Trends Watch: Bitcoin VC

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Karthik Srinivasan, CFA, Advisor, Trammell Venture Partners Bitcoin VC Fund.

What is your outlook for alternative investments or VC investing in bitcoin?

Bitcoin is gaining mindshare and institutional investor interest both as a store of value and medium of exchange.  With a capped supply and progressively slower rate of expansion, bitcoin sharply contrasts with fiat currencies.  These differences have become increasingly apparent given the recent expansion of monetary bases by many central banks.  The opportunity for bitcoin to act as a medium of exchange is predicated on the development of products and services that support ownership and transactions.  The fund that I am advising is seeing many opportunities to invest in high-quality teams and projects that address these challenges and will help improve bitcoin’s positioning as a monetary asset. 

What are the greatest opportunities you see and why?

Bitcoin faces many hurdles in achieving widespread ownership and usage that translate into compelling investment opportunities.  For example, custody and asset protection are non-trivial requirements for both institutional and retail holders.  Ownership of bitcoin requires that the holder maintain knowledge and control of a private key (or a string of words known as a seed phrase).  If the private key or seed phrase is lost, the bitcoin cannot be accessed and used.  Unlike traditional financial assets, such as stocks and bonds, there is no government insurance system or inherent backup mechanism to protect the holder.  Custody solutions that incorporate multi-signature wallets help address this problem.  Payment infrastructure is another area rife with opportunities.  The native bitcoin protocol has limitations in terms of transaction processing speed.  To address this problem, complementary scaling solutions such as the Lightning Network are being advanced to bring bitcoin closer to parity with traditional payment mechanisms such as credit and debit cards. 

What are the greatest challenges you face and why?

Overcoming apprehension towards bitcoin and its place in the global monetary system remains a challenge.  Unlike gold and silver, which are physical assets that have endured time, bitcoin is a digital asset based on cryptography and implemented in a decentralized network.  It is also not legal tender in most jurisdictions and lacks support from regulators and central banks.  Nevertheless, there is a strong network effect supporting bitcoin’s value driven by a large and growing number of holders.  Once the beneficial characteristics of bitcoin are fully appreciated, the challenge shifts towards explaining the numerous adjunct opportunities and their importance in terms of bitcoin realizing its full potential.       

What keeps you up at night?

Government regulation is at the forefront of my concerns.  Bitcoin is viewed by some as an affront to fiat currency and the ability of central banks to influence economies through monetary policy.  In addition, bitcoin’s potential enablement of illicit activities given its pseudonymous nature and global network have raised regulatory concerns.  While it is difficult for government entities in most jurisdictions to prevent ownership and usage of bitcoin, given its decentralized nature and immutability, they could potentially inhibit its growth through various regulatory measures. 

The views and opinions expressed above are those of Karthik Srinivasan and do not/are not intended to reflect the views of Trammell Venture Partners Bitcoin VC Fund or EisnerAmper.