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Screenshot of a breaking news alert e-mail from Q2 2017
First it was Bitcoin technology, now comes the financial markets infrastructure geared toward Bitcoin.
This year has been a period of time in which Bitcoin exchanges, technology providers and now companies which provide trading environments for virtual currencies have experience a complete turn of fortune, attracting mainstream venture capital investment and regulatory approval in many significant jurisdictions.
Today, a further development in this direction has come to fruition, with New York based Bitcoin investment swaps business SolidX having raised $3 million, led by Liberty City Venture along side Jim Pallotta, Red Sea Ventures, Stanley Shopkorn, with Red Swan Ventures also particatting in the round, in order to build a financial infrastructure that regulators can agree can approve.
New York State’s financial regulator recently stated its commitment toward providing a set of bona fide regulations for Bitcoin, therefore paving the way for the permanency of Bitcoin infrastructure and technological advancement.
Whilst exchanges and technology companies in Britain, Israel, Switzerland and North America have been actively advancing the cause of virtual currency recently, the emphasis has been on technological prowess and innovating the financial landscape toward the development of new ATMs, payment methods and cross-border currency usage rather than generating an actual framework in which Bitcoin can be traded as a financial instrument.
“We’re not seeing a level of investment in Bitcoin that we would otherwise see,” Dan Gallancy, CEO of SolidX explained to VentureBeat. The reason, according to Mr. Gallancy, is that there are a lot of barriers to investing in Bitcoin for the traditional investor.
As a digital asset, Bitcoin requires a very different approach to security and storage than most traditional investors in tangible, sovereign assets are used to dealing with. While an individual investor can buy a cache of Bitcoin from an exchange and find a suitable wallet to store it in, its much more difficult for a portfolio manager to navigate the Bitcoin ecosystem on behalf of their investors.
SolidX has therefore invoked a different method of facilitating this, which is via total return swaps.
In this respect, an investor borrows a sum of Bitcoin and agrees to repay SolidX an agreed amount upon percentage as along with any depreciation that the asset incurs. If the price of Bitcoin goes up while the investor is in possession of the borrowed amount of Bitcoin, the investor gets to keep that gain, minus the fee. In the event that the Bitcoin loses value, the investor will then be liable for the difference between the rate the Bitcoin was borrowed at and its new, depreciated amount, and will therefore have to pay this amount to SolidX.
SolidX will be responsible for Bitcoin storage and security in order that investors are not exposed to similar circumstances that allowed Bitcoin to be removed from MtGox illegally, which ultimately contributed to the demise of the exchange.
David Lehmann, co-founder at SolidX, has stated that now is the time to strike with investors. This year alone, VCs have invested $191 million dollars in Bitcoin startups, according to Coindesk.
“Mt Gox was a bit of scare to them,” said Mr. Lehmann, however the ensuing barrage of venture capital investments is a clear indication that the astute investors have not been disuaded from viewing Bitcoin as an advanced ecosystem with a buoyant future.
Earlier this year, the U.S. Marshals auctioned off a $19 million cache of Bitcoin which had been seized from now-defunct anonymous marketplace Silk Road in exchange for cash, marking a turning point to the investment community, according to Mr. Lehmann.
Currently, SolidX has more than 5,000 broker dealers in the U.S. With the influx of cash, Mr. Gallancy says there’s still a lot under development at the company. He asserts that the company plans to invest in improving regulatory compliance and security.
As Bitcoin continues to carve out its place within the mainstream, values continue to drop. Yesterday LeapRate reported that the value of Bitcoin had dipped below $300 to one, clearly demonstrating that familiarity and mainstream acceptance is not necessarily the key to high valuations.