Cointelegraph continues its Bitcoin Review 2014 with the second of three installments, this one covering VC investment and the international regulatory environment.

The aim of the review is to provide a comprehensive overview of activity within the Bitcoin industry over the past year. Text and image-based information from a wide range of sources is supplemented by comments from a range of experts, as well as exclusive commentary from our resident expert, Tone Vays.

If you missed part I of the review, it can be found here.

Cointelegraph Bitcoin Review October 2014

Bitcoin’s story over the past two years (January 2013 – October 2014) has seen its entire ecosystem transformed into a major global phenomenon.  Major growth is everywhere, with both years yielding data in a different league to the previous annual period.

2014 has shown particularly sharp growth in VC investment and commerce, while growth in technical circles has been less pronounced. The statistics below intend to give a broad overview of activity from across all areas of Bitcoin, so that this remarkable phase in its history is easy to track and understand.

The statistics have been gathered with the assistance of a wide range of sources, ensuring accuracy is optimal.

There are 7 main sections, which are as follows:

  1. Price
  2. Commercial activity
  3. VC investment
  4. Regulatory environment
  5. Media presence
  6. Technological climate
  7. Conclusion

Certain aspects of each section overlap into others, thus data from one section can be pertinent to further understand those present in another.

Each section consists of core research data, interspersed with commentary from a range of cryptocurrency experts from all areas of the industry. At the end of each section, our resident analyst Tone Vays provides more in-depth explanations of the findings themselves.

3. Venture Capital Investment

3.1 Notable VC deals 2014

2014 has seen a sudden and defined increase in the number of Bitcoin entities receiving VC funding, as well as in the sums involved. Larger deals (over US$1m) from this year so far (1 January 2014 – 21 October 2014) include:

3.2 Data on Bitcoin VC investment

The Bitcoin VC investment total, as calculated by CoinDesk from investments of US$250,000 or higher, currently stands at US$362.26 million, of which US$268.32 million was pledged 1 January 2014 – 22 October 2014. This represents a 292.1% increase versus the entire year 2013 (US$91.84 million) and a 12777.1% increase versus 2012 (US$2.1 million).

(fig. 3.21: Bitcoin VC investment growth, 2012 – 2014)

Despite often making headlines for large funding deals, CoinDesk notes, payment processors are not the main recipients of VC investment, accounting for 14% of the total amount pledged since mid-2012. Universal companies, including Coinbase which also functions as a payment processor, hold the largest segment at 22%.

(fig. 3.22: Distribution of VC funding by company type, 2012 – 2014)

In terms of total USD invested, it is interesting to note that wallet software accounts for only 15% of the total (see fig 3.22).

In Q3 2014, however, wallets received the greatest amount of investment out of all recipient types.

(fig. 3.23: Wallet investment vs. other ecosystem areas for Q3 2014)

CT: Despite large investments in payment processors making the headlines, these only account for 14% of the total. Do you think there are particular areas investment should be focused on currently?

“I believe that investors should be looking to invest in blockchain technology development for the good of the industry and for the purpose of connecting the individual with the decentralized exchanges being created through having DAOs, DAC's.

“Reemergence of real price discovery and even naturalized rates of interest not set by LIBOR would be a very positive benefit of continuing to build the crypto economy and doing so in an agile and iterative common sense order of operations. Robust DAO business models and block chain action request systems will enable major infrastructural differences in businesses without violating best practices.

“Applications like PeopleSoft have become the bread and butter of Oracle but we can replace them with better systems and because of this we can have complex organizations running in a predictable and transparent fashion making blockchain contract creation exponentially more robust.”

– Blake Anderson, Cryptographic Economist

“Yes, on research and development on crypto currency mining, on organizations innovating in the areas of DApps, and any company doing innovative things with blockchain technology. Much of the VC money has been focused on already overly saturated areas of the crypto space.”

– Nathan Wosnack, Founder and COO, uBITquity

“Yes, there are some huge opportunities in emerging markets - Africa, Latin America, and places like India, Pakistan, also some countries in Southeast Asia. I'd love to see some of the people and groups who have been leading the investment march come help us there. Not only are there incredible opportunities for exponential returns, that's also where countless people in the world stand to benefit the most from our help.

“It's not just a return on investment multiple at the end in those areas (although without a doubt it's there)... it's a human multiple as well. Approximately 2.5 billion adults, just over half of the world’s adult population, do not use formal financial services to save or borrow. Bitcoin is the only thing I've ever seen that can change that.”

– Will Binns, web developer, BitPesa

VC investment has been slowly gathering pace outside the traditional home of Bitcoin startups in Silicon Valley.

(fig. 3.24: Silicon Valley investment data)

The US’ share of Bitcoin VC investment declined 7% during Q3 2014, which could signal the start of an international trend to broaden the spread funds.

(fig. 3.25: Various countries’ shares of BTC VC funding, 22 October 2014)

CT: VC funding has increased by almost 300% compared with last year. Is this trend to be expected, or are the figures evidence of overzealousness?

“Yes, I think by the end of 2015 we'll see the total amount of money invested in Bitcoin companies get close to eclipsing half a billion dollars, if not surpass it altogether. We've already passed the 200 million mark and 2014 isn't even over yet. It's pretty amazing - in 2012 some estimates account that there hadn't even been much more than a few million dollars invested in Bitcoin companies. All this growth we've seen in two years. Like the invention of the Internet, what we're witnessing right now is the invention of a modern financial system... the Internet of money.”

– Will Binns, web developer, BitPesa

“The trend will continue.  Cryptocurrencies and blockchain technology solve problems for which we had no solution until now.  IBM's Paul Brody and his work with the "Internet of Things" is just the beginning.  We will see the blockchain applied to nearly every industry in the coming years.  And that will be possible because of this investment money in the space.”

– Paul Snow, Co-founder, Texas Bitcoin Association and the Texas Bitcoin Conference; contributor, Colored Coins and Ethereum

3.3 Comparison against Internet VC investment

Bitcoin investment so far in 2014 has not matched that of US Internet startup entities in 1995. The significance of this is debatable, with the differing risk factors between the two technologies being an important consideration. For example, the legal status of Bitcoin is currently not universally agreed upon, with attitudes varying between both nations and within nations such as the US. A lack of official consensus is also pertinent.

(fig. 3.31: Bitcoin VC investment 2014 vs. Internet VC investment 1995)

Additionally, the data available are not 100% satisfactory. In its own study, CoinDesk notes that data for ‘earlier’ years of Internet investment are not available, and that Bitcoin’s state in 2014 may not be suitably compared to the Internet in the aforementioned year.

Secondly, data on Bitcoin investment for 2014 is also by no means a thorough reflection of the total, with not every private deal being officially reported as yet.

Cointelegraph’s Tone Vays: Analysis

VC funding is very encouraging and it really drives comparisons with early stages of Internet Investment. It’s very encouraging to see investments in Wallets and Mining since the majority we always hear about are payment processors and other services centered with fiat integration.

Because bitcoins basics are revolutionary in themselves, people tend to forget the importance of core development and educating the public. So how is the following for an idea? Since Bitcoin’s price is directly proportional to its user base, what if a VC was to buy a significant amount of bitcoins then invest millions things like education and securing the network, or perhaps even Bitcoin advertising, to generate exponential adoption, all while using the future value of bitcoins as return on investment. This would of course require investors in the VC to think in terms of Bitcoin instead of corporate profits.

CT: Total VC investment in Bitcoin so far this year to 22 October 2014 is reported to have been US$268.32m, while investment in US Internet startups in 1995 was US$507.8m. Is there anything significant to infer from this, or can the two areas not be adequately compared?

“In terms of cost, it was hardware era so immobilisation and capital cost where high - today it is cloud based and for 5 USD a month - so what it means is that 1 doll of VC money finance much more development today that it could finance in 95.

“In terms of talent, we have today a pool of talent, which has never been so deep and diversify all across the globe. So that's driving cost down as well because ideas become cheap and staffing is not an issue anymore.

“One more point link to Bitcoin Ecosystem itself. A lot of people starting bitcoin company used to be miners, so they made money and don't need immediate money - that can afford to bootstrap for a bit longer than more traditional 95 business.

“In terms of business model, what was the valuation model based on in 95 - well future sales and the hope to get someone to buy online. Monetisation of websites and services is not an issue anymore.

“So all in all - 94 95 level of VC and today is not the best metric to look at - It is interesting but limiting because statistics are assuming "all things being equal" which is absolutely not the case 20 years later. Bitcoin is building on top of the DotCom Boom as the Silicon Valley built itself on the ashes of the cold war credit.”

– Jean-Marie Mognetti, Partner, Global Advisors (Jersey) Limited

“I think it is not an apples to apples comparison. Bitcoin and cryptocurrencies seek to disrupt one of the most regulated areas of the global economy, banking and money transmission. The regulatory uncertainty around Bitcoin's status vis-à-vis existing financial regulations has kept some VC investment on the sidelines. If Bitcoin faced the sort of tabula raza regulatory environment as the early days of the internet, the amount of investment to date would be orders of magnitude higher.”

 – Arthur Hayes, Co-founder, BitMEX

4. International regulatory environment

4.1 Attitudes of governments as officially stated

As mentioned, Bitcoin is subject to widely varying attitudes regarding legality of its use, both internationally and in some cases domestically. Moreover, specific aspects of Bitcoin usage are regarded differently under different jurisdictions.

Of the 63 states listed on, 54 are described as having an overall ‘permissive’ attitude to Bitcoin, with 7 described as ‘contentious’ and 2 as ‘hostile’ (see fig. 4.11 overleaf).

However, within the body of ‘permissive’ states lie various differences, notably in taxation. United Kingdom Bitcoin transactions are not currently subject to income tax, for example, whereas in Estonia, such transactions incur an income tax rate of 23%.

It should be additionally noted that as of 31 October 2014, the status of Bitcoin’s legality in Bangladesh is being disputed. Regulators have announced jail terms for up to 12 years for those caught trading Bitcoin, but the exact wording of official documents has led to confusion as to whether trading is still technically legal at present.

(fig. 4.11: Bitcoin legal status internationally, 22 October 2014)

CT: Which obstacles do you think the Bitcoin Foundation faces with its propagation of common treatment and recognition of Bitcoin in EU state jurisdictions?

“Member states within the Eurozone depend on directives from the ECB whose core remit is to keep the price of the euro stable as well as to keep the financial system stable.

The entire Eurozone has been tainted by political moves by separate governments against their own people to bail out their respective national banks. Greece, Portugal, Cyprus and Spain highlight the worse of these cases. These are all places where the local governments are trying to re-build the confidence in their respective currency systems. 

The main reason to push for stability within their own currency is because they have debts to pay back. The fear of a government is easy to see when you introduce Bitcoin into the equation. What they see is a currency which does not acknowledge an immediate solution to their debt. While it will provide the economic benefits of innovation and job creation, the down side for them is disastrous if it is widely adopted in favor of a local currency. Without correct controls in place, the tax system could be avoided causing issues such as a default. This would have a knock on effect of social problems, in Greece the result of economic cuts manifested into violent riots.

Such issues pose some difficult political challenges to confront. If a country was to embrace an innovative currency system such as Bitcoin, it could see economic benefits that far outweigh potential threats. Known politically-neutral tax havens such as Jersey and the Isle of Man are taking advantage of their flexible positions and are seeing the benefit of hundreds of Bitcoin businesses incorporating there.”

– Joseph Lee, Founder,

4.2 Consumer activity vs. regulatory environment

A trend which has been the case since Bitcoin gained international attention is that of consumer activity bearing little connection to regulation, and vice versa.

According to, over the 30 days ending 31 October 2014, 67% of Bitcoin exchange trade volume was linked to the Chinese Yuan, while its policy makers have been vocal about their distrust of digital currencies. While not banned outright, Bitcoin entities in China currently move in a difficult legislative environment. Chinese consumer usage, however, remains buoyant.

(fig. 4.21: Exchange volume distribution by currency)

Second to the Yuan are USD transactions, accounting for another 38% of the total. The US, in contrast to China, has a considerably more permissive attitude to Bitcoin, with specific environments differing between states.

(fig. 4.22: USD/CNY stronghold on BTC transactions, April – September 2014)

It is interesting to note both the majority claimed by two currencies, as well as the considerably smaller portion held by EUR, which as a currency is used by over 500 million consumers daily.

Further evidence of the trend can be seen in fig. 4.24.

CT: The Chinese Yuan and the USD together are currently responsible for 96% of exchange volumes, while the Euro only represents 2%. Given the financial liquidity and number of EUR-based consumers, why do you think this should be?

“China has the world’s largest population and the world's second largest economy. It would only be natural for it to have the largest share of Bitcoin trading volume. The US is the world's largest economy, and the USD currency and credit markets are the world's largest. It is also not a surprise that it is the second most traded Bitcoin currency pair. The largest financial center in Europe is London which is not on the Euro. Given the sickly state of most Euro-area economies it comes as no surprise that the Euro punches below its weight.”

– Arthur Hayes, Co-founder, BitMEX

“Bitcoin isn't mainstream yet, and especially in Europe most users are young academically educated hobbyists, while in U.S. and China there is a crowd of investors who speculate with the price. Much innovation comes from Europe, though. I think that the typical European user in the future will emerge from the consumer market.”

– Tuomas Santakallio, software developer, Bit Mundo

“Historically, the USD has been the world's reserve currency since World War II, because of this, it is the reference currency of financial institutions, traders and speculators around the world. Because of this, a trader in the Eurozone will predominantly track Bitcoin price movements in USD as it is known to be one of the most liquidly traded currency pairs. We've certainly seen this in our experience of running

Because of strict controls and the lack of demand, what those statistics will show is that the 4% Euro volume would be more reflective of individuals engaged in genuine exchange related activities (buying or selling) as opposed to speculation or trading.

China's market is similar to the US as it is known that the Chinese crowd love to speculate. The higher reported exchange volumes there are also a reflection of the country-wide pricing policy of 0% commission per trade.”

– Joseph Lee, Founder,

According to the Bitcoin Market Potential Index (BMPI), regulatory stance has little impact on a country’s potential to adopt Bitcoin. BMPI uses a range of social and economic factors to determine susceptibility to Bitcoin infiltration.

(fig. 4.23: The 10 countries displaying the ‘greatest potential’ for Bitcoin adoption)

Further details for other countries (167) can be found below, with darker colors indicting higher potential.

(fig. 4.24: Potential of 167 BMPI countries to adopt Bitcoin)

Cointelegraph’s Tone Vays: Analysis

Regulation and taxes are already becoming a major problem. Very few governments will be open to the idea of Bitcoin becoming the medium of exchange within their borders and the more in debt the nation the more they will attempt to get out of Bitcoin. A tax haven like Jersey or Isle of Man might be nice for corporations, but Bitcoin is not a corporation. It will thrive in free market areas where trade actually takes place and these little islands are not it. The more the regulation differs between nations the more people will be hesitant to transact in bitcoins. And of course the manner in which tax authorities intend to collect is going to be up for debate.

You can judge a nation’s understanding of Bitcoin by the laws they try to implement. Any country that attempts to ban it outright is basically saying, “we don’t fully understand it, but we certainly don’t like it”. Yes, holding on to your bitcoins allows a person to avoid showing the government what their wealth really is, this is a fact and there is no denying it. The question should then be raised as to why people choose to do that.

Not everyone is a criminal just because they would like to keep the wealth of their labor private, but if one country breaks the rules and allows Bitcoin to just be free, more criminals might flock to it than they can handle. This is one of the reasons why regulation (preferably the minimal possible) should be as similar as possible across the globe.

Regulation is going to be the hot topic in 2015, and if Bitcoin survives another year, it would be interesting to see if it will be one of the topics during the 2016 US Presidential Election. You wouldn’t think that something with a market cap of just over US$4 billion would be such a global phenomenon.

In context there are over 350 private citizens (according to Forbes) that are worth more, not to mention the amount of currency printed on a daily basis by central banks or the fact that Facebook paid almost 5 times as much for a messaging app which should be rendered obsolete by this time next year thanks to better and more importantly ‘encryption-enabled’ private alternatives.

Sources: CoinMarketCap, Coinpulse, CoinATMRadar,, Bitcoinwisdom, CoinDesk, Coinmap, Bitcoinstats, Bitcoincharts, Bitcoinwatch, Stackexchange, OKCoin, Bitcointalk, Reddit, Cointelegraph. All pages accessed 21 October 2014 – 27 October 2014.

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