A Uniquely Opportune Time to Invest in the Broader Bitcoin Ecosystem

As announced earlier this week, I recently left my position at Needham & Company to join Blockchain Capital and pursue venture opportunities in the broader Bitcoin and Blockchain industry. Needham was a phenomenal platform so I’m taking this opportunity to elucidate on why I think now is a uniquely opportune time to be investing into this nascent industry.

[Note: Most of my commentary below revolves around Bitcoin and its ecosystem because that’s what I’ve spent the most time analyzing and currently have the most conviction in. It’s also the most widely used blockchain and has attracted the most economic activity to-date. However, Blockchain Capital has invested across the broader blockchain ecosystem and I’m looking forward to evaluating many opportunities outside of Bitcoin as well.]

After digging deep into the Bitcoin industry over the past few years, I have more conviction in Bitcoin today than at any point over the past 6 years since I first heard of it and subsequently tunneled down the Bitcoin rabbit hole. Over that time, Bitcoin has proven its utility, ability to grow, and, perhaps most importantly, Bitcoin has demonstrated tremendous staying power.

Demonstrated Utility

In terms of utility, Bitcoin is many things to many people:

• For those living in hyperinflation, Bitcoin has proven itself as a store of value;
• For digital nomads and international freelancers, Bitcoin is an easy way to get paid by anyone from anywhere;
• For people escaping financial oppression, Bitcoin has proven to be a valuable tool for capital flow and to engage in transactions;
• For money managers, bitcoin has proven to be a valuable diversification tool;
• For the un(der)banked, Bitcoin is a crucial link to the digital economy;
• For those in need of aid, Bitcoin has proven itself as a valuable channel for charity (see Sean’s Outpost or Code to Inspire)

Still, this quick list barely scratches the surface. Time and time again, bitcoin has proven itself useful within market segments that are otherwise difficult or impossible to serve. Meanwhile, Bitcoin’s functionality and security are improving and its unique feature set is expanding and tipping the competitive scale in Bitcoin’s favor. This is a quintessential disruptive technology that is moving from smaller and harder to serve markets toward more mainstream, high-value markets.

Growth

Over the past few years, Bitcoin has also grown tremendously by nearly all measurable stats — there are two of my favorites:

Source: Blockchain.info

Estimated transaction volume is a reasonable proxy for economic activity of the Bitcoin network which is why I’m encouraged that over the past ~18 months, daily economic activity has more than quadrupled (CAGR 160%+). Simply stated, Bitcoin has gained significant economic momentum.

Source: Blockchain.info

The Network Hashing Rate chart above measures the computing power that is securing the Bitcoin network. As is readily observed, this metric has increased five-fold since the beginning of 2016 (300% CAGR). While it’s not a perfect apples to apples comparison, this amount of computing power is thousands of times more powerful than the world’s top-500 supercomputers combined. The amount of computing power helping to secure the Bitcoin network is immense.

Staying Power

Perhaps most importantly, Bitcoin has displayed tremendous staying power over the past 8 years. This staying power has been demonstrated through Bitcoin’s resilience against technical attacks (despite being attacked every day, Bitcoin has only gotten stronger), price resilience (e.g. bitcoin’s price action around PBOC announcements earlier this year) and its resistance to contentious change and political influence (e.g. block size debate).

Source: CoinDesk, Chris Burniske, Ark Investment Management LLC

A Bright Outlook

Today, bitcoin alone has a market capitalization of $17–18B and there are many tailwinds pushing bitcoin toward an adoption tipping point that I think will drive Bitcoin’s market cap well-beyond $100B. Grouped into two main categories, these tailwinds include:

Factors that are internal to Bitcoin and its ecosystem:

• Bitcoin’s expanding feature-set and functionality (e.g. multi-signature transactions, time-locked transactions)
• The increasing prevalence and utility of applications and services that leverage or require bitcoin (which, encouragingly, are increasing at a faster rate than the expansion of Bitcoin’s unique feature-set)
• Maturing market fundamentals (liquidity, stability and sophistication of exchanges and service providers, financial products and derivatives)

Factors that are external to bitcoin and its ecosystem:

• National policies (either directly, e.g. as in Switzerland, or indirectly via capital flow restrictions or monetary policies)
• Financial crises (which reoccur at a frequent clip)

Uniquely Opportune Time to Invest in Nascent Industry

Unless trends reverse drastically, Bitcoin is on its way to becoming a $100B+ market over the next few years and there will be wildly successful companies in this industry — many of which likely exist today (and are funded by Blockchain Capital) and many of which will be newly formed over the next few years. As such, now is the ideal time to be investing into new and follow-on opportunities in this rapidly expanding ecosystem.

With investments throughout the Bitcoin ecosystem, Blockchain Capital is poised to continue benefiting from this ongoing growth trend and is uniquely positioned to identify and execute on the imminent opportunity ahead.