Buying gold with crypto: How it works and legal regulations

With the growing popularity of cryptocurrencies, more investors are looking to secure their digital profits by converting them into physical gold. While Bitcoin is often hailed as 'digital gold,' physical gold remains the ultimate tangible safe haven. Today, various bullion dealers allow you to purchase gold bars or gold coins using Bitcoin (BTC), Ethereum (ETH), or stablecoins.

But how does this process work? Why is the exchange rate between these two assets so critical, and which regulations (such as KYC and tax laws) apply to you? This article provides insight into the key considerations, risks, and a step-by-step guide for purchasing gold with crypto.

What are the pros and cons of buying gold with crypto?

Purchasing gold with cryptocurrencies offers several unique advantages, primarily focused on security and portfolio stability.

The advantages

• Diversification: The crypto market is highly volatile. By converting a portion of your crypto profits into physical gold, you reduce the overall risk profile of your portfolio.
• Borderless Payments: Cryptocurrencies are not bound by national borders or traditional banking hours, allowing for fast and seamless international transactions.
• Privacy and Security: While total anonymity no longer exists due to KYC regulations, blockchain technology offers high transparency and security without the need for a traditional bank as an intermediary.

The disadvantages

• Exchange Rate Risk: If cryptocurrencies drop in value while the gold price in EUR or USD rises, your purchasing power decreases. Timing the market is essential.
• Transaction Fees: Depending on network congestion (especially for Bitcoin or Ethereum), network fees (gas fees) can increase during peak moments.

Timing is essential: The gold-to-crypto exchange rate

When buying gold with euros, you only monitor the gold price. When buying with crypto, you must consider the ratio between two rates. This relationship determines your purchasing power.

• Ideal Scenario: The crypto market is at a peak while the gold price is consolidating or slightly declining. In this case, your crypto has high purchasing power; you receive more grams of gold for your digital assets.
• Less Favorable Scenario: The crypto market is in a dip while gold prices are at record highs. In this situation, it is often wiser to 'HOLD' your crypto and purchase gold using fiat currency (Euro).

How to buy gold with crypto: step-by-step guide

If you wish to purchase gold with crypto through a platform such as our sister company Bitgild, it is important to follow these steps:

1. Set up a wallet: use a software wallet on your smartphone or computer, or choose a hardware wallet for maximum security.
2. Select your currency: choose which cryptocurrency you want to use. Bitcoin is the most common, but Ethereum and Litecoin are also widely accepted. Always verify if your dealer supports your chosen coin.
3. Complete the purchase: follow the dealer's specific instructions. Select crypto as your payment method, enter your wallet address if prompted, and confirm the transaction on the blockchain.

Registering with a payment processor (optional)

You may be required to create a BitPay ID or an account with another payment processor. This registration is often necessary to safely and efficiently convert your crypto into a payment for the physical bullion.

Buy gold with crypto to exchange digital profits for physical precious metals.

Legislation and privacy: When is KYC mandatory?

Bullion dealers, including The Silver Mountain, must comply with the WWFT (Anti-Money Laundering and Anti-Terrorist Financing Act).

• Standard Orders: For every online order, basic invoice details (name and address) are required.
• The €10,000 Threshold: If you purchase precious metals worth €10,000 or more (either in a single transaction or linked orders), dealers are legally required to perform a Customer Due Diligence (KYC) check. This requires providing a valid ID and potentially proof of the source of funds.

Tax implications of buying gold with crypto

In the Netherlands, both cryptocurrency and physical gold are subject to income tax under Box 3 (Savings and Investments).

You do not pay tax on the direct exchange profit at the moment you convert crypto into gold. Furthermore, investment gold is exempt from VAT.

However, the Tax Authority (Belastingdienst) looks at the reference date of January 1st. The combined value of your crypto holdings and your physical gold on that date determines your total taxable wealth in Box 3.

Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance is not indicative of future results.