November and December 2013 were an important period for peer-to-peer digital currencies. On the morning of December 4, 2013, Bitcoin was trading at close to US$1140 on Mt.Gox, the leading Bitcoin exchange. This set a new bar and takes Bitcoin’s market capitalization to more than US$12.4 billion. Over the last few months, Bitcoin has caught the eye of many, including venture capitalists, even as the regulatory bodies are stepping up their scrutiny.
According to the Bitcoin Investment Trust, should bitcoin replace even a small percentage of the capital allocated to traditional stores of value, or make headway as a payment platform, the upside potential for investors is enormous. With the Mt.Gox exchange seeing an increase value average of 0.59% per day, over the coming months we should reach a tipping point. With the mass adoption of mobile devices, continued growth in the internet connectivity technologies, advances in distributed/collaborative and peer-to-peer computing trend, sustained growth in online payments, the digital currency space is expected to reach the next level of mass adoption. The key for future growth will be to build on the open technologies and create innovation for consumers and businesses around the world, making the technologies as safe and easy to use a possible within legal context.
Investors say they expect Bitcoin to grow in popularity for businesses related to storage, payment processing, remittance, and micro transactions. The key will be finding the right entrepreneurs to build the best consumer-friendly applications. Bitcoin startups have raised nearly $12 million from venture capitalists in seven deals over three months ending June 2013, according to CB Insights, a New York-based venture capital data firm. That compares with just five deals totaling less than $2 million in the previous four quarters of 2012. Investors are entering this space with the right amount of risk tolerance and finding the return very appealing. The Bitcoin upside is quite significant given the size and scope of the industries potentially impacted, and the amount of financing remains modest compared with some areas like social networking. This year alone, more than US$100 million of venture capital is expected to flow into Bitcoin startups, and the number of US startups spans in the hundreds, with China and other countries taking the next main stage around the world.
However, countries around the world are taking varied stances with regards to Bitcoin operation, including a few who have decided to a wait and watch approach is best. Nevertheless, virtual currencies are here to stay. It remains to be seen about regulatory issues and how the marketplace will address their current shortfalls to align with other lateral innovations and stakeholders, including investors.