Even the world’s largest bitcoin exchange couldn’t handle this week’s cryptocurrency boom
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Charlie Shrem knew it would be difficult to convince investors to fund his startup, but he never expected that he'd have to beg on camera to raise the money he needed. Shrem launched an online service in mid called BitInstant that lets users convert dollars into Bitcoins. This was more than a year before the digital currency's value skyrocketed into the triple digits and gained an incredible amount of media attention.
Most investors — like most of the general public — either didn't know what a Bitcoin was, or else didn't take it very seriously.
His father had already turned him down. But by the end of that year, Shrem needed more funds and he had no choice but to start making the rounds to investors.
I was looked at like I was from Mars," Shrem told Mashable in an interview earlier this week. I didn't know what I was doing. After striking out with traditional investors, Shrem was invited to talk about his startup on The Bitcoin Showan online-only program dedicated to all things Bitcoin. During the hour-long show, he pleaded repeatedly to anyone watching that he needed money to keep the site running.
BitInstant's business ticked up in the months that followed, but it wasn't until earlier this year that the startup and the currency enjoyed a meteoric rise. Transaction volume on BitInstant has doubled each of the past three months and now totals in the seven figures on a monthly basis. BitInstant is currently "in negotiations" with the same kind of traditional investors that might have ignored the company back this week in startups bitcoin exchange to raise another round of funding at a valuation that This week in startups bitcoin exchange says is in the "tens of millions.
BitInstant is just one of several Bitcoin startups attracting funding from established venture firms and investors at a valuation in the millions. Cameron and Tyler Winklevoss, the twins who had a disputed role in the founding of Facebook, are also big Bitcoin investorsthough they haven't publicly gotten behind any Bitcoin startups.
Hirsch says his firm "spent a lot of time" trying to understand Bitcoin and its opportunities before making a financial commitment. Coinsetter is Tribeca's first Bitcoin-related investment, but Hirsch says it's likely the firm will invest this week in startups bitcoin exchange two to three more more. Even beyond Bitcoin, institutional investors are increasingly turning an eye towards the idea of digital currency.
OpenCoin, which developed another currency called Rippleraised an angel round of funding from several big name firms, including Andreessen Horowitz and Lightspeed Venture Partners. Chris Dixon, an investor at Andreesen, wrote a blog post two weeks earlier in which he declared math-based currencies like Bitcoin to be the third big era of currency.
If investors like Dixon and Hirsch are right this week in startups bitcoin exchange Bitcoin is here to stay, some of these startups may one day be valued in the billions rather than millions. But if the Bitcoin believers are wrong and demand for the new currency collapses from government regulation, security threats, general volatility, the rise of alternative digital currencies or any number of other risks, the startups may collapse with it.
For some of the founders we spoke with, that could mean losing nearly everything. Jaron Lukasiewicz knows what it's like to run a failed startup. Before founding Coinsetter, he launched a company with his brother Ardon called Ticketometer that did crowfunding for concerts.
As he describes it, Ticketometer misread who its customers were and never really found a strong niche in the market. He called it quits at Ticketometer in November, but he wasn't ready to go back to a typical job. He believed that Bitcoin offered him a second chance. He had first heard about Bitcoin earlier that year and started having "a lot of late night conversations" about what opportunities there might be in the space. Shortly after finishing with Ticketometer he struck on the idea of giving investors a way to leverage and short the Bitcoin market — something that suited his financial background — and he decided to put all of his remaining funds towards the new company.
He is also an active investor in Bitcoin. I'm not investing in anything else. Lukasiewicz isn't the only founder this week in startups bitcoin exchange invested in the success of Bitcoins. He also notes that BitInstant has significant cash reserves at the moment, so if Bitcoin goes belly up tomorrow, his startup could potentially pivot to something else — though it's not clear what he would do.
Apart from the financial investment, there's the lifestyle investment. Shrem, now 23, spends every waking hour and many sleeping hours in the office to keep the operation running as smoothly as possible.
When asked what motivated him to start the company and this week in startups bitcoin exchange motivates this week in startups bitcoin exchange to endure so much stress, he says his rabbi has told him he believes it comes from a desire to this week in startups bitcoin exchange other people wrong. It's not just startup founders who are taking a big chance on Bitcoin; some VCs like Adam Draper are too.
Draper was considered part of the venture capital elite before he ever made a single investment. This week in startups bitcoin exchange, 26, has followed in the family's footsteps and bet some of this week in startups bitcoin exchange prestige carried in his last name on what he sees as a huge opportunity in Bitcoin. Draper, who is now the founder and CEO of the Boost VC startup accelerator, has already backed multiple Bitcoin startups, including Coinbase, and plans to fill up one-third to half of his upcoming class of startups with Bitcoin-related companies.
He says he has also invested a "sizeable amount" of his personal funds in Bitcoins. As he sees it, the opportunity for Bitcoin is limitless: It will be world changing," Draper says, describing his thought process leading up to his decision to enter the Bitcoin market.
There is no in between. Ultimately, Draper decided that the potential rewards outweighed the risk, but shortly after we spoke, his faith in the market was this week in startups bitcoin exchange. Then something went wrong. Bitcoin had crashed before, but not like this. In a matter of hours, the value of a Bitcoin was more than halve d seemingly for no good reason.
At first, people assumed it must have been the result of a DDOS attack, which had caused a much smaller crash the week before, but apparently that wasn't the case. At the end of the day, Mt. Gox, the leading Bitcoin exchange, revealed that this week in startups bitcoin exchange incredible number of new and existing accounts this week in startups bitcoin exchange its system to lag, which in turn caused Bitcoin buyers to panic and sell.
Gox decided to halt trading for 12 hours Thursday — a move that would be unheard of in more traditional financial markets — in order to install more servers and improve the lag time. The price decline and the subsequent reaction from Mt. Gox was enough to spark dozens of articles speculating that the Bitcoin bubble had finally, and perhaps inevitably, burst.
During the hour period while all that unfolded, Draper, the VC, says he got "philosophical" about Bitcoin and once again started thinking about his decision to be part of this market.
This is just a blip on the radar. Meanwhile, the Bitcoin startups worked overtime to tend to customers and investors. Brian Armstrong, the founder of Coinbase, said his team was "frantically refreshing various graphs and screens" to see where to move funds and make sure customers weren't having any issues. Shrem said he and BitInstant were in "crisis management" mode all day and slept in his office that night.
As he puts it, the team was busy "making sure customers are not going crazy filing lawsuits. Like the other founders, Lukasiewicz says he was busy, but "not worried" about Bitcoin's future. As Lukasiewicz had pointed out in our earlier this week in startups bitcoin exchange, for him and his startup, it's Bitcoin or bust.
I'm a huge believer in it. If it doesnt work out, it's going to be a really bad day for me. It's about as simple as that. Gox finally re-opened trading at 10 p. ET on Thursday after having been halted for the better part of the day, Shrem scanned his computer screen to check market activity. No one can say with certainty how much further it will fall. No one knows for sure how much higher it can go.
It's tiring, it's frustrating, it's the Wild West. But I can't quit now. Image courtesy of Flickr, Zach Copley. We're using cookies to improve your experience. Click Here to find out more. Startups Like Follow Follow.