Over the last couple of weeks, everybody has been weighing in about Bitcoin, the digital currency that might be the money of the future, or a bubble bursting right in front of us. After being worth only $30 in March, on Wednesday, Bitcoin reached an all time high of $266, then plummeting to just over $100 in a few hours, and now stabilizing around $120. When Bitcoin’s price started to increase unexpectedly, it became the one thing everybody in Silicon Valley was talking about. (For those who don’t know what Bitcoin is, this video explains it perfectly in 3 minutes).
The extreme volatility on Wednesday cooled a lot of people off, prompting some to call Bitcoin a bubble ready to burst, and caution everyone about taking it too seriously. However, the New York Times reported that high level investors such as the Winklevoss twins invested in Bitcoin.
Examiner.com caught up with Jered Kenna, CEO of Tradehill, the second largest exchange platform for bitcoins after Mt. Gox, before it had to shut down last year due to a payment dispute with startup Dwolla. Tradehill relaunched successfully in March with a new B2B service, Prime, seed investment, and a new team.
Examiner.com/Nora Poggi: Why was this the right time to relaunch?
Jered Kenna: We relaunched before the price increase, we hoped to be the first there and ride the wave. There has been a lot more interest from institutional investors, the VC community is really picking it up now so a lot of tech investors are getting into Bitcoin and putting money directly into Bitcoin. That’s also fueling the price increase. Some investors are looking at it seriously.
NP: Why do you think the price picked up so suddenly? Is the euro crisis fueling this ?
JK: I don’t think people are hedging against the euro with Bitcoin. The crisis brought a lot more attention and exposure to Bitcoin. People found out about Bitcoin because of the euro crisis, but we’re not flooded by people from Cyprus trying to buy bitcoins, so it’s not a direct correlation.
NP: Tell us about Tradehill’s new B2B service Prime.
JK: Prime is targeted at accredited investors and businesses. We’re dealing with clients that are making larger investments, and due to that we’ll have fewer clients with a higher average account balance, so we’ll be able to provide better dedicated service and dedicated account managers. There won’t be waiting time and responses will be quick. This service is mostly for VCs and high networth individuals who like to trade in alternatives. We’re speaking with a hedge fund right now, and looking at traditonal finance guys looking for a more professional experience. It’s going to be more traditional traders who want to enter the space and who want to be comfortable.
NP: What about the dark pools feature you added? How are people going to benefit?
JK: Dark pools are really useful, because they allow people to buy and sell large amounts of bitcoins without moving the price. If you want to buy 1 million dollars worth of bitcoins, you’ll run the price up and that’s what’s happening now with the volatile prices. They eat up all the supplies and the price goes up. Dark pools allow you to do that, same for selling large amounts without running the price down. It’s a big advantage, next to an open book infrastructure.
NP: What about the bubble talk? What do you think of the argument that the government will eventually take Bitcoin down, and what can you really do with your bitcoins now?
JK: I don’t see it so much as a bubble, but rather an extended period of volatility. You’re going to see points where the price jumps up and bumps down, I don’t see the price exploding, it’s extremely volatile because it’s extremely new, and some people are jumping on it too quickly. Some others who got into it early are cashing out right now. I think the price is going to change a lot over the next 6 months and couple of years. Right now there are I think over 500 merchants accepting bitcoins through Bitpay, you could rent a hotel room with bitcoins, and more and more people are accepting it as a form of payment. WordPress is the 25th most visited site in the world and they accept bitcoins.
Governments are going to introduce regulations to regulate virtual currencies, and Tradehill is already compliant with the regulations and will be proactive. We have more lawyers than engineers right now, so we’ll be on top of that. As long as people are proactive, the government will see we’re working within their realm. A lot of people thought Paypal was going to get shut down, and it definitely didn’t happen. I think you will see companies trying to get around the regulations that will get shut down. Governments will make it more difficult to comply.
NP: What about your experience as an entrepreneur? It’s been a crazy roller coaster for you, having to shut down and then being able to relaunch. Any advice?
JK: Don’t give up. I think determine if it’s something worth doing, because it’s always a lot more work and effort than you anticipate in the beginning. There are quite a few points when the easy way would have been just giving up and I don’t regret sticking through it. Everything was going really well the first time, we had insane growth and then we had a huge loss due to Dwolla, they moved 6 figures worth from our balance sheet. For a while I was pretty discouraged, and it was quite a hard hit to have your money disappear like that and with no means of recovering it. And I thought about why I got into Bitcoin in the first place, I got into it before it had a value, before it was anything really established. I thought about how much I enjoyed working with everybody in the space, and a lot of people encouraged me to go back into it, there’s a lot of brand loyalty with Tradehill. So I just said screw it, I want to give it another shot.
NP: What’s different this time around?
JK: I said I wouldn’t get back into it unless we had the technical side taken care of, the legal side and the money behind it. We hired 7 lawyers to take care of the legal side, and convinced Miron Cuperman who worked on PCI compliance at Google, to join as the CTO. He was a really big fan of Bitcoin and he’s working for us full time now, he’s pretty awesome. Having him really convinced me it was worth doing. We also raised 400, 000 in seed money and right now most of us are not taking a salary, so we’re working really hard on it.
NP: Is there any solidarity in the space with your competitors, considering how new all this is?
JK: As it evolves and it becomes more real, you’ll see more competition, but I got a lot of support when we had problems last year, I made a lot of great friends like Charlie Shrem from BitInstant. Right now it’s true that some people hate each other, but we all want to see it succeed. When something bad happens it makes the whole place look bad, so it reflects on all of us.