Bitcoin boom

The growing popularity of bitcoins as an alternative payment method led Canaan, RRE Ventures and Liberty City Ventures to invest in a $3.25 million second round of funding for Singapore-headquartered Bitcoin exchange itBit.

Lightspeed China Partners and Lightspeed Venture Partners have also backed a bitcoin platform - BTC China, currently the world's largest bitcoin exchange by trading volume, raised $5 million in Series A funding from them this week.

Bitcoins provide a payment method that circumvents costly bank fees when making online payments across international borders, and find use in places where it is challenging to exchange local currency into US dollars. For example, China's capital controls make it difficult to buy online from outside the country, since most online stores don't accept renminbi or Chinese payment systems, and there are limits on exchanging local currency into foreign.

Lightspeed said its investment was driven by the opportunity for innovation that bitcoin could enable in China, given the scale and growth of e-commerce, remittance, micro-transactions and payments in the country.

"Within bitcoin there are many potential companies that could do well, but the foundation for a bitcoin ecosystem has to be an exchange where you can exchange bitcoins into any other currency," adds Ciporin, explaining the choice of an exchange as the first investment in the digital currency's network. The exchange takes a small commission as fee for every transaction.

Another priority for Canaan is that the exchange be fully compliant from a regulatory standpoint. Use of bitcoins has come under scrutiny after its use to trade drugs and other illegal goods on parts on websites such as Silk Road and other parts of the dark web.

Bitcoin businesses are finding it hard to persuade traditional banks to deal with them in the US. On the Japan-based Mt. Gox exchange a US dollar-bitcoin trade costs more because it is difficult for customers to get paid out in US dollars.

ItBit launched operations this month and is working to obtain licensing from the Singaporean authorities to ensure compliance and will then apply for licenses from other jurisdictions. It does not yet offer the service to US investors but is working on a developing strategic distribution partnerships, with a money transmission company for instance, that should bring in more customers.

Liquidity is another issue - there are currently more than 12 million bitcoins in existence, and their value has more than trebled since October, currently standing at more than $600. With several exchanges trading in the virtual currency, building volume is key. The itBit team has taken care of this by injecting bitcoins that they have in their own inventory.

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• Topics
• Financials
• Technology
• Venture
• Early-stage
• Greater China
• Southeast Asia
• China
• Singapore
• Financial Services
• TMT
• Venture
• Lightspeed Venture Partners
• Canaan Partners