Note: I’m continuing my experience here to help noobs learn a very difficult subject and to come along with me on this journey. I am NOT a paid supporter of Kinesis, I’m an absolute FAN of their product. I am not endorsed by them and have a full time career and thus do not NEED sponsorship or paid endorsement for things I like!! That being said, I plan to do several more parts of this over a month and wrap this up with a video going through my experiences. This is the TYPE of company I think many people might want to get aligned with over the next 20-30 years and I won’t rule out someday working for them in some capacity. This is about researching a product and concept I love and sharing my experiences with you.
The big picture
In part 1, I discussed what Kinesis was and in another blog post – perhaps part 1A, I discussed a concept called “Asset Backed Digital Currencies”. The concept here is that Kinesis and perhaps other firms are in the process of creating an entirely new asset class – a currency backed by something tangible. Anything. I’m getting a lot of comments geared more towards the crypto backend of this – while fair points – they are literally missing the big picture and mired in the weeds of white papers. Very smart people are asking about nodes to try and gain some sort of upper hand in the crypto side of the discussion, but they are not comprehending this concept:
Let me do you one better. I want you to look at this through the eyes of a child.
In the hand on our left, you see a gold bar. In the hand on the right, you see nothing.
This is KAU (Kinesis gold) versus literally any crypto currency or crypto asset. Any child would look at both hands and pick the one with the gold. This is why the “unbacked” crypto currencies are, one by one, doomed to fail. The blockchain ledger system is the breakthrough technology. Not the air you are selling on the ledger space. You use the ledger system as a means of accounting and ownership.
This starts to make many adults start to understand how the below is even possible.
I then chuckled to myself and thought, “this would be great to pay for with invisible currency”. Which then led me to non-asset backed digital currency as the butt of this joke. I would present the hand on our right with nothing there and tell them to please take my invisible crypto as payment.
I wanted to put this out there before we proceed because this is the first step in the journey to understand an “asset backed digital currency” and participate in the world of the future.
Actually BUYING this
I got involved with this first from Andrew Maguire videos where he was discussing a lot of the nuances of the gold and silver markets from a wholesaler perspective. I sort of dismissed it as some sort of gimmick or unallocated thing until they had a giveaway a few months back to give away 2,000 oz of silver through Kinesis. Wait, they are GIVING me $25 or so to sign up? I thought, the WORST that could go wrong is I accidentally screwed something up and sent my $25 to some kid in Mozambique by accident when I tinker around. So I didn’t have much to lose by kicking the tires.
But it was genius because it got me on the platform and tinkering around with it. Now, I want to do a LOT more with it.
Around the same time, I had written an article which got me something like 60,000 views and some attention for my thoughts on sound money, and Citizens for Sound Money (C4SM) sent me a Kinesis Velocity Token (KVT) as a reward for my contributions. That list of people who were nominated was incredible. I’ve done my part in lots of these writings over 18 months, but when you somehow wind up on a list of people like that, your first instinct is to feel like a fraud – and while very grateful, you feel you don’t deserve to be mentioned in the same sentence as any of them, let alone story or even internet. However, I have produced a solid body of writing over the last year and a half and am growing more comfortable being in this space as a contributing writer who is learning a lot of this with you. I’ll let those guys that go on 100 shows do what they do – and I’ll do what I do. Write.
So now I had a KVT and a KAG and wanted to get started. I imagine you might want to get started to!
My first hurdle, which was massive, was to fund my account. I just thought I can link my bank and Presto! No. This part of the whole experience I believe needs massive improvements over the next few months if you want widespread adoption from the United States. What happened was I ran into a brick wall where you needed to do a SWIFT transfer. This would rely on me driving to my bank, filling out a form, and then sending the money via SWIFT transfer to a bank in Australia. My bank’s hours are terrible, and I had a hard time getting there, so I hit the snooze button on this.
Note: you have to do KYC first, or “know your customer” through several step verification so they know you aren’t a drug lord trying to launder money through them. Most crypto exchanges do not do KYC and this anonymity may end up being the thing that brings them down. I feel this process helps de-risk the platform.
Luckily, in part 1 I brought this issue up and was flooded with emails on a workaround, which I then edited in. Essentially, you have to fund the Visa debit card first. Then, once that is funded, you transfer the funds from your debit card to your Kinesis balance. I don’t believe that costs anything at all. However, this required several steps.
- Setup a virtual debit card through Kinesis. Honestly, I have no idea what the hell a virtual debit card is. At 45 and someone with 10 years of college, I have no such need. Turns out it’s something with apple Pay or swipe this or that bullshit. Point is, you need to start this up.
- Once this is done, request a PHYSICAL debit card. I had actually tried this a few times two months ago and it wasn’t working. I came back a few times to try it. Maybe after a month, it finally worked. I think this may have had to do with launch in my country or the like – I don’t know – but suddenly it worked great. A week or so later I got the debit card in the mail.
- Now, go to your bank web page and set up an external account to send money to – this will be the debit card account. This may take several days to get the two deposits sent to the debit card. For me, this took nearly a week with the holiday weekend here on Monday.
- Go back to your bank account and confirm the deposit amounts and the accounts should be linked.
- Send money to your debit card account. My bank charged me like $.50 to send $1000. So this is minimal.
- Transfer money from your debit account to your Kinesis account
- Go to the exchange and make an offer on what you want. For me, I needed to find the KAG/USD pairing
You can see what the exchange looks like above. In the bottom center left, you see an underline there of a purchase I did yesterday on the market for a limit order of 35 KAG which I bought at $27.90. (Note that the date format is different for Australia)
One thing I have to warn you about with the exchange is – it’s just that – an exchange. Meaning, if you take your stack of 5,000 oz of AG and want to put on to Kinesis to sell in 5 minutes, you might have a slow go at selling. The liquidity here at the moment isn’t incredibly massive – but I have seen a few accounts of where people did “mint cycling” and seemed to do the 7 or 8 times needed to do it relatively quickly. So it appears you may be good to go with selling.
Warning: my reservation here is the idea that if you get to $75 silver, you hit SELL and trying to liquidate 5,000 oz quickly may not be reality – at this time. I believe you will have a lot of people getting silver into this system, perhaps to spend, but many may be sellers at $75 and not buyers. You may have more selling liquidity with OneGold if you are trying to dump massive amounts of gold or silver electronically. Down the road, IF Kinesis is on a lot of other exchanges, this may improve liquidity by a lot – and it might be of interest then to see there’s a massive price difference of KAGs on different exchanges.
Therefore – for ME – I’m looking to do the following…or attempt to…
- Mint (or buy) 200 oz KAG.
- When silver goes up a little, sell.
- Take cash and mint another 200 KAG.
- Down the road, hold 200 KAG at Kinesis OR take delivery of the 200 oz bars down the road.
The idea here is as price rises, the 200 KAG I have I will be selling at a slight profit and then mint more. If we get to $50 silver with stair stepping over 6 months, perhaps I repeated this step 50 times at no loss of cash to me – but I get all of the minter yield benefits for life.
I am ALSO considering another 200 KAG to mint to spend on things like gas, groceries, bills, etc on PRICE RISES. When this is depleted, reload my debit card with cash, mint another 200 KAG on silver price dips. Rinse and repeat. What this does, big picture, is essentially get me 5-10% off of my bills if I time purchases right. For example, I buy/mint 100 KAG at $25. At $27.50, I sell for a 10% gain and load my debit card and spend. Where I would have spent that $5000 at the store over 6 months or so, I now had $5500 to spend at the store. With increasing prices – these types of things are of interest to me to get discounts. When price recedes back to $25.50, buy another 100 KAG or the like. At $28, sell and do over and over as price rises into $50 an ounce.
Warning: you may be dealing with capital gains, and I heard Kinesis MAY get you the tools needed to help with those gains as well for the tax man.
Note: there are all kinds of lists of limits and fees with the Visa debit card that can be drilled down into here.
Lastly, I’m also considering HOLDING 200 KAG (or more) for the long haul. You get holder’s yields. Unlike regular vaulting solutions which COST you money, this solution PAYS you to store your bullion. More on that below. The point is I don’t like anything more than a handful of constitutional here for barter, so if I want metals, I LOVE the idea of having them vaulted with Kinesis. Not only does it not cost me money, but they pay me yield to do so. I don’t like ANY real quantities of metals at home other than lead. So for me, having a vaulting solution which PAYS me to store metal there I like. You can take delivery of a minimum of 2 x 100 oz bars, so I will probably have my quantities stored there in hundreds and build over time there.
Pay me to store metals?
You read that correctly. As best I can tell, Kinesis is dealing with funding from a few fronts:
- KVT issuance. These are sort of like buying stock in Kinesis. I have seen some videos where they project these could have quite a payout. 300,000 of these were created and sold for approximately $1,000. I’ve seen them now at higher prices, but for round numbers, this is $300 million to get this up and running over time. Kinesis appears to be a SpinCo of ABX, a large bullion vaulting company. Kinesis is essentially a front end software/digital token which controls the backend gold and silver in vaults. This allows a person to own fractions of an ounce of metal and spend it in whatever currency they want. Like an IPO of sorts, this issuance of KVT gave a great amount of liquidity to get things going.
- Transaction fees. You see all of their fee structures to buy, sell, move to a wallet, move to the exchange, etc. All of these fees go into a “fee pool” and the company operations are funded from a percentage of that fee pool.
Of interest here is the fee pool. This is the rewards system that gets people to SPEND gold and silver. I’m going to use some round numbers here for conceptualizing the big picture. This page shows you an example of a transaction and how it is split up amongst participants in something called “yields”. This page goes more into yields in greater depth.
In part 3 I plan on doing a minting and discuss more of the yield system as it starts to come online, but for now, the big picture here is if you add up all of the yields, you get 52.5% of yields go to the participants of Kinesis and 47.5% go to the “house”. This “house” money will go towards paying for vaulting, staff, web page updates, software updates, marketing, and overall sustainability of the company. My BEST guess is that in the earliest years of Kinesis they relied heavily on the KVT for funding and as more transactions happen, and the system grows, the company then stands to be extremely profitable on the transaction fee pool to fund the company. Those who invested heavily with the KVT will get 20% of the transaction fee pool for life. So these KVTs should increase in value as adoption of the platform launches – and you will be paid monthly “dividends”.
One type of fee they pay out every MONTH is the holders yield. 15% of all transactions go into this pool, and then divided out amongst the holders. In the below example, I’ll use some round numbers to then show the concept.
Assume there was $1b in transaction fees over a month. This would then have $150,000,000 paid out to the holders of metals. Assume we are only holding gold in the vaults at the moment and there are 150m g of gold in the vault. This would then suggest that there’s a $1 per ounce yield paid for that gram. Over a year, that’s $12. If as gram is $60, that’s 20% you are being paid to hold gold. My numbers are WILDLY inaccurate, but used to show how the fees pay for vaulting and provide a reward to hold within the system. THIS CAN ATTRACT WHALES who wish to avoid vaulting fees.
Let’s consider this….instead of some of these whales going into unallocated for “free” vaulting, what if we assume over the next 1-2 years many of them start going into a yield-paying vault and start loading in millions of ounces of silver or millions of grams of gold. What do you THINK this will do to available float at this price? With a PSLV, which I love, you have high liquidity – but this actually pays you interest to store metals?
My guess is overall you might be looking at fractions of a percent early on for a holders yield. If this becomes wildly popular many years from now, there may be massive transaction fees – but also massive amounts of metal. This might come out to be a 1% yield per year. Who knows the high end, or the low end. The point is, someone like myself can potentially store significant amounts of metal with them in their vaults at no cost. And get it back.
- This can be direct competition to vaulting services. Therefore, I’d expect the competition to not be excited about pointing you to Kinesis. You might see what’s known as “FUD” (Fear, Uncertainty, and Doubt) by traditional offerings. I think this is a direct threat to them. For the next 5 years, they can co-exist, but a Kinesis solution which ties a backend vault to a front end asset-backed digital currency, with no cost to store, could put them out of business. Unfortunately, what I see from this is as a Kinesis expands, their vaults may reach capacity and expansion may be simply buying out existing vaulting services.
- This can be a direct threat to literally every non-asset backed digital currency. Expect FUD from crypto enthusiasts who put all of their investments into an invisible sculpture. By offering gold in a hand, this threatens their investment. Expect a lot of attacks which try to make this sound not as “elite” as whatever invisible sculpture they have invested their invisible money into.
With the items above, I’m discussing 3 different approaches with a total of 600 oz of physical metal I have stored in vaults that I want to move to Kinesis.
- 200 KAG – Continue to mint – there are rewards with KVT and minters yields, but I heard the free KVTs are going away soon as they are approaching the end of the 300,000 KVT for sale. As price continues to rise, use these price rises as opportunities to sell 200 KAG at a slight profit to your minting costs (and transaction fees). Maybe I do a mint cycle on every $1 price rise in silver? Maybe a year from now price is up $22. I thus did perhaps 22 mint cycles and with this, brought in 4600 KAG and $179,000 worth of silver into the system at NO COST to me, by doing this on price rises. Forever, those 4600 KAG will pay me a portion of the minter’s yield, every month. 5% of all transaction fees go into this, and this will get me some scratch every month. Paid in KAU? I have to run the numbers when I do this next week, but it might be break even at every $.25 or $.50 rise in price. I’ll look at that. Point is, you bring 200 oz into the system and maybe over the next 6 months you do things to bring thousands of more ounces into the vaults to use, and with that, you can get 40 years of minters yields on that initial 200 KAG. If you can break even on a $.25 silver move, you could potentially bank 88 mint cycles over 6 months minting 22,000 KAGs.
- 200 KAG – daily spending. Instead of just spending $1000 a month on groceries/gas in USD, I could mint 200 KAG at $25 silver for $5000 cost, sell them at $27.50, and load my debit card with $5500. There are some transaction fees, but the idea here is that you can take your worthless USD and then get 10% more of them playing silver. Maybe this $5500 lasts me 3 months of spending. Perhaps 2 months in, there’s another dip in price. Have cash to send in, mint, and do over and over. Perhaps 4 minting cycles a year? Over 10 years, that could be 40 minting cycles. Paid in KAU.
- 200 KAG – mint and HOLD. This is the small yield I mentioned, paid in KAU. I can ALSO over time play the gold to silver ratio. If GSR hits 20, I can convert my KAG to KAU. Perhaps down the road in 8 years it gets back to 100. Take ALL KAU and convert to KAG. 5 years later, it’s at 40:1. Convert back to KAU. On and on. I might actually convert some cash to start with 500 KAG here and hold and play the GSR a few times to get “free” metals for long term holds.
- KVT – I am working on any which way I can amass some KVTs. I now have 2. These are the “shares” of Kinesis. My end goal is 10, and I’d like to buy them with profits of trades. 20% of all transaction fees are paid to KVT (shareholders). This is then split between the 300,000 KVTs. If I have 10, I get 1/30,000th of all transaction fees. Paid in KAU. Assume 3-4 years down the road that Kinesis has transaction fees collected of $1b per month. That comes out to $667 per KVT profit. Or $6,667 per month. Or 1,311 KAU per year (42 oz gold in today’s prices). Over 20 years, you are talking 840 oz of gold.
Using this system, above, for 20 years, I could possibly attain well over 1,000 – 2,000 oz of gold. Assume 20 years from now that gold is $5,000 per ounce, and you are looking at $5-10m in metals roughly starting out with 600 oz of silver, some investment in KVTs, and buying groceries and gas using your debit card.
While I don’t expect many to chase this scenario, as investors we might be keen to look at a lot of different types of opportunities that could present themselves. Even if this is 1/10th as lucrative as I’m making it sound, you are still looking at 100-200oz of gold and $500,000-$1,000,000 of passive income. This all adds up!
While you can look at the system of 50,000 users now and tell me I’m smoking some fun stuff to come up with my numbers, I believe in the below with my investment thesis:
- Asset-backed digital currencies will most certainly eliminate non-asset backed digital currencies and be the “stable coin” of the future. I believe this with everything inside of me that if you need to send someone to tons of white papers, 30 page papers, and 100 hours of research to explain your invisible sculpture to me (that seems to lose 90% of value every few years), it will never get mass adoption. Period. The breakthrough is the digital ledger system to track ownership, not the doggy face of a fake coin. Once you can use this digital ledger to track ownership of REAL assets, this now allows people to own REAL items in fractional terms and trade them instantly worldwide.
- BIG money invests in vaulting, and it costs them a fortune. As they start to understand they can eliminate this cost and perhaps get paid to vault, they may not only move the 3-5% they have in gold, but perhaps they up it since it is not a cost center. Big money may rotate OUT of paid vaulting solutions.
- The BIG moves coming into gold and silver with currency debasement may be institutional, nation states, and pension funds soon enough – but think of the trillions in non-asset backed digital currencies that may RUN to this as the invisible sculptures return to their intrinsic value of zero. This could have a generation of 20 somethings that then use gold and silver via crypto currencies. Kinesis has an opportunity for MASSIVE growth in the next few years as currency debasement continues at an uncontrolled tempo.
- I believe that gold will make a triumphant return inside of 5 years as a backing to currency. The USD is in trouble, and while Katusa touts it as the “gold standard” of paper currencies, so to speak – it’s is less foul smelling trash than other paper currencies. What I feel Katusa underestimates is whispers of central banks using gold again – particularly Russia and China. It is possible there’s a struggle over the next 10 years of the West vs the East – but this will be a struggle of countries that use gold versus those that have adopted paper and MMT. I believe strongly REAL money wins in the end. IF you believe nation states may include gold again at some point, Kinesis is a good look to own.
In the end, I think it’s wise for people to understand that the big picture of bitcoin is NOT bitcoin, it’s the digital ledger system. Kinesis and others are about to embark on loading REAL things into this ledger and buying and selling REAL things using this ledger IS the future. Not buying invisible sculptures.