Goldman Sachs invests in bitcoin start-up Circle Internet Financial
Circle Internet Financial, a bitcoin start-up led by Internet entrepreneur Jeremy Allaire, said it raised $50 million from investors including Goldman Sachs Group Inc., giving the virtual currency a jolt of credibility even as it struggles to gain consumer acceptance.
Circle said the new group of investors included a major Chinese investment firm, IDG Capital Partners, to help the Boston firm’s expansion in that giant market.
“We could not be happier with our new strategic investors,” Allaire wrote in a blog post on the company’s website. “They bring unique, powerful capabilities and capital that will help us continue building a new kind of global consumer finance company, one based on open platforms, open source software and ubiquitous mobile devices.”
Circle said the new investment, which follows $26 million raised from other investors in 2013 and 2014, will enable it to expand beyond bitcoins to provide services in U.S. dollars.
Customers will be able to keep accounts in dollars, eliminating the risks associated with bitcoin price volatility, while still being able to send and receive currency both in dollars and bitcoins. In the latter case, the company would automatically convert the sums from dollars to bitcoins. The dollar accounts would be insured by the Federal Deposit Insurance Corp., Circle said.
“Customers with dollar accounts gain all of the benefits of digital currency — instant, secure and free payments to anyone in the world — without holding or explicitly converting dollars into bitcoins,” Allaire wrote.
The new dollar feature could represent an important step in the bitcoin industry’s bid to make inroads in the lucrative money-transmission business dominated by big banks and players like PayPal and Western Union. As a currency created outside the reach of central banks and regulators, bitcoin has the potential to revolutionize money storage and payments by driving down costs — potentially to zero — in the way that the Internet revolutionized media and communications.
Circle describes itself not as a “bitcoin company,” but as a consumer finance company that “leverages bitcoin technology to make money transfers and payments instant, secure, free and global,” a spokesman said.
Jerry Brito, director of an independent nonprofit research center called Coincenter and an adjunct law professor at George Mason University in Virginia, said the Goldman investment demonstrates the importance the financial sector is beginning to assign to bitcoin.
“This is something tech folks in Silicon Valley have realized is really disruptive and can change a lot of industries, and Wall Street is finally waking up to that reality,” he said.
In a lengthy research report on the future of finance last month, Goldman said bitcoin and other so-called crypto-currencies are part of a wave of forces, including demographic shifts, heightened regulation and technological innovation, upending the $1.7-trillion global payments industry. The report said the currencies “promise to change the mechanics of transactions,” with the potential to significantly lower costs to both merchants and consumers and posing a threat to traditional intermediaries.
The markets most immediately affected will probably be overseas, where the payments infrastructure is less developed and consumers are adapting more rapidly to new modes of exchange. For instance, 80% of bitcoin volume is exchanged into and out of the Chinese yuan, the report said.
But bitcoin’s growth among consumers has been hampered by the virtual currency’s price volatility, its murky regulatory status and the instability of key players, represented by the 2013 crash of a prominent Japan-based exchange known as Mt. Gox. A number of state financial regulators, including New York, have begun to issue guidelines to safeguard consumers in the market.
Bitcoins were trading at $234.73 on Thursday, up nearly 4% from a day earlier, according to Coindesk.com. Bitcoins peaked at $946.92 in December 2013.
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