The backers of Coinbase's US$75 million investment round bring more institutional credibility to the Bitcoin ecosystem. Mixing large financial institutions with powerfully connected individuals, the group represents a continued belief in the future development and implementation of Bitcoin.
Announcing the completion of US$75 million Series C round of funding for the digital currency platform, Coinbase has set a new record in the Bitcoin world for the largest amount of venture capital invested in a digital currency startup. More importantly though, the range of investors putting money into the company now extends beyond the tech-centric firms, such as Lightspeed Venture Partners and Bitcoin-specific groups, such as Crypto Currency Partners. The addition of USAA Bank, the investment arm of the American Insurance giant, and the New York Stock Exchange itself, will make many critics of Bitcoin, and investors previously wary of the digital currency world, re-evaluate their positions.
Well-known investor Warren Buffett has famously referred to Bitcoin as a “mirage,” advising his followers to “stay away” from the digital currency. His position was attacked at the 2014 CoinSummit by early Coinbase investor Marc Andreessen, who likened it as the “standard trope of technology criticism by people who don’t understand technology.” But the attitude of caution around Bitcoin continues, with bitcoinobituaries.com even collecting a continuous stream of articles in the media about the coming “end of Bitcoin.”
Core Bitcoin developer and CEO of Dunvegan Space Systems Jeff Garzik says that Bitcoin adoption will come instead in a series of ever larger investing cycles:
“Part of bitcoin's path to mainstream financial instrument will involve experimentation (2009–2012), angel and VC investment (2013–2015+), and finally larger, Fortune 500-sized early movers. Investment comes in waves, each new waves learning lessons from the last.”
The involvement of such large players so early on in 2015 could show it to be a record year for investment. With US$314 million invested into Bitcoin companies in 2014, and just under a quarter of that already invested in 2015, critics are pointing to this growing cycle of investment as a sign of Bitcoin movement towards the mainstream.
Having financial institutions get behind the growth of Coinbase will do much to re-assure both investors and users that there is much more of substance in the industry than some had previously thought. For Coinbase itself, one important arm of its work is signing up merchants to their Bitcoin payment service. Through previous successes, including Dell, Expedia and PayPal company Braintree, the company has gained many users' trust through their association with these brands.
With the investments from the financial powerhouses involved in yesterday's funding round, we therefore might expect to see a similar effect upon the merchant side of Coinbase's business, as the digital currency startup benefits from the reputation an investor like the New York Stock Exchange (NYSE) brings with it. The growth of merchants accepting Bitcoin increases possible spending within the Bitcoin ecosystem, and also exposes more shoppers to the concept of Bitcoin where they may not have previously heard of it.
Speaking of their minority investment into Coinbase, NYSE President Tom Farley stated:
“With this investment, we are tapping into a new asset class by teaming up with a leading platform that is bringing transparency, security and confidence to an important growth market. We look forward to supporting Coinbase’s growth utilizing our global distribution capabilities and market expertise.”
Along with the large financial funds and companies getting involved in the funding round, investment also came from two private individuals, former Citigroup CEO Vikram Pandit, and former Thompson Reuters CEO Thomas Glocer. Both of these again bring a level of prestige to the Coinbase brand that companies operating in the Bitcoin space are desperately in need of when they are held up against the strings of hacks, thefts and frauds that have dogged the digital currency's previous few years.
Garzik expanded on his comments to CoinTelegraph:
“As we saw with former SEC chairman Arthur Levitt joining BitPay's advisory board, the news that Coinbase investors now include larger institutions such as the NYSE, USAA bank, Spanish bank BBVA and former Citigroup chief executive Vikram Pandit demonstrates that Bitcoin is further along the path to worldwide acceptance as a mainstream financial instrument. The Winklevoss COIN ETF and SecondMarket's OTCBB vehicle becoming available to every Schwab and eTrade customer will be another huge milestone for Bitcoin.”
Other payment platforms trying to set themselves apart from what's seen as the “unstable” world of Bitcoin are Circle and BitPay. All three startups have offered “automatic conversion” of BTC payments into a chosen national currency, again taking a step to reassure merchant users that the underlying technological benefits of instant payments and low transaction fees that Bitcoin possess can be separated from the recent price instability. With yesterday's record investment round, and the increased investor interest this will lead to in the sector, all three look set to make further gains on the road to widespread Bitcoin acceptance.
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