As I mentioned in a previous article, the Bitcoin & blockchain tech industry is poised to break $1 billion in overall venture capital (VC) investment by the end of 2015.
Seven months into the year, we have some hard numbers which indicate the industry will reach that milestone. Total Bitcoin VC increased 21% to $832 million in the second quarter of 2015, with its two biggest deals by Circle and Ripple of $50 million and $28 million, respectively. Many large financial and technology giants are also deeply examining Bitcoin and blockchain technologies, as those in the industry had speculated might happen.
Several of these institutions made public announcements on various assessments and investments in blockchain technology and digital currency last quarter. On July 23, Nasdaq CEO Bob Greifeld suggested that the US-based stock market plans to roll out additional blockchain projects “in the future”.
CNBC released the names and intent of several firms that are now publicly researching and investing in the industry. Here are a few notable ones:
- UBS
- Barclays
- BNY Mellon
- Nasdaq-OMX
- Samsung
- IBM
- Qualcomm
The expanding development of blockchain technology, specifically Bitcoin, is frequently compared to the steady rise of the Internet in its early days. And several experts believe Bitcoin technology is on track to outpace Internet development, and they have crunched data to back up this assessment.
CoinDesk, the leading industry news site, has been conducting an ongoing analysis with PricewaterhouseCoopers that compares total bitcoin venture capital investment to total ‘Early Internet’ venture capital investment. (See chart below) This data comparison is adjusted for inflation and continues to project 2015 bitcoin venture investment will surpass early stage internet investment in the comparable year of 1996.
On a more local level, I think it is important to mention that companies with ties to our region are getting a chunk of the VC attention and funding. Out of the several exhibitors and startups that played a role in last summer’s inaugural Cryptolina Bitcoin Expo in Raleigh, at least six have gone on to land impressive seed funding, Series A, B, and in one case, Series C rounds. These include:
- Coinbase ($75 million; Duke Alum-founded)
- BitPay ($30 million; Atlanta with key employees from the Triangle)
- OpenBazaar ($1m million; Virginia-based)
- AirBitz (San Diego-based)
- CoinOutlet (North Carolina founded)
- Swarm
Institutionally speaking, another Bitcoin milestone emerged during the quarter when ItBit of New York City became the very first US-based exchange to receive a New York banking charter, granting it approval from the New York Department of Financial Services (NYDFS) to launch its services nationwide. Considering Charlotte is the second largest banking center in the country, controlling more than $2.2 trillion in assets, it may be just a matter of time before the Queen City emerges as a digital asset hub like NYC. That is, if we can get the state level regulators on board (more on that in a moment).
Is North Carolina over-regulating bitcoin?
Will total Bitcoin VC investment hit $1 billion by the calendar end of 2015? It certainly looks like it. For most of the United States and world, the times are looking good for startups in the Bitcoin/blockchain industry. But times appear to be more uncertain if you live in North Carolina.
In case you missed it, the State Senate Commerce Committee approved SB 680. This bill comes across as a modest revision of the existing Money Transmitters Act. But as written, this bill could affect Bitcoin startups and businesses. It mandates a minimum net worth requirement of $250,000 for applicants. Businesses would also be required to post a surety bond of $150,000, an amount subject to change based on future transaction volume. The bill also gives the state banking commission authority over money transmitting operations, which includes bitcoin exchanges and digital currency/asset developers.
It can be argued that these recent legislative actions by the North Carolina General Assembly have triggered a negative industry reaction. I previously wrote that thoughtful regulatory framework for consumer protection is necessary, but legislation that could impede Bitcoin & blockchain innovation is bad for startups and economic development. The NC Senate version of the bill is also similar to the NC House version in that it infers a ‘virtual currency’ like a bitcoin is money, which differs from a bitcoin’s status at the I.R.S., where it is legally defined as property, not money.
The first industry reaction in North Carolina came on July 15th when Bitcoin services provider Xapo confirmed that it will no longer operate in our state. Xapo cited that North Carolina’s new requirement to obtain a state-level money transmitter license was the decisive factor behind its decision. I also received word last week in an email that previously North Carolina-based CoinOutlet moved all operations out of our state, and has no intention of doing any business here, citing the recent regulatory waves. Companies like Xapo, which has raised nearly $40 million in VC to date, and CoinOutlet deserve level-headed regulation from their state and federal government. This legislation is a blow to the state of Bitcoin and blockchain technology in North Carolina.
It’s important to remember that the underlying blockchain technology behind Bitcoin has many more uses than just finance or currency. Bitcoin is just the first step.
Bitcoin 2.0 is a not-to-miss opportunity
The security afforded by public key cryptography will eventually make blockchain technology appealing to consumers, merchants and even governments. As an example, the nation of Honduras is exploring the use of Bitcoin-based blockchain tech to run its land registry. The Honduran government announced in May a deal with Texas-based Blockchain company Factom Inc. that will see the country implement Factom’s Land Registry Tool to track who owns what within its impoverished borders. In many corrupt, third-world nations, the issue of land title fraud is a real problem.
This is a significant development, and the tip of the iceberg with respect to the many uses of Bitcoin-based blockchain technology.
Financial, administrative and legal services could be transformed through highly efficient digital contracts, digital vehicle titles, crypto-equities, voter registration, tax collection, and currency exchange to name a few. We must let this innovation flourish and North Carolina must be a player.
Since June, a lot of planning has been happening locally with the newly founded Triangle Bitcoin & Business Meetup. It has held two work sessions that attracted an impressive crowd each time. As both a panelist and moderator at the two events, I consistently hear the same concerns on regulation. What we have, unfortunately, is a major educational gap on the technology between our regulators and the industry developers. A new, pro-active approach must be taken.
Beginning with Cryptolina 2015 August 14 and 15 in Charlotte, we’re doubling down on the regulatory panel and financial workshop and hosting North Carolina’s first Virtual Currency Compliance Workshop to start the conference. We’re flying in more subject-matter experts, including cryptoequity specialists, blockchain developers and public sector finance professionals. Sponsoring our expo is the Washington-based Chamber of Digital Commerce, which specializes in coordinating the regulatory process through the work of its government affairs and public policy committees.
Charlotte Mayor Dan Clodfelter, a former state senator, is also participating in Cryptolina, and Packard Place and the QC FinTech accelerator, leaders in the local startup community, have invited their members and network.
And Cryptolina is extending invitations to key leadership in both the State Legislature and the Banking Commission.
Check out Cryptolina.com, or follow us at @Cryptolina. We hope to see you there, to take part in these early-stage discussions of an emerging industry.
