce 100 instead? Sure, but they probably would never sell anything else after that. Bitcoin collectibles are incredibly strange to anyone familiar with regular numismatics. I've owned silver coins that were graded, 1 of 10 in the world, produced by well known, highly collected government mints, and they didn't carry the same premium that some random chuckecheese token looking stamped BTC coins do. I can't explain where all of the premium comes from, but its a combination of the factors I mentioned before, and that people are willing to pay them.

*edit* I can't make any comment on the VAT stuff, as I'm not in Europe and have never really looked into how any of that works.

As far as trusting a company with your private keys, there are a handful of companies that have been making physical coins for a long time and have been trustworthy. There have also been companies that went defunct and screwed over their customers. Make sure you pick the right ones to trust, or go don't trust them at all.

[wheelz1200]

Reasonable question but the same can be said of a painting true?  I mean its just canvas and paint.  To some people art/coins/sports cards/etc are just something that interests some more than others.  To me these mark a beginning of a brand new financial era in our society.  And there is artistic value in some of the coins/prints/notes/etc where a ton of time is put into these.  And as far as pricing for anything in this world, its value or worth is what another individual will pay for it so to answer no its not a rip off for the premium paid for these coins.

[krogothmanhattan]

Well said Wheelz...

How do you explain the stamp market? A piece of paper that can go for 9.3 Million dollars which is what the British Guinea Red magenta went for a few years back.

Prices are depended on availability and demand.

Bitcoin is the new monetary system in the making. We are collecting the very beginning of historical Physical Bitcoins.

Speaking as a collector of these coins, nothing excites me more than a loaded  physical  bitcoin.

The concept and idea is original and unique, thus the appeal!

And as for trust, that takes a lot to place bitcoin on a coin..especially at todays prices.

But for makers like Casascius,Lealana to name a few their reputations are impeccable.

The same goes for the first physical incarnation of Bitcoin in loaded cards by Bitbills that have proved themselves over time too.

[bitcurious333]

Thanks for your responses. I wanted to address a couple of points you made here krogoth. I'm not attacking you just wanting to better understand the market for these items...

How do you explain the stamp market? A piece of paper that can go for 9.3 Million dollars which is what the British Guinea Red magenta went for a few years back.

Stamps (and indeed coins) are produced by countries who have a strict and specific remit to produce a certain amount that is easily researchable  - you have no idea how many physical bitcoins are being produced other than what the manufacturer themselves tells you. Furthermore, let's say several years down the line certain items have become highly collectable, there is nothing to stop the manufacturer from producing more to take advantage of the high price. He owns the tooling remember, not you..

Speaking as a collector of these coins, nothing excites me more than a loaded  physical  bitcoin.

Ok so this is very interesting to me. So are you saying a loaded physical bitcoin is far more attractive to you than an unloaded one? If so why? What about the physical coins for which you provide your own public key and which contian no private key on them? Are these seen as useless / less attractive?

But for makers like Casascius,Lealana to name a few their reputations are impeccable.

Hmmm didn't Casascius go bust and I can't seem to actually order anything from Lealana's clunky website at the moment - have they gone bust too? Have you ever actually taken your precious metals coins to check if they are actually gold / silver or are you just buying the non-precious metal coins?

I'm genuinely asking here... not trolling.

[wheelz1200]

Thanks for your responses. I wanted to address a couple of points you made here krogoth. I'm not attacking you just wanting to better understand the market for these items...

How do you explain the stamp market? A piece of paper that can go for 9.3 Million dollars which is what the British Guinea Red magenta went for a few years back.

Stamps (and indeed coins) are produced by countries who have a strict and specific remit to produce a certain amount that is easily researchable  - you have no idea how many physical bitcoins are being produced other than what the manufacturer themselves tells you. Furthermore, let's say several years down the line certain items have become highly collectable, there is nothing to stop the manufacturer from producing more to take advantage of the high price. He owns the tooling remember, not you..

Speaking as a collector of these coins, nothing excites me more than a loaded  physical  bitcoin.

Ok so this is very interesting to me. So are you saying a loaded physical bitcoin is far more attractive to you than an unloaded one? If so why? What about the physical coins for which you provide your own public key and which contian no private key on them? Are these seen as useless / less attractive?

But for makers like Casascius,Lealana to name a few their reputations are impeccable.

Hmmm didn't Casascius go bust and I can't seem to actually order anything from Lealana's clunky website at the moment - have they gone bust too? Have you ever actually taken your precious metals coins to check if they are actually gold / silver or are you just buying the non-precious metal coins?

I'm genuinely asking here... not trolling.

Casascius stopped producing loaded coins after his 2013 run of coins, due to regulatory restrictions he was presented with.  He accomplished his goal and stopped, he certainly didnt go bust.  And Lealana has been offline for a little bit but they too have successfully ran a business and did not go bust.  There have been certain manufacturers that have went rougue, i.e. coinographic.  As far as testing the metals, many people do and vouch for the metal and its purity for a particular coin.  You can certainly buy a tester yourself or go to a local shop to have it tested as well

[BitcoinNewsMagazine]

Like all collecting you should only buy what really blows your skirts up. I like NaTTyMiNd's limited editions. There were only three of these brass proofs struck before the 67 silver coins will be produced later this month. Kialaras are also special. I am one of the few who don't care to collect Casascius coins though.

[Rmcdermott927]

As a coin maker myself, the biggest single cost of creating a limited run coin is the die and minting charges.  Being as the crypto community is very small, most manufacturers limit production somewhere in the 50-200 coin range.  

Dies can cost from $1000-5000+ given the intricacy of the design and the size of the coin being minted.  Let’s say I wanted to mint 100 silver 1oz coins with a 3 dimensional design on both sides, I would likely be in the $4000 range because I would need 2 3D dies(front and back).  

Let’s call silver spot price $16.50, so 100 coins would be $1650 for the metal + a $3-5 minting charge per coin.  

Dies $4000
Silver $1650
Fees $400ish

Total cost: $6050


So for 100 coins it could cost $60+ each depending on the mint you use. You also need to factor in the time + assembly costs done by the distributor as well as little things like cases or boxes for shipping.    Oh, and custom holograms cost $1000+ per design many times.  

Mints like Pamp Suisse, etc literally mints 10’s if not hundreds of thousand of coins per run as their market is exponentially wider.    The die then becomes by far the least expensive part of this equation and minting fees are almost non-existent as all of the work is done in house.  

I hope this helps answer your question. 

[OgNasty]

I created the Bitcoin Binary Rounds to address exactly this concern and show that coins could be sold for less (2018 rounds en route).  I don't see why DIY wallet coins couldn't also be sold at these prices (I could do it if I wanted). 

However, when you get into something with a lot more behind it, like say my Minted Seats, which require vanity addresses to be generated for months on end, specialized expensive engraving equipment, precise custom engraving, custom produced holograms, development of an organization to distribute digital coins, development of a storefront to sell custom items to help support digital coin distributions, development of a site to get information on manufactured rounds, a building to host miners, free provided sustainable electricity, mining equipment, internet connection, cooling, and lastly a team of individuals willing to manage it all for free for a period spanning multiple decades; then things get a little more costly.

My point being that each product is different, and pricing should be adjusted as such.  If you feel a product is too expensive, don't buy it. 

[krogothmanhattan]

Stamps (and indeed coins) are produced by countries who have a strict and specific remit to produce a certain amount that is easily researchable  - you have no idea how many physical bitcoins are being produced other than what the manufacturer themselves tells you. Furthermore, let's say several years down the line certain items have become highly collectable, there is nothing to stop the manufacturer from producing more to take advantage of the high price. He owns the tooling remember, not you..

              Yes you have a point on saying stamps are issued by governing bodies, so it is a matter of trust just as is the fact we are placing our trust with our bitcoin in their coins.
     Its also a matter of trust we place when they mention only a certain number will ever be minted

     Ok so this is very interesting to me. So are you saying a loaded physical bitcoin is far more attractive to you than an unloaded one? If so why? What about the physical coins for which you provide your own public key and which contian no private key on them? Are these seen as useless / less attractive?

     I prefer them loaded. The whole idea started with Mike Caldwell who wanted to represent bitcoin in a physical state as a coin to spread to the masses and for them to understand and feel bitcoin.
Also the value of the coin will also be tied not only to its numismatic value but to also the price of Bitcoin. So it has greater appeal to me as a collector. It is in my opinion a unique collectable as each value has almost  a different loading date and thus not only is there a time of mintage but also a loading value date/time.

     

Hmmm didn't Casascius go bust and I can't seem to actually order anything from Lealana's clunky website at the moment - have they gone bust too? Have you ever actually taken your precious metals coins to check if they are actually gold / silver or are you just buying the non-precious metal coins?

     Casascius did not go bust but shutdown because of the complications with FINCEN. Totally different than going Bust. Not sure about Lealana if he is still in business, but as of last June, I bought directly thru that website with no issues.

     Numerous collectors on this forum own machines to test these coins. Have never heard of any fakes being produced and sold here that were not called out!
 
     

[flora_digitalis]

As a traditional numismatist and stamp collector who is not interested in collecting Bitcoin tokens I nonetheless strongly oppose the view that offering these collectibles at high prices (i.e. far above their metal value) constitutes a rip-off or scam.

The reason is pretty simple: These collectibles are not bought with the primary intent of acquiring precious metals at market prices. They are bought as collectibles because of their special design and Bitcoin hommage. Prices are determined according to the free market's valuation of their appeal as a collectible. So the producers can offer them for any price they want.

Collectibles are collectibles and not necessarily investments.


That said, personally I don't perceive these Bitcoin tokens as an attractive collectible because of their lack of real world use. I don't see the point in collecting something that was produced to primarily be a collectible. Imho such items lack real history (an exception might be the Casascius coins that saw some kind of usage and became iconic because of their media presence). But that's a different story...