Bitcoin’s price drops sharply but Bitcoin startups still attract VC cash

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Despite a precipitous plunge that has seen its value decrease by more than 70 percent over the past year due largely to speculation, Bitcoin, by far the world’s dominant cryptocurrency, is very much alive.

Particularly promising is the attention—and money— that Silicon Valley keeps heaping on Bitcoin. Several Bitcoin startups are attracting big-dollar bets from some very well-known entrepreneurs and venture capitalists. Bitcoin startups keep popping up like ads on free gaming sites, many of them in places far afield from the Valley. And the promise of regulatory relief has raised hopes—and eyebrows—among Bitcoin insiders.

The latest and biggest Bitcoin startup to benefit from a massive influx of VC cash is Blockchain, a UK-based Bitcoin wallet provider and software developer. Last month, the New York Times reported Blockchain closed a $30.5 million fundraising round led by heavyweights Lightspeed Venture Partners and Wicklow Capital. The announcement marked one of the biggest-ever digital currency investments. Mosaic Ventures and superstar entrepreneur Richard Branson are also among Blockchain’s storied investor group.

Blockchain, which wants to make it easier for people around the world to use Bitcoin, already has 2.3 million customer wallets. It has also introduced its own search engine, which allows users to verify Bitcoin transactions quickly via the Bitcoin blockchain, the alt-currency’s public ledger.

The company is also well-respected in the alt-currency space for its adherence to Bitcoin’s founding philosophy of anonymity and decentralization. Roger Ver, aka ‘Bitcoin Jesus’ was Blockchain’s first big backer and famously said: “Bitcoin is the most important invention in the history of the world since the Internet.”

Bitcoin Price Problems, What Problems?

All this attention despite a harsh Bitcoin price drop: the price of Bitcoin rose to a peak at around $1,200 in December 2013. Since then, it has fallen steadily and is currently about $328.

This plunge is not deterring the currency’s backers. Jeremy Liew, a partner at Lightspeed who will become a member of Blockchain’s board, points to the more than $250 million invested in Bitcoin companies over the past year or so as proof that the cryptocurrency has a bright future, despite the recent price dive.

“Over the course of the next 10 years, Bitcoin is going to have a big impact,” Liew told the Times. “Where is the central nexus of value creation in this whole industry? It has to be the wallet.”

Among the big Bitcoin bets made by venture capitalists and entrepreneurs over the past year are Coinbase, a San Francisco-based Bitcoin wallet and exchange service founded by Brian Armstrong and Fred Ehrsam. Last May, Coinbase received $5 million in funding from Union Square Ventures. But its big break came in December when leading VC firm Andreessen Horowitz joined Ribbit Capital and Union Square in investing $25 million in the startup.

Then there’s Xapo, a Palo Alto, California-based company that also provides a Bitcoin wallet, along with a cold storage vault and even a Bitcoin-based debit card. In July, the firm announced it had raised $40 million, the most ever for a Bitcoin startup. Some major names funded Xapo, including PayPal co-founder Max Levchin, Yahoo! co-founder Jerry Yang, heavyweight Russian VC Yuri Milner and $20 million from Greylock Partners and Index Ventures.

How New York is helping Bitcoin startups

There seems to be no end in sight to the Bitcoin bonanza. Up-and-coming Bitcoin startups showcased their companies and their potential at the recent Money 20/20 conference in Las Vegas. Three winners of CoinAgenda’s global startup competition were featured at the event.

Also showcased at the event were ZebPay, based in Ahmedabad, India, is a pre-launch Bitcoin wallet. Austin-based Factom is a “proof of existence” application for tracking and auditing documents through the blockchain, and Rivetz, a Mountain View, California-based developer of Bitcoin security hardware.

Adding to the good news is the prospect that the state of New York may grant transitional licenses to small alt-currency companies and startups in a bid to encourage their growth. Bloomberg reports Benjamin Lawsky, New York’s superintendent of financial services, wants to give such firms a fair chance to grow before hitting them with the full burden of government regulation.

“There has to be a way for startups to start up and play by the rules without getting crushed by huge compliance costs,” Lawsky said at the Money20/20 conference. “To that point, we are considering creating a special type of ‘Transitional BitLicense.’”

Lawsky added that he wants to protect consumers and detect wrongdoing without stifling innovation with onerous regulation.

All of this isn’t to say things are perfect in the Bitcoin universe. But while the stunning decline in Bitcoin’s price—much of it fueled by speculation—is attracting all the headlines, a growing number of Bitcoin startups is grabbing an increasing amount of VC money and industry accolades. The reports of Bitcoin’s death, it seems, are greatly exaggerated.

Flickr photo via user fdecomite

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