But that’s just where angel investors and venture capitalists are putting cash—and stirring hype. Companies such as Coinbase, Coinsetter and BitPay, among others, are getting funding, even as the Bitcoin market itself has shown just how risky the trendy cryptocurrency of the moment can be.
“At this early stage of the game, it does seem like investing in Bitcoin (if you think Bitcoin will be the winner in these types of currencies) would be wiser then investing in a Bitcoin company,” says entrepreneur and angel investor Elad Gil. “Especially since if Bitcoin is widely used it will have lots of upside still and it is hard to choose who the winner will be in this early market.”
It is true that the amount of money being put into these companies is fairly small at this point—hundreds of thousands, rather than millions of dollars. But the venture and angel community can barely talk about anything else these days, and as their excitement ramps so will the dollars.
Imagine one of those companies gathers some steam, goes the full venture capital route and over the course of several rounds of funding raises millions. It beats back competitors, the founders stay on good terms and don’t split up, and it doesn’t succumb to hacker attacks on its Bitcoin horde. In other words it succeeds.
“But if you’re investing in a company in the Bitcoin economy, you have to compare the valuation of the company to the valuation of the entire economy,” says Naval Ravikant, AngelList CEO.
If that Bitcoin company has a valuation of $25 million and the entire Bitcoin economy has a valuation of $1 billion (about where it is today) the deal starts to look pretty weak.
http://www.wired.com/business/2013/04/whats-riskier-than-bitcoins-bitcoin-companies/
