Over the last few weeks, several conversations with friends have turned into animated discussions around “what do you think of bitcoin?”-everyone has an opinion but no one quite understands. Is it tulips all over again? Can there be a universal currency that cuts a lot of the inefficiencies out of the existing system? What does the $12B in value/market cap mean? (Current Price=$883 as I write this, which wildly shifts day to day and has appreciated as much as 10x over 6 months). The number of bitcoin startups have multiplied in a short period of time-personally I use coinbase to track price and in theory one day buy, sell, send and accept bitcoins. Its one of the most intriguing recent concepts. Note that I have not made my mind one up way or another and don’t own any.
For people who know nothing about bitcoins, according to bitcoin.org: “Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.” Basically, its a very secure form of currency that can be easily transferred with only a fixed number of Bitcoins in circulation. It was created by an anonymous cryptography specialist who goes by psyduemon Satoshi NakamotoI. Bitcoins can be reduced to micro bitcoins. Its very easy to send and receive bitcoins through bar code scan, NFC or any form of data transfer-a point of sale or network is not necessary.
So here is where we go down the rabbit hole:
People are buying Bitcoins for 2 reasons: 1) make money purely on the speculation and volatility of the markets 2) make money assuming that the value of bitcoin will be huge because there is a fixed amount of the currency and it will eventually be used by everyone, no matter your country, size of business or anything else for that matter.
In theory, if you believe in #2 then everyone who owns bitcoins should not spend any of it, because they think the value will be much much higher-the contradiction is if no one is spending any of it, its useless. The value of the bitcoin is based on how many merchants accept it and consumers pay with it-the more merchants who accept it, the more valuable it becomes because it becomes a universal currency.
So assume we ignore this fact-why does it work? The big value add is it takes out the inefficiencies in the system. The reason we have currency, point of sales, credit card networks, banks, etc is threefold: 1) you need infrastructure to make payments 2) you need governing bodies to regulate currency and tax effectively 3) people need credit/lending. #1 clearly works in the benefit of bitcoin. All merchants and consumers are incentivized to reduce their costs and any friction associated with payments (fees are extraneous and the concept that we still use plastic and paper to pay in a world of free information through the internet is a bit crazy). A lot of people question #2 and if it is actually necessary. Shouldn’t a free market control itself and commerce/prices work through market dynamics rather than what government dictates. If you don’t believe in #2, you made another argument for bitcoin. Ultimately, the biggest downfall with #2 is that a governing body could make commerce with bitcoin illegal because they cant track it for taxing purposes or illegal transactions (think drugs, prostitution, etc.) but how is that different from cash. #3 is a non-factor-issuing bodies will be set up to lend bitcoin at a rate if it becomes another currency.
So why not buy bitcoin? Two big risks exist. 1) Can it be hacked? 2) As I mention, will government and regulating bodies stepped in? I imagine the second would be a slow process. If you incentivize governments enough, they could potentially get on board. The bigger question is if it will ever be hacked-the day that happens is the day the value of bitcoin is immediately zero. That is the scary thing here-nothing has ever stopped technology from finding a way.
So should you buy Bitcoin? Your guess is as good as mine. If you buy, know the risks and potential above. Its a huge gamble, but if you want to put some skin in the game in case it does become a ubiquitous currency, it could be worth the risk. Allocate money to it, assume its gone, and look back and hope its worth a lot. Or of course you could join the speculators.
Are you or one of your friends an LA based startup looking for space? Message me, I know a friend with a great location right on the beach for a tech or non-tech company looking to rent it out. See listing here: http://www.loopnet.com/Listing/18292089/520-530-Cypress-Ave-Hermosa-Beach-CA/
Our team launched the new nexus 7 tablet and android 4.3 operating system today! Lots of great apps to be checked out. Buy the device, go to the Google Play Store and have some fun! Also, congrats to the Chromecast team-many of whom we work with clocely for launching their new Chromecast device! Game-changer!
Do you have experience in marketing and love mobile products, working with developers and think Android is the greatest thing since sliced bread? Check out this great marketing role on our Android/Play team. Please get in touch if you or someone you know would be a great fit. Note job is in California. https://www.google.com/about/jobs/search/#!t=jo&jid=2220001&
Our Android Play Business Development Team is hiring for a role focused on partnerships with Education developers….message me if you are interested-job is in California (Mountain View)https://www.google.com/about/jobs/search/#!t=jo&jid=1689001&
I have always made stock picks based on companies that I think are going to outperform on expectations-I know this seems obvious, but basically companies that will surprise on product development and user growth/adoption. Its hard for me to fully grasp how hidden financial metrics move stocks beyond positive earnings. That being said, here are three companies I like looking at it from a Buffet-like long term perspective (I know some are trading of very high multiples):
LinkedIn ($LNKD): just noticed recently that a lot of very talented/smart people are going to work for Linkedin. Tells me two things: 1) they are paying well for talent 2) the company will continue to be run and managed well and only be more successful. Also, love how diversified their revenue is. Also, their addressable market includes anyone between 18-65 years old who has any professional aspirations. They have a huge blank canvas for mobile and international. Finally, have you noticed recently a huge uptick in Linkedin Invitation requests from people you would have never thought would be on Linkedin?
Netflix ($NFLX): More tablets, more phones, more connectivity=more Netflix. Also, with House of Cards and some of the other original content they are creating, they are no longer beholden to the big studio/media content creators. If anything, it increases their negotiating power because they dont need the big content creators any more. If the price is right for the content, they will pay for it, but if its not, they dont need it. This trend will ultimately drive down the price/cost of the license of the content from the large studios improving their margins.
XPO Logistics ($XPO): My buddy sold me on this one. Next generation logistics provider on freight transportation. Solid management team with a huge forward momentum working for them-people will rely more and more on shipping as e-commerce continues to grow. Delivery becomes more and more important every day.
Click here to see job description. The Google Wallet/Offers team is hiring. If you are interested click the link. Note that the job is in NYC. Great role on an awesome team. Ideally someone with technology partnerships/business development/sales experience with a passion and understanding of e-commerce and payments. MBA/JD is preferred but people with several years relevant experience will also be considered.
We have our next New York Media Collective event on February 11th: http://nymc021113.eventbrite.com/.
Background on our group: We founded New York Media Collective (nymediacollective.com) in 2010 to be a networking group for digital media executives from established and emerging companies. NYMC hosts networking events each fall, winter, and spring in New York City. Our invitation only cocktail parties attract a broad range of senior-level professionals from the leading global media corporations to the most promising start-ups, as well as the advisors who guide them.