Inside the mind of an avid bitcoin investor
Though not widely well known across the venture capital world, Ribbit Capital founder Meyer “Micky” Malka is making a name for himself within a particular subset: the bitcoin ecosystem. Malka has made several bets on the cryptocurrency since first encountering it in fall 2011 and says that Ribbit might be the largest venture investor in the category as measured by total dollars deployed.Malka comes to bitcoin with a lengthy background with disruptive financial services, having founded five companies in the sector in the US, Europe, and Latin America. Asked why he views bitcoin is so attractive he said money is ripe for disruption and bitcoin has all the essential attributes of either cash or gold, with a number of inherent advantages. Specifically, the virtual currency can at times be a method of payment, a store of value, and a unit of account depending on the needs of the holder. Bitcoin also offers security and ease of transfer that makes it more attractive than fiat currencies or gold.
“Think about it. Today, it’s easier to make a phone call to anyone around the world for free than it is to send that person $100," Malka said during a debate on bitcoin at this week’s Next Big Thing Summit. "It’s easier to buy a $200 smartphone than a $1 app. Money is ripe for disruption,”
The bitcoin infrastructure is still in its early days. Malka compares it to the pre-browser Internet of the early 1990s. Think of bitcoin as the equivalent of the TCP-IP protocol. Not ideal and could been done better, but we’re still using it 30 years later for a reason. It works.
Malka views the most attractive areas of investment as the layer of companies that add the user interface to the existing protocol – in other words, the companies that make bitcoin easy to use and approachable for the masses. He notes that there are already solutions available in the payment, remittance, transfer, exchange, lending, and stock market categories, but that each of these categories remains open for additional innovation and better user experiences.
Regulation has entered the bitcoin ecosystem. The US government has intervened numerous times in the last 90 days, sanctioning the world’s largest bitcoin exchange under anti-money laundering regulations, and shutting down Liberty Reserve, a bank based on an alternative digital currency called Liberty Dollars, which was accused of fraud and money laundering. For Malka, regulation is welcome, because it means the bitcoin ecosystem has grown enough in scale and influence to be on the government’s radar.
“I tell my entrepreneurs that it’s important they understand what business they are in and that they can explain it coherently to regulators should they ever need to,” Malka said.
Many outsiders looking into bitcoin for the first time are scared away by the volatility. Over the last six months, the value of a single bitcoin has risen from a low of $35 to a high of $265, and over the past two months has settled between $100 to $130. Malka admits that this may be a deterrent, in the short term, for using bitcoin as a store of value in the US. But he points out in markets like Cyprus and other areas with instability or hyperinflation, bitcoin is an appealing option.
Regardless, Malka predicts the volatility will continue for the foreseeable future given that there are only about 1 million people in the world who own or who have owned bitcoin. Until that number grows by a magnitude and market liquidity increases as a result, volatility will inevitably be a natural byproduct, though it need not be seen as a weakness of the currency.
The value of anonymity has been hotly debated within the bitcoin ecosystem in recent months. For the bulk of bitcoin’s existence, it has been hailed as an anonymous currency, and has thus been popular among online criminals of all sorts – money launderers, tax avoiders, drug dealers, arms dealers, human traffickers, and the like – hence the increased attention from regulators.
In response to increased attention from governments, much of this anonymity has begun to roll back. Mt Gox, the largest bitcoin exchange, now requires that users verify their identity when withdrawing funds in any currency other than bitcoin. The move was unpopular among many early adopters, but Malka, like many others, views this as a necessary step in the maturation of the bitcoin ecosystem.
“Think about it. Do you think our lives in general are more anonymous or less anonymous than they were 50 years ago?,” Malka asks. ““Bitcoin is much less anonymous than cash, but that does not make it less useful.”
Bitcoin remains a foreign concept to most people, but Malka argues that virtual currency is not. For more than two decades we’ve all used airline miles, which is a centralized virtual currency. We all know how many miles we have, how to use them to obtain value, and even how to exchange them. The same can be said for mobile airtime minutes in many third-world nations like Kenya.
Malka’s goal, by virtue of his investments, is to offers a similar system that is stronger, and more decentralized. Bitcoin is here to stay and that it will eventually fulfill its promise of disrupting the fiat money system. He's banking on it.
[Original image via Wikimedia]