Tuesday 20 February 2018

While some dip a toe in bitcoin pool, others opt for its infrastructure

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Lizette Chapman

Bitcoin has gained global fame in the past year, but it's been popular at Peter Thiel's venture firm since at least 2012.

Founders Fund, Thiel's San Francisco-based firm known for early bets on SpaceX and Airbnb, has been purchasing small amounts of bitcoin in recent years, totalling no more than $20m (€16.6m), to establish a "toehold" in the space, according to a person with knowledge of the matter.

Those bitcoin holdings are now worth several hundred million dollars, though Founders Fund has yet to return any gains to its investors, said the person, who asked not to be identified because the investment hasn't been publicly disclosed.

The 'Wall Street Journal' earlier reported the firm's bitcoin purchases.

While the investment amounts to a rounding error for Thiel's firm, which has more than $3bn under management, it nevertheless represents a departure from the way that most venture investors have approached the bitcoin space to this point.

Venture capital firms ploughed more than $1.38bn into blockchain start-ups - companies working on the technology underlying bitcoin - during 2016 and 2017, according to research firm CB Insights.

Uses of the blockchain, a decentralised ledger system, range from enterprise software and e-commerce to the more buzzy bitcoin currency exchanges, trading platforms and mining companies.

In bankrolling the infrastructure that is required in order to support the digital currency, investors, including Draper Associates and Andreessen Horowitz, have taken a measured approach, backing blockchain technology, rather than buying bitcoin itself.

The performance gap between bitcoin-related start-ups and bitcoin as a currency has been a sore point during partner meetings at some venture firms.

Start-up shares are illiquid, take an average of seven to 10 years to deliver a return, and 90pc of such companies fail.

Some venture-capital partners argue that a direct investment in the currency would have been smarter than backing the start-ups, even though it is not a traditional venture deal, pointing to the surge in bitcoin value - it jumped about 1,400pc in 2017 - and the fact that it can be traded immediately.

But with bitcoin prices hovering around $14,700, it is doubtful whether any venture investors still see a bargain.

Back in November, Thiel thought bitcoin's price was very high, said the person familiar with Founders Fund.

The investor felt comfortable buying it at about $2,000 to $3,000, they said.

A Founders Fund spokeswoman confirmed that the firm invested in bitcoin infrastructure companies BitPay, BitGo, Polychain and MetaStable, but she then declined to comment on the firm's ownership of bitcoin.

Meanwhile, you can add Chanticleer Holdings to the list of companies racking up big stock-market gains by jumping on the cryptocurrency bandwagon.

Shares of Chanticleer, a North Carolina-based owner of Hooters franchises and burger joints across the US, surged 41pc on Tuesday after announcing plans with Mobivity Holdings Corp to start a blockchain-based customer-loyalty programme with digital 'Mobivity Merit' tokens.

Chanticleer, whose stock is still down more than 75pc over the past three years, was valued at $11.3m after Tuesday's rally.

Obscure companies making everything from juice to sports bras have seen their shares soar after announcing cryptocurrency ventures -- sometimes powered by little more than buzzwords and a name change.

Sceptics have drawn parallels to the 1990s dot-com craze, saying the gains are evidence of a bubble fuelled by bitcoin's 1,400pc advance over the past year.

Long Island Iced Tea Corp jumped as much as 289p after the Hicksville, New York-based company rebranded itself Long Blockchain Corp.

Diagnostic equipment maker Bioptix Inc. nearly doubled ahead of its announcement to rebrand as Riot Blockchain Inc.

And Israel's Natural Resources Holdings Ltd. jumped 159pc after disclosing plans to acquire a majority stake in a Canadian cryptocurrency mining operation.

(Bloomberg)

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