Bitcoin's Second Spring Explained
Bitcoin is back! In a surprising surge, Bitcoin rallied from $3500 USD to over $10,000 USD in a just a few weeks. Meet one of the first, large-scale Bitcoin investors: Bart Stephens. The San Francisco-based entrepreneur runs the most prominent global venture capital firm specializing in crypto. In an exclusive interview with Die Weltwoche, he explains the 2019 Bitcoin whirlwind and what it portends.
When Bart Stephens launched his investment firm, Blockchain Capital, $100 USD bought one Bitcoin. That was seven, short years ago. By December 17, 2017, the pioneering new currency hit a dizzying $20,089 USD turning many early investors into instant multimillionaires. Then came the crash — the panic, the sell offs, and the smug “I told you so’s” from the traditional banking world. Through much of last year, Bitcoin traded in a disappointing range of $3000 to $4000 USD. But in just the last few months, Bitcoin has been making a steady comeback igniting renewed interest in its financial and political possibilities.
President Trump, a bricks and mortar man, remains skeptical. He recently blasted the cyber currency tweeting that he was “no fan of bitcoin and other cryptocurrencies.” A few days ago, economist Nouriel Roubini (who famously predicted the 2008 housing market meltdown) wrote that blockchain, the technology underlying Bitcoin, was “one of the most overhyped technologies ever.” Roubini’s doubts echoed comments by Federal Reserve Chairman Jerome Powell that there are “serious concerns" about “Libra,” Facebook’s new, hotly anticipated crypto currency.
Stephens was an early and enthusiastic crypto convert. He built his entire company on the prediction that blockchain will become an essential component of the tech future. From its inception, his venture capital firm specialized in blockchain start-ups. Blockchain Capital has amassed a worldwide portfolio of 81 companies (and counting), including: Coinbase, the largest cryptocurrency exchange; and Xapo, the world’s leading custodian of Bitcoin that is also active in Switzerland. The current market valuation of Blockchain Capital’s assets is estimated to be well above $500 million USD.
How does Stephens explain the recent surge in Bitcoin? He believes the most important reason is the growing “consensus that cryptocurrencies are here to stay,” and that they “cannot be un-invented.” Stephens believes Facebook’s announcement of Libra was a “validating event,” increasing the possible scope of crypto users, which currently number roughly 70 million people, to Facebook’s 2.8 billion users – virtually half the world’s population. Another such event that has added credibility is the credit card giant Visa’s plan to invest, alongside Blockchain Capital, in the $40 million USD financing of Anchorage — a next generation crypto custodian company for institutional investors.
“Large companies now are taking it seriously,” Stephens explains. “Normal market psychology” has a significant impact on prices. When things look bright, people become gripped with the fear of missing out, “FOMO,” and scramble to get in hoping to ultimately cash out big.
Stephens also points to the current macroeconomic environment as fuel for Bitcoin’s comeback. Stephens and his team observe that the uncertainties surrounding the trade war with China and foreseeable rate cuts by the European Central Bank and the Federal Reserve are spurring demand for alternatives. “Historically, large increases in the money supply have led to inflation,” says Stephens. He notes that since the financial crisis, the world’s leading central banks have created $13 trillion USD worth of paper money out of thin air. For the same reasons people buy gold to protect value, so do many buyers of Bitcoin. “I like to think of Bitcoin as a form of gold 2.0.” Whereas gold appeals to older, conservative investors, Bitcoin attracts the interest of the millennial generation.
Stephens is witnessing a massive inflow of young, new talent from the best tech universities into the crypto universe. In the tech world, the “libertarian feel of cryptocurrencies” is a strong magnet. Stephens observes that “many of them don’t trust governments, banks, and large internet companies.” The core technology of cryptocurrencies — blockchain — ensures that there is “no need for a single counterparty.” Trust is established in a decentralized way. According to Stephens, “It is the first time that central banks are facing a serious competition.”
After a serious crackdown by the Securities and Exchange Commission against some forms of crypto investments last year, Stephens also discerns a shift among policy makers toward greater acceptance. Despite the president’s tweets and the Fed’s cold water, lawmakers and regulators in the US “are starting to understand that this is a global market,” with many companies locating to Switzerland, Singapore, and London. According to Stephens, “US regulators have come under enormous pressure from the industry and, frankly, it’s getting better now.”
Ever optimistic about its future, the crypto currency evangelist is planning to open his fifth fund later this year, investing a record of another $250 million USD. Stephens says of Trump's Bitcoin tweets and Powell’s suspicions, "I think it is pretty remarkable that both the Fed chairman and President Trump felt the need to address this new technology.” In Stephens’ view, “it signals that Bitcoin and blockchain technology have arrived on the global stage, and incumbent powers fear what they don't totally understand."