Are you an investor who has come to this page while doing the due diligence for investing in Bitcoin? If you have come this far, I suggest that you read till the end.
Even if you are not a VC or angel, you are still in the right place on the Internet, for I am about to add some perspectives that can help you make informed decisions towards investing in Bitcoin. More specifically — investing in Bitcoin Tech. Please note that Venture capital funding for Bitcoin based startups tripled in 2014, and 2015 is off to a phenomenal start.
There are Venture Capitalists who invest in technology, logistics, finance, food, transportation, and even in the adult toy business (just kidding – thats extremely hard). Then there are early adopters among the VCs who are investing in Bitcoin tech. After all, VCs are people too, right? So it only makes sense to extrapolate the innovation diffusion curve to Venture Capitalists, just the way we apply the curve to the general population.
- Wallets — storing the bitcoins
- Exchanges — converting fiat to digital currencies.
- Payments — sending and receiving what’s stored or been exchanged, with merchants.
But I refuse to believe this. To be more precise, I refuse to believe that there are only three possible ways to make (more) money as an investor in Bitcoin tech.
The Three Limitations or Dependencies
The above three angles of investing in Bitcoin have a few limitations.
- The Return on Investment (ROI) is dependent on adoption of the Bitcoin usage
- The ROI is dependent on the the premise — “Bitcoin Will Become Money Someday“
- The ROI in exchanges depend on Transaction volumes and Payments Volume.
The Most important one — The Adoption
All of these are inter-related, but the key driver is the Adoption Rate. What good is a currency if people aren’t using it? In the end, it is the payments volume that is going to drive price appreciation (or depreciation) and exchange volume. That’s not all. Payments Volumes are dependent on adoption rate. Adoption rate is dependent on the Bitcoin Public Sentiment, about which I wrote a few days earlier.
What if there is a different angle to investing in Bitcoin?
Venture capitalists who have traditionally invested in Technologies like the ones shown in this Forbes Midas list, invest in social networks, dating apps, IoT, AirBnB like ideas, match making ideas, Uber-like ideas and the ilks. All these investors and investment firms have one thing in common — They invest either in the Team or the Technology or the Revenue potential.
In the case of investing in Bitcoin tech, the investment angle has mostly been Financial or the Revenue Potential. I can’t help but say this is the way I see such revenue or finance centric investing. The best representation of my opinion can be summed up in this cartoon by Steve Sack, of Cagle Cartoon.
So, a better approach would be to invest in the team or the technology value.
Where is the Scope for Innovation?
One reason with which VCs can justify their financial and revenue centric approach is that the Bitcoin tech is Open Sourced. So the question is where is the scope for innovation? Here is the answer.
- Apache Hadoop is open source. This is the major underlying tech in Big Data.
- Linux, especially Ubuntu is open source tech.
- Bitcoin and the protocol is Open Source.
- BlockChain is Open Source.
All these technologies have taken Earth by storm in the past. There is a new eligible candidate on the block, the Blockchain. This is where the scope of innovation is. This where your investments can make a difference and actually more profit.
Image Credit: TruthDig.com. Steve Sack, Cagle Cartoon, The Minneapolis Star Tribune.
Simpson Character Made using: http://milkandcookies.com/link/41026.
