Richard Waters, writing in Financial Times, is reporting that Silicon Valley’s A-Listers seem to be fast climbing onto the Bitcoin bandwagon. More and more of Silicon Valley’s venture capitalists have been queuing up to invest in Bitcoin start-ups. Yesterday, some of Silicon Valley’s heavy hitters bought into the $20 Million funding round for Xapo. This list included none less than Reid Hoffman of Greylock Partners, Mike Volpi of Index Ventures attracting funding from the deep pockets of Max Levchin, Yuri Milner as well as Jerry Yang, the co-founder and former CEO of Yahoo!.
But this amount of Silicon Valley venture capitalist funding raises a question. Is it simply a matter of Silicon Valley showing confidence in the ever developing world of cryptocurrency and if it is, (and I believe that it is!) why do Silicon Valley’s VC’s not simply buy bitcoins? Perhaps it is that Silicon Valley sees Bitcoin as the cornerstone of a new, and highly lucrative, worldwide financial services industry. This may well be the case as there currently seems to be a tremendous drive amongst investors to get on board. Previous Silicon Valley investors in cryptocoin start-ups have included venture capitalists no less than Marc Andreessen, Jim Breyer and Tim Draper.
Xapo was described by The Wall Street Journal as the “Fort Knox of bitcoin storage” completed its first $20m funding round in March, Matt Cohler of Benchmark lead the first funding round. Wences Casares, the entrepreneur behind Xapo, says that the success of the initial funding round led to further interest from other venture capitalists, and it was decided to embark on another round of fundraising. Describing his feelings about Bitcoin, Volpi said: “Its resiliency has been tested again and again, including the shut-down of the massive Mt Gox exchange, government restrictions, hacking and security breaches, wild volatility, and even criminal arrests. Despite these challenges over the last 12 months, the value of a Bitcoin has increased nearly 10x.”
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If Silicon Valley’s venture capitalists are right, and they generally are, the size of the Bitcoin market will need to increase significantly. There are just under 13 million bitcoins, theoretically, in existence. A percentage of these have been lost and destroyed, and the current value of the market is, therefore, at best, $8 Bn. There are currently north of 100,000 retailers accepting bitcoins as payments. More and more people are choosing to keep and use bitcoins as well as investing in alternative cryptocurrencies.
There can never be more than 21 Million bitcoins in existence and this may well prove to be a limiting factor if Bitcoin is to be considered as a new financial services industry. When Tim Draper bought the US auctioned bitcoins in June he gave a quote that explained his perspective on Bitcoin: “Five years from now, it will be worth a lot more or a lot less.”
Insight indeed! Yes, those are definitely the two options. Is it too late for me to consider becoming a Silicon Valley venture capitalist?
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