How Mt. Gox Debacle Won Over a Bitcoin Convert Tim Draper, shown in his San Mateo, Calif. office in October, says continued bitcoin use after investors lost money in Mt. Gox ‘made me realize that there is a need for this.’ ENLARGE Tim Draper, shown in his San Mateo, Calif. office in October, says continued bitcoin use after investors lost money in Mt. Gox ‘made me realize that there is a need for this.’ Ramin Talaie for The Wall Street Journal By Robin Sidel Dec. 1, 2014 5:09 p.m. ET SAN MATEO, Calif.—One event that inspired venture capitalist Tim Draper to amass a huge stash of bitcoin was the same one that turned other investors away. The Silicon Valley veteran says that he was so heartened to see bitcoin withstand the failure of Japanese virtual-currency exchange Mt. Gox in February that he decided to bid for nearly 30,000 bitcoin that were auctioned by the U.S. government in June. Continued bitcoin use by merchants and others after investors lost money in Mt. Gox “made me realize that there is a need for this,” Mr. Draper said in a recent interview. “It is so important to people that they were willing to put up with that.” Mr. Draper won all the bitcoin, making the co-founder of venture-capital firm Draper Fisher Jurvetson one of the world’s largest holders of bitcoin. Thursday, Mr. Draper will try to increase his pile by bidding in another government auction of 50,000 bitcoin. The 56-year-old Mr. Draper is one of bitcoin’s biggest advocates even though the price is down about 60% in the past year amid concerns about the Mt. Gox collapse, looming regulation and the stigma that the virtual currency is a haven for illicit activity. This week, Mr. Draper’s bitcoin pile was worth about $11 million, down from roughly $17 million in June, based on the CoinDesk price index. Like many bitcoin enthusiasts, Mr. Draper compares the current state of the fledgling industry with the early days of the Internet. At Draper, Fisher, Jurvetson, he backed Internet companies from Hotmail and Skype to Paperless Post, an online invitation company Mr. Draper is one of a number of well-known investors who are pouring money into bitcoin, which was originally dominated by technology geeks and libertarians. Other bitcoin investors include Internet pioneer Marc Andreessen ; Virgin Group founder Richard Branson ; and Tyler and Cameron Winklevoss, twins who are best known for battling Mark Zuckerberg over ownership stakes of Facebook Inc. Launched in 2009, bitcoin is an online currency that isn’t backed by a central bank or government. It is created on computers; bought, sold and traded on exchanges; and stored in virtual wallets. A growing number of merchants are accepting bitcoin for payment, in part because it helps them avoid fees and other costs associated with credit cards, debit cards, checks or cash. Bitcoin’s increased awareness and popularity hasn’t resolved price volatility that has roiled the virtual currency over the past year. The price of a bitcoin soared to more than $1,100 last year, but it has been sliding ever since. On Monday, bitcoin was trading at $377.90 on the CoinDesk price index of major exchanges. In an interview, Mr. Draper shrugs off the recent drop in bitcoin prices. He has recently predicted that the price will rise to $10,000 in three years. “I am looking at this as a great long-term opportunity,” he says, adding that he checks the price only every two or three weeks. Mr. Draper, working through Bitcoin exchange startup Vaurum, was one of 45 bidders in the auction conducted by the U.S. Marshals Service auction in June. The government seized the bitcoin last year when it raided Silk Road, an online black market. Mr. Draper hasn’t disclosed the price of his bid, made when the market price of the virtual currency was roughly $580. “When you win an auction, you have mixed feelings because you know that means you paid the most,” he said with a chuckle. Still, he says he is confident with the purchase because he wouldn’t have been able to amass such a stash in the open market, which is thinly traded and volatile. That thin market is one of the things that concerns Mark T. Williams, a Boston University finance professor who says the recent bitcoin forays made by big investors such as Mr. Draper aren’t enough to make it thrive. “The probability of success is low, but if it does hit, the reward will be very large,” he said. Mr. Draper says his interest in virtual currencies goes back 20 years, when a business associate described his son’s fascination with an online game that allowed players to buy items for virtual characters with virtual cash. Outside of bitcoin, Mr. Draper has also plowed money into job-hunting startup Jobs Inc., Tesla Motors , and Xpert Financial, an online marketplace for pre-IPO companies. In 2012, Mr. Draper and other investors put a $500,000 investment into CoinLab, a bitcoin business incubator. He made his investment through Draper Associates, an entity that puts money into new ventures. He has also put money into a $6.6 million fund that was recently raised by his son, Adam, to support fledgling bitcoin entrepreneurs. Mr. Draper is particularly interested in using bitcoin to speed payments in less-developed countries. He also sees promise in using bitcoin’s underlying technology to create financial contracts that can skirt the traditional fee structure of big banks. “Banks are afraid to embrace bitcoin, but I’m not sure they’re as afraid as much as threatened,” he says. Mr. Draper spends much of his time building Draper University, an eight-week entrepreneurship program that he launched last year. The school isn’t accredited, but students can pay their $9,500 tuition with bitcoin. Write to Robin Sidel at Robin.Sidel@wsj
Posted on: Tue, 02 Dec 2014 13:51:15 +0000
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