Bitcoin Venture Era

The Bitcoin ecosystem will develop its venture capital. And it will be as activist for libertarian causes as Silicon Valley’s capital is for progressive ones.

Today there are few venture bets being made by Bitcoiners despite the large amounts of capital they control. Most believe that successful investments would still underperform BTC; HODLing has a better ROI. This is bound to change as the market cap keeps growing.

Past the inflection point HODLing is no longer the best way to accumulate BTC.

If Bitcoin is to develop its economy it will need some form of high-risk capital. Sooner or later we will see the first VC fund or an AngelList syndicate denominated in BTC. I.e. the managing partners only receive carry if they return more bitcoins than they raised.

There are already hedge funds operating this way1. But trading differs from venture capital. VCs take long term positions compared to traders. They must find investments that will outperform BTC over 5 years. Not 5 weeks or 5 days. It is not surprising we have not seen them yet. We will see them because of two functions that are both driven by the growing market cap.

  1. Slowing of BTC’s price growth in relative terms
  2. Growing size of the investment opportunity in companies charging their fees in BTC or denominated in BTC 2

Activist capital

The Venture Era of Bitcoin will have social implications. Allocating capital is a form of influence and that is often used to further ideological causes. Silicon Valley dominates the venture capital market today. Silicon Valley is mainly progressive and so is VC. Many firms seek to invest in startups working on global warming. They also often push for gender and racial diversity on boards of directors.3 

It is reasonable to expect that similar dynamics will emerge in the Bitcoin VC market. Investors will value libertarian causes, such as protecting personal freedoms, as much as Silicon Valley VCs value progressive ones.

Thanks to Mattia Gagliardi, Tuur Demeester, PlanB, Ken Seiff and Nic Carter for reading a draft of this. 

Illustration: Livija Daudze; editing: Peter Cooper

This post was also published as a tweetstorm.

Footnotes

  1. For example, Adamant Capital. Other examples are the early bitcoin-denominated stock markets such as Havelock, GLBSE, and MPEX and a fund of funds, Bixin.
  2.  There are several examples of such businesses, including exchanges, crypto-lending, etc. Even if their fees are charged in USD, the amount of dollars they get is correlated with the price of BTC.
  3. Funding a military-oriented startup would almost certainly limit one’s ability to participate in many other rounds.

Leave a Reply

Your email address will not be published. Required fields are marked *