When I first learned about Bitcoin a year ago, I had no idea how much it would impact my life in so little time. After working in investment banking and private equity for four years, I left my cushy 9-to-5 day job to risk my life savings and focus on a tech startup, which eventually led to me creating Coinsetter. When I started the company, Bitcoin was at $10 and most of my friends thought I was crazy. Conversations about my “job” got awkward. But six months later, most of you have made a larger return in Bitcoin than my friends in real estate will see in 30 years. And the best part of it all is that the future of Bitcoin has never been brighter for entrepreneurs, investors and traders!
The first half of 2013 has been equally rocky as it has been inspiring. For me personally, amazing people who barely knew me took a chance on me by investing in my company, and a growing number of investors are doing the same for Bitcoin entrepreneurs around the world. This can happen to you too! Whether you are entering the space as an entrepreneur or not, Bitcoin is clearly on the rise. The currency’s ability to fit the different needs of an increasingly diverse group of users worldwide is astonishing. More and more people are beginning to see Bitcoin’s value, but the best part is that still so few people know about it right now. Bitcoin is about to explode further over the next 18 months, but I believe a few things need to happen first.
Let’s start by addressing the elephant in the room: Mt. Gox. It’s impossible to say right now if the company will fix their ever-growing list of problems, but one can’t deny that they are currently the deepest source of liquidity in the Bitcoin market. While many other exchanges have claimed that their platform substantially outperforms Mt. Gox, none have really been put to the test. Traders are having a hard time leaving their immense liquidity on Mt. Gox for another exchange that might turn out to be just as packed with technical issues. Our company, Coinsetter, is working to provide a solution that gives traders the best of both worlds. Rather than being an exchange ourselves, we are an exchange aggregator (the Wall Street term for this is an “ECN”) that allows traders to access the best prices on multiple exchanges, meaning they can keep their Mt. Gox liquidity while adding additional liquidity from more reliable orderbooks. We have multiple developers with deep Wall Street experience building Coinsetter’s platform, which itself operates on the millisecond level. We feel our trading solution can bring stability to the Bitcoin market through exchange aggregation, responsible shorting capabilities, low latency and an overall great customer experience. For us, offering a quality product that focuses on the customer is everything.
As better Bitcoin exchange and trading platforms enter the market, more liquidity will follow. Serious traders are having a difficult time building sizeable businesses around an exchange with uncertain latency intervals, but that will change as the market becomes filled with more exchanges and brokerage platforms that can support large trading volumes, as well as high frequency trading. Bitcoin in many ways is still not taken seriously by much of Wall Street, but there is a small segment of the industry that finds it attractive. Not just attractive, they view it as a potential gold mine. We’re in constant conversations with many of these traders, and active trading by this “small” segment alone is powerful enough to bring Bitcoin from $2 billion to $5 billion in aggregate value. The larger hedge funds will join the bandwagon after that.
Trading is great, but it can’t be everything Bitcoin is used for. More businesses that provide Bitcoin payment solutions need to come online to support higher valuations for the currency. Bitcoin is already useful for high ticket purchases, and integration with mobile and online payment apps over the coming two years will bring Bitcoin to the next level of justifiable intrinsic value. The person accepting Bitcoin for an online payment doesn’t even need to be the person who values Bitcoin as a long term storage of value to make this work (even though they should be!) In addition to more payment options, we also need to see truly large amounts of money flowing into Bitcoin, which right now means greater demand as an asset class by the wealthy worldwide. The Bitcoin Fund’s success shows that this is already happening, but we need to see high net worth individuals’ demand for Bitcoin grow by at least ten fold. The wealthy are dabbling in Bitcoin at the moment, and once they have confidence that the Bitcoin industry’s infrastructure is solid, their gigantic demand for Bitcoin will be transformational.
A few other problems revolving around Bitcoin need to be solved as well. Lots of discussion is going into solving the 51 attack, and I see real solutions being implemented over the next 12 months. Even more pressing are banking and regulatory issues. The biggest bottleneck to money flowing into Bitcoin is the banking system’s apprehension of working with Bitcoin companies. This will be solved over time, but it will only come once trust regarding AML practices and greater regulatory comfort around Bitcoin in general is established. As for regulation, it’s hard to predict when various regulatory bodies aside from FinCEN will issue guidance on requirements for Bitcoin companies, but one should note that regulation has come surprisingly fast thus far. Because regulatory preparation and compliance is so costly, Bitcoin is quickly becoming a capital-intensive industry.
I’ll delve further into many of these topics in future articles. For the time being, I hope to have conveyed the positive future for Bitcoin that I see so vividly. Progress towards this end is already happening, and now is the time to actively become part of it. Don’t stall, and have the confidence to make big moves.
About the Author
Jaron Lukasiewicz is the CEO and Founder of Coinsetter, a New York City-based company that offers a high performance levered trading platform for Bitcoin. Prior to Coinsetter, Jaron was the Co-Founder of Ticketometer, a social media-focused online ticketing platform. Previously, Jaron was an Associate at The CapStreet Group, a Houston-based private equity firm; an investment banker at J.P. Morgan and Madison Williams in their global investment banking groups; and began his career as a summer analyst at SPB Partners, a Las Vegas-based private equity firm.Jaron graduated from Rice University on the President's Honor Roll with a Bachelor of Arts in Economics and is fluent in Spanish and Portuguese. He is a frequent speaker at events on the topic of Bitcoin and financial technology and has been featured in The Wall Street Journal, Fox Business News, TechCrunch, Mashable, Entrepreneur, Forex Magnates and other news media.