In 2014 bitcoin start-up related investments will rise to as high as $300 million, and possibly go even higher than that, as fund managers can’t get enough of the prospects for new money.
According to Wall Street’s largest online tabloid news site, Business Insider, the amount of money venture capitalists are ploughing into Bitcoin-related product and service providers over 2014 is set to top the $250 million of private funding that went into early-stage internet companies twenty year ago.
Although a period of public-equity market euphoria pushed internet stock valuations into the stratosphere towards the end of the 1990s, and in particular valuataions of those companies with the monikor “.com” at the end of their name, by far the majority of private investments made in internet start-ups back then ultimately resulted in investors losing everything they had gambled.
During the dot com era, especially in 1999-2000, many investors openly admitted to trading dot com stocks with little or no fundamental investment strategy even as they ploughed their clients’ money deeper into such ventures.
The scenario is reflective of venture capitalists today who are getting in on bitcoin and in some cases, other virtual currencies, in most cases with no idea what an intrinsic value for the underlying assets is that they are getting risk exposure to.
The comparisons don’t stop at the end of the last millennium, however.
In a book on bitcoin by world-renown financial crime investigator Jeffrey Robinson, the veteran reporter explains how this particular sudden surge in investments in payment gateway firms such as Bitpay and other ancillary bitcoin services firms mirrors the actions of entrepreneurs in the mid-1800s, such as Levi Strauss, who is famous for making his fortune selling miners comfortable denim trousers even as his customers went broke scouring the California hills for gold.
Similarly, Robinson points to the fact that Henry Wells and William Fargo also managed to accumulate considerably more power and wealth than those who were betting big on the commodity itself, since their formula of offering elementary commercial deposit banking services to the swelling numbers of immigrants crowding the west coast over the years generated the first sums of real industry cashflow growth.
Investing in the virtual currency itself is “like the lottery,” one major bitcoin buyer told Robinson at an industry conference last year. “You buy a ticket, which is the mining equipment, and the more you buy, the better your chances of winning a prize.”
Daniel Mark Harrison is a Chairman & Chief Executive Officer of global investment company Daniel Mark Harrison & Co. (DMH&CO), a Family Office with offices and active operations in Singapore, Bangkok and Hong Kong. He is also Managing Partner of FinTech and blockchain venture capital firm Monkey Capital as well as the author of The Millennial Reincarnations, a novel published in 2015.
