There are a couple of rules that all investors follow. The first one is pretty simple: Buy low, sell high. The second one however is a little more complex. The rate of return is inversely proportional to the amount of risk, i.e. the higher the expected return, the greater the risk.
These rules are used by investors of all types because they apply to all types of investments. Regardless of whether or not cryptocurrencies will be recognized as legal currency, they can always be traded as a commodity. The only question is what type of trader will be doing the trading.
In May of 2014, Coin Capital Management launched a Bitcoin focused, institutional grade hedge fund. If the commodity is secure enough for a hedge fund there are sure to be venture capitalists looking to build up Bitcoin startups. Venture capitalists are responsible for the seed money that helps entrepreneurs found new promising Bitcoin startups and without them the security that hedge fund managers are looking for is questionable at best.
Venture investors have been interested in the potential of Bitcoin for the last several years but during the last few months that interest seems to have grown exponentially. Just earlier this week, the Palo Alto-based cryptocurrency security firm BitGo announced that it had secured $US 12 million Series A round of funding and back in May, payment processor BitPay successfully raised $US 30 million with the backing of Richard Branson among other VC’s.
According to a study by CoinDesk, venture capital investments into Bitcoin comprised $US 56 million in the month of May alone, nearly reaching the total for the first four months of the year, which was $US 57.2 million, putting the year-to-date Bitcoin venture capital investments at more than $US 100 million. If the trend holds, Bitcoin investments could easily reach a quarter of a billion dollars in 2014, tripling the yearly figure from 2013.
Interestingly enough, $US 250 million is about the same amount of venture capital that was invested in internet start-ups in 1995 and Pamir Gelende, venture partner with Hummingbird Ventures, told Market Watch that Bitcoin is just as large a dynamic for society as the internet and is currently at about the same stage as the internet was in 1995.
While skeptics will probably downplay the trend, there is no doubt from looking at the numbers that investors are taking Bitcoin’s potential seriously. Bitcoin ATMs have cropped up in several countries and tens of thousands of business are accepting it in payment for goods and services.