On November 11th it was announced that an institutional Bitcoin exchange, called itBit, was launched in Singapore after raising $5.5 million in funds. Following that story, Forex Magnates interviewed Dan Ciporin, General Partner at Canaan Partners, who was in charge of making that investment.
Mr. Ciporin has a Bachelor degree from Princeton University and an MBA from Yale University. Among the positions he held before joining Canaan Partners were Senior VP of MasterCard International and Chairman and CEO of Shopping.com, where he oversaw revenue growth from zero to over $100 million, culminating in an IPO in October 2004 and acquisition by eBay in 2005. This article will bring you his point of view on Bitcoin.
When Forex Magnates asked what led to the investment in itBit, Mr. Ciporin answered: “Bitcoin is clearly a potentially very disruptive phenomena.” He further explained to Forex Magnates that Canaan Partners have wanted to know for a while what type of investment can be made at this point in Bitcoin, given that they believe it will be a very powerful thing. But, as it is still at a very early stage, they were not sure as to what type of investment is possible.
After conducting research into Bitcoin it became clear to Mr. Ciporin that what the ecosystem really needs is the ability to exchange fiat currency to Bitcoin, and Mt.Gox is the leader in this in his view. However, according to his analysis, Mt. Gox has many problems, including no regulatory oversight, lack of scalability and lack of credibility. Looking at the landscape for what type of companies should address that problem, he found itBit, in his opinion, to be the proper replacement for Mt.Gox in the worldwide ecosystem.
Talking about future investment in the digital currency’s ecosystem, Mr. Ciporin said Canaan Partners are looking at several companies in the same space, in a very cautious and careful way. “We are going to continue to look, but have not made any decisions as of today. Bitpay is very interesting for example, other types of investments are interesting, and we will probably make other types of investment but the first was appropriate to be exchange,” he said.
The Future of Bitcoin
It is still too early to know how the global Bitcoin Exchanges’ structure will look, but Mr. Ciporin suspects it will look like the structure of equities exchanges, with just a few true global exchanges. An exchange needs scalability for liquidity which is very important. A big advantage of a Bitcoin Exchange is that Bitcoin is truly global and exchanged freely, other than regulatory compliance, so it won’t be nationally bound except for in countries like China which have currency controls. He also does not believe there will be a distributed exchange structure, as he said there will be more than one exchange but not hundreds.
Asked if BTC China, now the largest exchange in the world, is not going to dominate the market, Mr. Ciporin answered a clear no. As BTC China only handles Bitcoin-Yuan Exchange, it represents only a fraction of possible currency trades. He is absolutely certain that Chinese participants in Bitcoin will use exchanges outside of China for Bitcoin, because that BTC China only exchanges Yuan-Bitcoin, and when a client wants to change to his Bitcoin back to another currency he will have to go to another exchange, and that will be outside China because of currency controls. Singapore, where itBit is located, is a developed economy with regulation and reputation, the perfect place for an exchange in his opinion.
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With regard to which digital currency is going to be used in the long run, Mr. Ciporin said the exchange technology is completely neutral, “Ripple as much as Bitcoin”. He thinks there might be other currencies, but Bitcoin will be dominant in the future because it has the most awareness and is already established. “Bitcoin is not perfect, not an ideal protocol but sometimes first is best, it makes a big difference,” he added.
Mr. Ciporin strongly believes Bitcoin will be regulated and welcomes it, as he explained that in financial services it is very important not to fight regulators, but to invite regulators. Bitcoin is a protocol, and it is much easier to track than cash and regulate. Bitcoin is here to stay and will be positive for regulators who will embrace it. That is the premise which they invested in itBit with.
In Singapore there is no specific regulation on Bitcoin yet, but itBit has asked the government for it. Mr. Ciporin said: “The good news is that Bitcoin is much easier to regulate than cash, it is a protocol that you can determine with every transaction ever what happened, you may not know who it was but you will know the dates and all other aspects of the transfer, so it’s much easier in some ways to track than cash. Regulators will say nothing is wrong, it is more positive than cash which is really anonymous so we should embrace Bitcoin, make rules for it and make a part of a standard regulatory framework.”
Bringing the Big Players
itBit is targeted at attracting institutional investors to Bitcoin, and while Mr. Ciporin does not know if in the short-term they are going to trade Bitcoin, in the long-term, when Bitcoin becomes as predominant as he thinks it will, he is sure that institutional investors will trade on it. Institutional investors only want a chance to make money and they will take it wherever people trade, he said. Additionally, he thinks that wholesale changes are needed as no real company offers retail exchange, and Bitcoin wallet companies will need an exchange and that can be seen as an institutional investment.
“It all depends on how fast and rapid Bitcoin will evolve, if it evolves as we think it will, institutional investors are not ideological or religious about a currency, they are focused on making money and providing markets. They will absolutely trade on Bitcoin,” he said.