Tim Draper Explains Why He Invests in Bitcoin, Blockchain Companies
Prior to the Genesis Moscow blockchain conference, billionaire investor Tim Draper discussed the rising demand for bitcoin in global markets, bitcoin’s price trend, the state of the initial coin offering (ICO) market and regulatory frameworks for the cryptocurrency market.
Since early 2016, the demand for bitcoin from institutional, retail, professional and casual investors has continued to increase at an exponential rate. This growth trend is undoubtedly the result of the mainstream adoption of bitcoin as a safe haven asset, long-term investment and settlement network.
“Bitcoin is a global, frictionless, currency and store of value. I believe that individuals and institutions alike will continue to discover this new vehicle and the price will continue to rise.”
In an exclusive interview with Binary District, Draper explained that the value of bitcoin will continue to rise rapidly as more investors expose themselves to the new asset class and the cryptocurrency market.
“Bitcoin is a global and frictionless currency and store of value. I believe that individuals and institutions alike, will continue to discover this new vehicle and the price will continue to rise,’ said Draper.
Bitcoin Exchanges as the Banks of the Future
In 2014, Draper was one of the very few angel investors from Silicon Valley to fund regional bitcoin exchanges. At the time, global bitcoin exchanges dominated the cryptocurrency exchange market and regional bitcoin exchanges struggled to generate stable revenue streams and large profit margins.
Yet, seeing the potential of the Chinese, South Korean, South American, and Southeast Asian bitcoin exchange markets, Draper became an early investor in many regional exchanges.
“I invested in bitcoin exchanges across the globe. CoinHako in SE Asia, Ripio in South America, Coinbase in US, Korbit and Coinplug in Korea, OkCoin in China, Bitpesa in Africa. I believe that these companies are going to be the banks of the future. Korea is a very advanced technological country, so naturally, that country would be one of the early bitcoin adopters and winners,” said Draper.
In many Asian markets, such as China and South Korea, the demand for bitcoin is increasing mainly due to its ‘safe haven asset’-like characteristics.
Draper emphasized the fact that more investors and traders are beginning to rediscover the currency side of bitcoin, which itself has become significantly more efficient. This is largely down to the substantial reduction in bitcoin transaction fees and the recent integration of the Bitcoin Core development team’s scaling and transaction malleability solution - Segregated Witness (SegWit).
“Bitcoin is already both. And people are finding even more uses for it. Smart contracts, remittances, hedging, security, payment to the unbanked worker. There are lots of use cases,” Draper added.
In 2017, bitcoin has already outperformed all international assets and reserve currencies. It has evolved into a $75 billion decentralized financial network, capable of operating without administrators, mediators and centralized entities.
Many traditional economists, analysts and bankers, including Peter Schiff, continue to criticize bitcoin for its apparent lack of intrinsic value.
However, in the past two decades, it has become increasingly evident that value is subjective, and that the concept of intrinsic value is flawed. Centuries ago, civilizations relied on shells and stones as stores of value. Over time, this evolved into gold, fiat currencies and ultimately, bitcoin and decentralized currencies.
“People used to trade shells, then gold, then silver, then the promise of silver or gold, then a note with the promise that the government would back them. Bitcoin is the next in a long line of currencies.”
In terms of stability and volatility, even at its early stage in development, bitcoin is still far superior to national currencies such as the Venezuelan bolivar and the Argentinian peso - which have both experienced extreme hyperinflation over the past few years.
Gold company executives like Schiff rely on the performance of gold, which can be considered as a rival safe haven asset to bitcoin, to secure profits for clients. For this reason their opposition to bitcoin is understandable. However Draper believes that, due to its decentralized nature and frictionless financial network, bitcoin will become the next standard of currencies.
“People used to trade shells, then gold, then silver, then the promise of silver or gold, then a note with the promise that the government would back them. Bitcoin is the next in a long line of currencies. Benefits are less friction and it is global. Our economies become wealthier the less friction there is to a trade. Gold is hard to move from one place to another. Bitcoin is instantaneous,” he said.
ICOs Cater to the Demand for Alternative Financial Infrastructures
There are undoubtedly many get-rich-quick cash grab schemes in the ICO market today, as well as plenty of illegitimate businesses without a clear vision or viable product. However, there are also many innovative projects or “societal transformers”, as Draper calls them, which have the potential to disrupt various industries and completely alter how they operate.
“Some ICOs, the weaker ones are trying to mimic venture capital in what they raise their money for. The best ICOs are really for tokens that create a sociological transformation, something VCs are not looking for.”
Conceptually, ICO is a phenomenal method of fundraising. It allows startups to raise capital without third party mediators and gives blockchain networks real-time value through the market cap of circulating tokens.
Draper stated that there has long been a strong demand from early-stage companies for alternative financial infrastructures and networks. He noted that ICOs fulfil the unmet needs of society and major industries.
“ICOs are filling unmet needs in society. There is a need for the unbanked to have a way to transact business with a trusted third party. There is a need for the uninsurable to get some insurance. There is a need for new forms of currency like bitcoin. ICOs like Tezos, Bancor and Credo all show great potential as societal transformers”, said Draper.
For venture capital firms, the emergence of the ICO market has prevented opportunities to invest in innovative blockchain startups. In order for bitcoin, blockchain and cryptocurrency companies to raise funding from VC investors, it is often necessary to demonstrate stable revenue streams and the potential to scale and commercialize their business.
In the case of ICOs, blockchain projects are not required by their investors to generate major profit margins. Instead, the focus is on the general development and improvement of their networks.
As an early-stage investor, Draper is not concerned that ICOs are leaving venture capital firms without opportunities to fund blockchain companies. He explained that, while VCs are look for commercial and profit-driving companies, ICOs such as Tezos, EOS and Bancor raise capital to transform society.
“Token buyers become owners of a currency. If the currency becomes traded and spreads, it increases in value. If not, it becomes worthless. Some ICOs, the weaker ones are trying to mimic venture capital in what they raise their money for. The best ICOs are really for tokens that create a sociological transformation, something VCs are not looking for”, concluded Draper.
Margarita Khartanovich at [email protected]