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The amount of money venture capitalists are investing in Bitcoin continues to accelerate, demonstrating their faith in the digital currency's potential.
In the first quarter of 2015, venture capitalists poured $229 million into Bitcoin startups. That was more than double the $144 million invested in Bitcoin in Q4 2014.
And it's equal to two-thirds of the $349 million of venture capital invested in Bitcoin in all of 2014.
It puts VC investing in Bitcoin on track to raise $916 million this year. That's more than 2.5 times the 2014 total.
The rate of Bitcoin investment also mirrors very closely the progress of Internet-based startups back in the mid-1990s.
What's most remarkable about the accelerating pace of VC investing in Bitcoin companies is that it has occurred despite a series of setbacks for the cryptocurrency.
Negative News Can't Slow Down Investing in Bitcoin
Remember, it was in February of 2014 that the Mt. Gox Bitcoin exchange collapsed, losing 750,000 customer Bitcoins worth about $350 million at the time.
Other issues that have plagued Bitcoin include:
- Unfavorable treatment by several governments, particularly China and Russia.
- Scandals involving several top members of the Bitcoin Foundation, the entity created to maintain the Bitcoin software and promoting the cryptocurrency.
- The persistence of websites that use Bitcoin as a tool for selling illegal drugs.
- The plunge in the price of Bitcoin from $940 in January of 2014 to $177 in January of 2015.
Yet none of that has deterred the venture capitalists.
They recognize the power of a monetary mechanism that can transfer money almost instantly and at a very low cost between any two parties anywhere in the world. The VC crowd also recognizes the power of the Bitcoin blockchain, the technology that underpins the digital currency.
In addition to verifying Bitcoin transactions, the blockchain can store data. That means the blockchain can be used to confirm ownership of property such as housing or autos, as well as for such applications as voting, trademarks, proof of authorship, and more.
The first quarter also revealed another trend. And now venture capitalists are concentrating on the most promising Bitcoin startups.
For example, Coinbase, a Bitcoin wallet and payment company, picked up an additional $75 million of funding in January. Coinbase has now raised a total of $106 million.
And another intriguing company set a record for investing in Bitcoin last month. It raised $116 million in a single round.
Some of the biggest names in venture capital are backing this secretive Bitcoin startup - take a look...
Will This Bitcoin Startup Trigger Mass Adoption?
Called 21 Inc., this San Francisco-based company has kept its exact plans mostly under wraps. But it has attracted some very impressive investors.
Not surprisingly, Andreessen Horowitz tops the list. Andreessen Horowitz is a leader in VC investing in Bitcoin.
But the list also includes RRE Ventures, which has invested in such companies as Bitly, SailThru, Kik, Buzzfeed, Payfone, and Chain. Other big VC names include Chinese private equity firm Yuan Capital and Qualcomm Inc.'s (Nasdaq: QCOM) venture capital unit.
Several tech CEOs and founders also joined the round, such as PayPal co-founders Peter Thiel and Max Levchin, Dropbox Inc. CEO Drew Houston, Expedia Inc. (Nasdaq: EXPE) CEO Dara Khosrowshahi, and Zynga Inc. (Nasdaq: ZNGA) cofounder Mark Pincus.
The cofounders of 21 Inc., Matthew Pauker and Balaji S. Srinivasan, have dropped a few tantalizing hints.
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Pauker told The Wall Street Journal that his company will "drive mainstream adoption of Bitcoin."
Srinivasan said that what 21 Inc. is doing is akin to 56-kilobyte modems and wireless Internet towers in the development of the Internet.
Marc Andreessen, who personally helped speed the adoption of the Internet by inventing the Netscape browser, told the Journal that 21 Inc. "is working on what they - and we - consider to be core infrastructure for mainstreaming Bitcoin."
The only other clues are on the sparse 21 Inc. Web site. The jobs page includes listings for hardware and software developers, including listings for an Android developer and an iOS developer.
At the bottom of each ad, the company observes: "The Internet required an enormous hardware infrastructure buildout before its potential as a software platform could be realized. That's where we come in."
The sudden and substantial VC interest in 21 Inc. signals that this could be a turning point in the history of Bitcoin. If this company can make Bitcoin so easy to use that it rivals other forms of payment, mass adoption will follow rapidly.
And then we would see, as we did with the Internet, an explosion of activity. Dozens more Bitcoin companies will be born. The Bitcoin price will rise. And investing in Bitcoin will skyrocket.
"Bitcoin is going to change the way that people and businesses and even machines interact with each other," Pauker told the Journal. "But for Bitcoin to realize that vision we need mass adoption. It can't just be for Silicon Valley."
The End of Banking as We Know It: Banking is one of few industries to have escaped disruption from the digital revolution. But financial technology startups, known as "fintech" are about to change that. Bitcoin is actually a subcategory of fintech. And the changes on the horizon are keeping the CEOs of Wall Street's Big banks up at night...
Follow me on Twitter @DavidGZeiler.
- The Wall Street Journal: Secretive Bitcoin Startup 21 Reveals Record Funds, Hints at Mass Consumer Play
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.