Dear Idiots,
Today’s announcement that Bloomberg is quoting bitcoin makes this a “to-the-moon” kind of day.
Earlier this month, I highlighted some important comments made by SecondMarket and Bitcoin Investment Trust founder Barry Silbert and Wedbush Securities Analyst Gil Luria regarding Bitcoin’s adoption by Bloomberg and Wall Street. (Dan Morehead of Pantera Capital apparently made similar comments during a separate talk as well.)
Silbert had stressed that bitcoin needed to hit a monetary base of $50-100 billion before it became a transactional currency (10-20x current levels), and that this was likely to be driven in part by additional large-scale investment in the currency over the next couple of years. He anticipated that over $500 million to $1 billion worth of institutional capital was sitting on the sidelines ready to invest in bitcoin once the regulatory environment became more clear, and “guaranteed” that there would be additional bitcoin bubbles in the future. (Perhaps one such “bubble” will emerge due to this rapid influx of fresh capital.)
Luria followed up with an anecdote about Legg Mason’s Bill Miller, who had recently disclosed that his Legg Mason Opportunity Trust would buy bitcoins ”once Bloomberg can get a quote on it.” Luria admitted that it may have sounded silly, but added that in the world of Wall Street: “when it’s quoted on Bloomberg, it exists.”
This is consistent with the views of many others on Wall Street, and yet Redditers were quick to point out that Mt. Gox and Tradehill prices were also available on Bloomberg as recently as early as August…at least internally at Bloomberg.
This entirely missed the point. The public release of bitcoin trading tools that reference prices at well-funded American companies like Coinable and Kraken (and hopefully BitStamp and others very soon), is the first instance of Wall Street’s wide scale acceptance (if not embrace) of cryptos. This is also a major implicit endorsement of Kraken as a trading platform, as its volume currently lags Bitstamp by many factors.
Anyone who doesn’t cheer this news needs to have his head examined. The price might not rocket up immediately simply because retail investors aren’t moving en masse to buy more bitcoins. But it will as soon as the first major funds step up and start buying. I’m adding to my position today. I’d like to get those orders in before the whales.
***
While we’re on the subject of professional investors…
Despite all the news of the huge inflow of VC money flowing into bitcoin, MarketWatch would have you believe that things aren’t quite so rosy. Venture capitalists invested $74.1 million in Bitcoin startups across 39 deals in 2013, less than a third of what Internet companies raised in first-round funding in 1995, according to data provided by CB Insights. Even considering 2014’s surge in VC fundings, Bitcoin is still “lagging”.
Here are a few reasons why this is such an inexcusably lazy analysis (and why I still write on a daily basis).
1) MarketWatch is arbitrarily comparing Bitcoin in 2013 to the internet in 1995. What’s the BTC 2013 : TCP/IP 1994 comparison look like? Even then the comparison is meaningless. Satoshi flipped the protocol switch for Bitcoin in January 2009, while the internet spent decades in private beta via the Department of Defense.
1a) Maybe look at quarterly sequential growth and play around with those numbers a bit, but only if you can somehow capture all of the angel investment in the ecosystem to make the comparison apples to apples. The growth rate is much more interesting than the volume.
2) VC dynamics are completely different given new currencies are being created and thriving. (The $7 billion + market caps of crypto currencies is ignored in the analysis). That means that more bitcoin entrepreneurs simply don’t need seed funding or they are raising seed funding from other (now fabulously rich) early bitcoin investors.
3) VC dynamics on a macro level are changing. It is much less expensive to start a company today than in the early 1990s, so fewer companies need institutional capital to get to profitability. When they do, it’s frequently coming from angel investors, while venture rounds are reserved for “growth equity”. Some examples…Coinbase was likely cash-flow positive to the tune of hundreds of thousands of dollars last December when they raised their large round from a16z; BitPay has been killing it and growing so fast without fresh institutional rounds that they don’t even really need another venture partner; and mining and ATM companies are self-funding themselves through pre-orders. If you’ve got the cash, screw the term sheet and headaches of an early partner.
</rant>
Now for Today’s Tid Bits:
Mt. Gox Update
http://online.wsj.com/news/articles/SB10001424052702304893404579530262159284736
Lawyers for creditors involved in two proposed class-action lawsuits against Mt. Gox have reached an agreement to support a group of U.S. investors’ bid to revive the exchange, an agreement that would give the creditors a 16.5% stake in the prospective future company. The agreement would not only include equity stakes but also prorated disbursements out of Mt. Gox’s holdings of 200,000 Bitcoins and traditional currency to creditors worldwide. If the U.S. court approves the plan, the investor group, Sunlot Holdings, would then seek approval of the Japanese court overseeing the bankruptcy and halt the process.
Summer Heat To Shut Down Miners?
http://blogs.wsj.com/moneybeat/2014/04/29/bitbeat-for-bitcoin-miners-a-hot-problem-this-summer/
For most of us summer is a terrific time of year. But the warmer weather bodes ill for miners. The hash rate of the Bitcoin mining network has increased about 60 times since last fall, meaning that miners are using beefier mining rigs, which emit much more heat. As Mark MacAuley at datacenter consulting firm Blunt Hammer says, trying to keep those machines cool “is like trying to blow into the nozzle on a heat gun to keep your face from burning.” At these current bitcoin prices many rigs might be forced to go offline.
FinCEN: Digital Currency Cloud Mining, Escrow Services Aren’t Money Transmitters
Statement on Escrow Services: http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R005.pdf
Statement on Cloud Mining: http://www.fincen.gov/news_room/rp/rulings/html/FIN-2014-R007.html
FinCEN has issued new rulings indicating that digital currency-related cloud mining and escrow services should not be considered money transmitters. There are two key quotes that explain FinCEN’s decision. On Escrow Services: “The acceptance and transmission of funds do not constitute a separate and discrete service provided in addition to the underlying service of transaction management”. On Cloud Mining: “All virtual currency mined by the third party remains the third party’s property, and the Company has no access to the third party wallet, nor receives or pays virtual currency on the third party’s behalf.”
Who’s Running for the Bitcoin Foundation Board?
http://www.coindesk.com/meet-15-candidates-bitcoin-foundation-board-elections/
In light of the Bitcoin Foundation’s current election to fill 2 vacant seat in its board of elections, Coindesk has set up a handy page that highlights the 15 potential candidates for the position. Take a look and see who’s in the running, and remember that the election scheduled to close at 11.59pm US EST on Wednesday April 30th.
AltCoins Primer
http://www.scientificamerican.com/article/bitcoin-vies-with-new-cryptocurrencies-as-coin-of-the-cyber-realm/
The Scientific American gives a quick primer on the growing digital currency players that are encroaching on what was originally Bitcoin’s space. The article provides great bite sized profiles on a handful of different coins, going over what it is, who started it, similar coins, and the exchange rate. The article goes over Litecoin, Primecoin, Zerocash, Mazacoin, Dogecoin, and Solarcoin.
Entrepreneurs out there: How much personal bitcoin wealth are you willing and able to make into your startups before fundraising?
Cheers,
TBI