Bitcoin startups are starting to attract millions of dollars in funding from eager investors who have begun to view the cryptocurrency with more bullishness.
The Wall Street Journal reports that an increasing number of venture-capital firms and angel investors are dipping their toes into the Bitcoin startup market. The largest of these forays involves a brewing $5 million investment in San Francisco-based Coinbase frontlined by Union Square Ventures, famous for its Twitter Inc. investment.
If it pushes through, the Coinbase infusion will be the largest to-date for any Bitcoin start-up, overshadowing more recent outlays such as the $2 million plunked into the OpenCoin Inc., which is planning to run a different math-based currency called "ripple" but one that is functionally similar to Bitcoin.
The Wall Street Journal story further confirms that venture firm Lightspeed Venture Partners has backed three different virtual currency startups including OpenCoin, while Kleiner Perkins Caufield & Byers is actively searching the market for its own investment bets.
Almost 100 companies have mushroomed in the Bitcoin space, venture firm honcho Chi-Hua Chien told The Wall Street Journal.
Most of these startups consist of exchanges like Mt. Gox, payment services like Coinbase, ATM technology creators like Lamassu, and many more that help facilitate the use, transfer and storage of Bitcoins.
And as Bitcoin emerges as a popular "fee-free" digital currency by doing away with the financial intermediary, and gains more advocates for its ability to keep transactions virtually anonymous, then so does the number of users trading in Bitcoin. Startups who service these Bitcoin users will then cash in on the booming trend.
Some venture capitalists believe that math-based currencies like Bitcoin will usher in the next era of economic exchange.
Bitcoin and others like it like the aforementioned "ripple" are based on cryptography run smoothly, notes Quartz's Zachary Seward: "They are backed by one's faith that the math works rather than trust in government or a metal's inherent value."
Of course, the emerging gold rush towards Bitcoin startups has its fair share of critics who warn against the risk in the market, primarily due to the volatility of Bitcoin prices that are known to swing wildly in a matter of hours.
More cautious investors such as Naval Ravikant would rather invest in Bitcoin itself than the startups. This is because Bitcoin can well succeed while the startups that are hoping to capture a slice of the pie may end up getting left at the wayside.
"You're betting that this company will capture 2.5 percent or more of the economy in profits over its lifetime," Ravikant told Wired.com. "That's a tough bet, because Bitcoin can succeed and any given company can fail, but vice versa is almost certainly not true."