In January 2016, an anonymous user posted the following question on Quora: Does it still make any sense to buy Bitcoin in 2016? The price of Bitcoin then was below $400.
My answer then was yes, but it wasn’t that I was religious about Bitcoin or had tools to analyze it quantitatively. To me, Bitcoin was just a very promising early stage startup.
All VC investors know that it’s the early stage where the big multiples are (alongside the high risk, of course). No matter how bullish you are about Facebook’s future today- you can never hope to match the 800x return of Accel Partners who invested in Facebook’s series A.
Back then, I theorized that Bitcoin was likely to disappear or lose value over time. But I thought it made a fantastic investment for the small chance it would ever reach the financial mainstream. Real estate investors hardly relate to this “funny math”, but for venture capitalists it’s the bread and butter.
The year of Bitcoin
Fast forward to 2017. Bitcoin has smashed other asset classes this year, surging almost 400% since January. Thousands of “Bitcoin millionaires” gave rise to a wave of Initial Coin Offerings (ICO’s) and sent more than $2bn in funding to hundreds of new crypto projects. While Bitcoin accounts for more than 50% of value of all “crypto assets”, the market currently sees about $5bn in trading volume per day across 1,100 currencies and tokens.
More on Forbes: Will This Battle For The Soul Of Bitcoin Destroy It?
Those who follow the Bitcoin scene at its native breakneck pace, or just the price movements, might miss the biggest item of 2017: Bitcoin is no longer a startup. In fact, it’s time to declare this year as Bitcoin’s “IPO moment”.
The first mark of this “IPO moment” is a change in perception. In 2017, we’ve seen Bitcoin taken more seriously by media, regulators, the public and the mainstream financial system. This change is accelerated by greed and controversy, but it’s still fundamental and undeniable. Despite challenges on several fronts – from China to Jamie Dimon – there is now a strong sentiment that cryptocurrencies are here to stay, and that Bitcoin has emerged as the king of the scene. Even Christine Lagarde (MD for the International Monetary Fund) recently theorized that currencies like Bitcoin could be adopted by countries with shaky monetary systems, in what she calls “Dollarization 2.0”.
A real asset
Internally, the Bitcoin community enjoyed a massive confidence boost. With more brainpower and wealth to re-invest, it continues to thrive and innovate like never before. Leaders emerge. Disputes are no longer perceived as an existential risk. Bitcoin hasn’t only aged well, but also brought communities together and inspired breakthroughs in new directions.
The second and more interesting mark of the “IPO moment” is institutional money — good news for existing Bitcoin holders who were “pre-IPO investors”. If you’re close enough to both finance and the crypto community, you know that a heavy shower of institutional money is looking to enter this asset class right now. This is just a partial list of initiatives that try to meet the institutional demand for Bitcoin right now:
- Institutional offering by cryptocurrency exchanges, such as the fast-growing GDAX by Coinbase
- Dozens of hedge funds, such as Metastable Capital and PolyChain Capital
- Public funds, such as Bitcoin Investment Trust (currently available only to accredited investors)
- Private index funds, such as Bitwise Asset Management
- Derivative exchanges, such as LedgerX (CFTC approved)
- Proposals for ETF’s– although the SEC has rejected past proposals for ETF’s, the imminent launch of Bitcoin derivatives increases the likelihood for Bitcoin ETF’s
No matter the market share that each of these segments end up serving, and how fast they develop, they will develop and drive investments into Bitcoin.
The currency of the future
With easier access for hungry institutions, the upside for Bitcoin can be significant. But how significant? Can the “post-IPO” multiples match those of the “pre-IPO” years? It’s unlikely, but not impossible, especially if you assume that Bitcoin belongs in the same category as gold and currencies. Gold is estimated to have a “market cap” of $7tn and the U.S. Dollar’s monetary base is around $3.8tn.
As an asset, Bitcoin is an animal unlike any other. Just like other world-changing startups that went public in the last 10 years, it’s a relatively young invention. Many questions are still on the table and black swans could definitely pose existential threats to it. But all the signs point to the fact that we’re entering a new era in this asset’s history.