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Author Topic: Article - The Bitcoin Investing Landscape  (Read 406 times)
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February 28, 2014, 10:34:21 AM

Excerpt (full article, with links, at link above):
"Elite VC Fred Wilson has a blog post today entitled "A Letter to Senator Manchin"
A Letter To Senator Manchin

in which Fred takes Senator Manchin to task (and rightfully so), as Fred describes, for Manchin's writing a "letter to financial regulators asking them to “take appropriate action to limit the abilities of this highly unstable currency.”"

Fred's investments have included (via Union Square Ventures), some of Tech's big investing and disruptive wins, including (as a few examples):

Twitter (Fred's role in Twitter detailed in famous book Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal: Nick Bilton: 9781591846017: Books)

and now Coinbase, the leading Bitcoin VC investment to date (Source: Exclusive: State of Bitcoin 2014 Report Analyses Emerging Trends (Slide 7)), with over $31 in funding (Source: Coinbase | CrunchBase Profile).

I want to start by looking at Fred's arguments and then broaden out the discussion to the present and future investing landscape for Bitcoin (as well as its interface with regulatory, security and additional factors).

Fred writes in part:
"Bitcoin is already regulated in the US and it is becoming more regulated every day. And the regulatory environment in the US has dampened the amount of innovation around Bitcoin that has developed here in the US. All the major Bitcoin exchanges have been built outside of the US and a significant amount of the venture capital investment in the Bitcoin ecosystem is happening outside of the US...

When something as new and as different as Bitcoin emerges, it is tempting to want to “put the Genie back into the bottle” and protect ourselves from it. But thankfully the US did not do that with the Internet. The impact of the commercial Internet on the US economy and our society as a whole has been massive and overwhelmingly positive over the past twenty years. We should approach Bitcoin in exactly the same way and if we do, I expect the benefits we will see will be equally important, impactful, and beneficial to our economy and our society."

Fred's full letter is quite short. And general. Fred is a very busy individual, but my sense is that Fred's letter is meant, first and foremost, as a very public but extremely broad defense of Bitcoin to not only regulators but the world more generally.

Regulation and Bitcoin

Let's unpack a little of what Fred says above first in regard to regulation and Bitcoin. The United States is, in fact, considered, when viewed on a global regulatory scale, one of the friendlier countries towards Bitcoin (Source: Exclusive: State of Bitcoin 2014 Report Analyses Emerging Trends, Slide Cool. For example, there is a marked contrast in the regulatory environment of the United States towards Bitcoin versus, famously, the more unfavorable attitude of China, which is itself mild compared to Russia.

So, we need to keep that perspective here.

I don't doubt that a significant percentage of capital investment is leaving the US for Bitcoin investments overseas. Certainly Fred is the expert in this space and I certainly believe him. But the more important backdrop is that the total amount of VC investment on this potentially revolutionary technology, Bitcoin, remains to date still so small, under $100 million dollars total - reported by Coindesk yesterday at only $98 million (and that includes all crypotcurrencies) Source: Exclusive: State of Bitcoin 2014 Report Analyses Emerging Trends, Slide 7). So, it is way way way too early to know - much less determine - how the investment landscape will shake out in regard to Bitcoin, and to what degree the regulatory climate of the US will or will not drive and/or impact this.

I believe strongly that a moderate amount of regulation is critical for the health and growth of Bitcoin. Let's take Mt. Gox as the poster child. I don't think that anyone would claim that Mt. Gox was sufficiently regulated. We will not be able to trust Bitcoin exchanges until they have a certain degree of transparency, and they will not have that transparency until they are sufficiently regulated. Mt. Gox could not have had these problems fester over such a period of time with adequate transparency if they were sufficiently regulated.(and still it's not clear exactly what the situation is and was at Mt. Gox, people are fishing for answers and whether to believe Mt. Gox statements as well as the leaked report).

Of course, if Bitcoin is overegulated than this will kill it as well. Bitcoin thrives, essentially, as a decentralized network, and as such a centralized arbiter of Bitcoin is contrary to the very essence of Bitcoin as it has been created and exists."

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