Bitcoin Opportunities

“Venture capitalists will have three ways to profit,” said Nicholas Colas
at ConvergEx to MarketWatch.com, “exchanges, service offerings for
individuals, and service offerings for businesses.”

Jeff Berwick, who designed the first Bitcoin cash machine, is an example
of such a service. His machines will convert a person’s Bitcoins into the
currency of the country where they are withdrawn.

Berwick told the BBC that, “Over 200 people have said they’re interested
in buying a machine or more than one from 30 different countries. This
is a way to transact outside of the traditional, regulatory monetary
system,” he said.

BitPay, which functions like a credit-card processor, calculates a
dollars-to-Bitcoins exchange rate and generates a unique code, which
customers can scan to transfer money. Customers at one midtown
lounge in New York are offered tablets by wait staff with BitPay in order
to pay their bill.

“It’s funny, because New York has one of the largest concentrations of
Bitcoins, but there aren’t a lot of businesses that take them,” said
Charlie Shrem, owner of EVR Lounge in an article by the NY Post.

Jeremy Liew, managing director at Lightspeed Venture Partners, told
TechCrunch.com, that there are three key markets in Bitcoin:

  • Wallet. Holding your Bitcoins for you, serving some of the checking account functions of a bank.
  • Exchange. Converting from USD to Bitcoins and back.
  • Payments. Helping merchants accept Bitcoins for their transactions.

Liew only sees success in these markets if more people and businesses
start using and accepting Bitcoins or it the currency is “legitimized” by
governments.

“Bitcoin usage would have to become mainstream,” said Liew. “The only
way to get there is through merchant preference because of the lower
transaction costs. This could be appealing to industries with low net
margins (e.g. grocery, Amazon.com), or with high transaction costs
(e.g. cross border trade, micro transactions), and these may be the
industries that pioneer Bitcoin acceptance.”

Widespread usage is somewhat of a challenge for Bitcoin says Wharton
marketing professor Eric T. Bradlow, who says that it is unclear what
market need Bitcoin is fulfilling.

“Why do people need Bitcoins?” Bradlow is quoted as saying in the
Knowledge blog. “The ‘product’ has no obvious customer
segment, point of differentiation and obvious consumer need that it is
satisfying in comparison to other competing products. Therefore, it will
struggle to be highly adopted.”

So how are larger, well-established companies such as banks, credit
card companies and other financial companies reacting to Bitcoin?
Western Union Co. (WU) and MoneyGram International Inc. (MGI) are
studying ways their customers could use their services to send and
receive money transfers denominated in bitcoins, according to a story
by FoxBusiness.com. However, both these companies and credit card
giants Visa and MasterCard are not too concerned about Bitcoin
because it is not widely-used and its value remains so volatile.