Insights and Opinions

The Sky is Not Falling: Reflections on My 16 Months in Bitcoin

It’s been a little over 16 months since I first set foot in my first bitcoin convention in late May 2013.  As I’d noted in a socalTECH post right after I returned, I thought bitcoin and cryptocurrency was poised to grow dramatically, disrupt economies and increase in value.  It was $120 per bitcoin way back then, down from its “all-time high” barely a month earlier of $266.  The price of bitcoin continued on its downward slope for much of the summer of 2013, weathering such controversies as “would California make the Bitcoin Foundation register as a money transmitter” (no) and “what can you buy with bitcoins” (not very much back then). 

I accurately called the 2013 bottom last July at $70, but I couldn’t convince my wife to buy 1,000 bitcoins at that price, instead using it as a down payment on a piece of Las Vegas real estate (the rental home we ended up buying is up about 20 percent in value; the price of bitcoins even at current prices would have been up 500 percent).  Welcome to a mercurial market.

Flash forward to today.  I’ve gone from wide-eyed newbie in the cryptocurrency world to a recognized name on the bitcoin conference circuit (I even started my own conference in conjunction with the angel investor network I started last year, BitAngels, and today we announced 20 startup companies who will be pitching bitcoin investors at the event, CoinAgenda, which takes place next week at the Palms Fantasy Tower in Las Vegas.  (Humor note: Yes, we’re holding a conference about investing in so-called “magic Internet money” at a place called the Fantasy Tower…).

What’s not fantasy is how the traditional VC world has woken up to the promise of cryptocurrency and the blockchain (the technology upon which bitcoin, as well as other coins using a similar architecture, is built).  According to the popular industry blog, CoinDesk, VC investments in cryptocurrency startups rose from $2.1 million in 2012 to $91.8 million in 2013.  Thus far in 2014, there has been $191 million in venture capital investments into cryptocurrency companies – and that number doesn’t include roughly $30 million that has been raised by new coins like Ethereum, Maidsafe and Swarm using cryptoequity crowdsales (disclosure: my PR firm, Transform, worked with MaidSafe and Swarm to help them raise $6 million and $1 million, respectively; Ethereum, who we advised in the beginning but did not work with during the actual crowdsale, raised about $18 million in 42 days).  Most of these cryptoequity fundings for new coins took place in 2014.

So what are the lessons to be learned from the last 16 months?  Here’s my take:

(1)Bitcoin price will remain turbulent, but that’s part of the opportunity. L.A.-based investment bank Wedbush Securities issued a report six weeks ago where they forecast a 50 percent likelihood of bitcoin returning to $1,000 or higher (with 0.5 percent forecast of $1 million per bitcoin), along with a 50 percent outlook it will go to zero.  While this sounds like “flip a coin,” Wedbush report author Gil Luria (who will be keynoting at the Inside Bitcoins conference in Las Vegas next week, which takes place just prior to CoinAgenda) says “the trader in me tells me that positive progress over the next 12 months should get bitcoin back to $1000.”

(2)Merchant acceptance speeds adoption, but actually has a downward effect on price.  This is because most merchants who accept bitcoin do it for a combination of wanting lower fees (as low as zero) and taking away the risk of chargebacks, because each payment is final and irreversible.  What few merchants or retailers do is keep the bitcoins (Overture.com is a notable exception, keeping as much as 10 percent and encouraging employees and vendors to accept bitcoin from them), and that means that millions of dollars per month taken in by Dell, DirecTV, Gyft (which lets users purchase gift cards for bitcoins from 200 merchants, including Amazon and Home Depot) and Expedia are effectively sell orders.  Selling drives down price.

(3)Prices will rise again when more investors want to buy.What drove the prices up 1000 percent or more (three times in the past three years) has been investor demand.  In early 2013, it was triggered by people in Cyprus buying bitcoins to move money out of the country as banks started tacking on a wealth tax.  In late 2013, it was a combination of new Chinese bitcoin exchanges attracting new Asian investors (also in part to get money out of a restrictive monetary regime), as well as a few small funds that bought bitcoins on behalf of accredited investors.  As 2014 closes out, there is a public vehicle (already reserved as NASDAQ: COIN) owned by the Winklevoss twins of early Facebook fame that is awaiting final regulatory approval to be the first bitcoin ETF that anyone (not just accredited investors) can buy.  Since there is a fixed number of bitcoins, buying makes the price go up, which results in more investor interest, which makes the price go up again until enough profit has been taken by those early in the cycle that the bubble pops – until the cycle repeats again from a higher bottom.  I’m a firm believer we will see this happen again in the next 12 months.

(4)Bitcoin and cryptocurrency companies, while a small portion of all venture capital and angel funding, is growing fast and LA is one of the hotbeds.  The staggering growth numbers are mentioned at the start of this piece, and several of those funded are based in Silicon Beach: Gem, GoCoin, Expresscoin and FreshPay are just the first wave of companies started in Santa Monica/Venice to be incubated, funded and launch products.  Moreover, of the top 10 investor syndicates on AngelList, two of them are specializing in bitcoin company investments (as is #11).  Both of these have Santa Monica ties: Brock Pierce’s syndicate (#8) recently passed $1 million in per-deal commitments and the syndicate that I co-manage with Gil Penchina and Nick Sullivan just passed $800,000 in less than two months of existence.  Our syndicates have each completed two deals.

So that’s my bitcoin update as we enter Q4 2014.  I’ll be back again next year unless something dramatic (good or bad) unfolds in the meantime.

Michael Terpin is a serial entrepreneur in marketing and cryptocurrency.  His bitcoin endeavors include BitAngels (www.bitangels.co">http://www.bitangels.co">www.bitangels.co), Bitcoin Syndicate, and CoinAgenda, and his PR firm, Transform, has worked with more than 30 cryptocurrency companies, as well as other tech companies.  He also runs SocialRadius, one of the nation’s first social media marketing firms with offices in Santa Monica, and he founded and sold Marketwire, one of the world’s top three company newswires.


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