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Is it the end of Bitcoin's venture funding run?

December 21
7:41 AM 2013

A PCWorld report written by Zach Miners asks: "Could Bitcoin's frothy run of venture funding dry up?" Despite the uncertain status of the Bitcoin, venture capitalists have poured their money in it. The report said startups that deal with the Bitcoin technology took their fair share of millions of dollars in funding from well-known venture capital firms in Silicon Valley. All in all, they were able to get at least $50 million for something that could easily be wiped out or pushed underground if financial regulators would decide against its use, the report said.

Of that $50 million, half was taken by Coinbase in its major funding round done earlier this month led by Andreessen Horowitz. Coinbase provides various services related to the digital currency, including a platform to buy and sell Bitcoins, a payment processor as well as a wallet to store the digital money. Startups that also lured investor dollars included BitPay, Circle, itBit and BTC China.

The technology appears to be supported by some bankers and regulators, with Merrill Lynch saying in December that Bitcoin could compete with traditional money transfer providers. Cautionary support was also offered by federal officials in Washington last month, partly for the virtual currency's potential to make global commerce more efficient.

However, the setback experienced by BTC China which stopped taking in deposits after regulators took action as well as the support given in varying levels of support for it have sent the Bitcoin plummeting in value. In a statement, the European Banking Authority has said that consumers are not given enough protection when using digital currencies and could lose their money.

With these concerns, startups may find it more difficult to raise money, the report said, citing Boston University Finance Professor Mark Williams who had been monitoring the digital currency. He said investors felt earlier this year that they had hit something big. However, hype alone is not anymore sufficient. He told PCWorld, "The honeymoon is over."

The investments are also riskier as restrictions would undermine the Bitcoin's main purpose of being a currency that is free from any control. If Bitcoins become harder to come by due to red tape, startups would experience a reduction in their profit opportunities, the report said.

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