Falcon Global Capital is in the final stages of putting together the very first bitcoin investment fund to offer insurance on investments into the digital currency. In light of everything that has happened with Mt. Gox, the fund might be an attractive option for investors interested in bitcoin but concerned about the significant risks associated with sinking money into it.
Investing in bitcoin seen as difficult
Brett Stapper, director of Falcon Global, told ValueWalk in an interview that he decided to set up the investment fund after his brother tried to get into bitcoin investing. They found that the process was very difficult and that the average investor may find it too difficult to enter the market. At the time, his brother was attempting to invest $50,000 in the digital currency. Stapper had been investing in it for some time already when his brother tried to invest.
"All the partners [of Falcon Global] involved, myself included, have been involved in bitcoin for a number of years now," Stapper told ValueWalk. "In November, my family began to realize that maybe it was something—not just a nerdy thing I was doing on the computer."
How the bitcoin fund works
Falcon Global has an agreement with Elliptic Enterprises, a firm based in the U.K. which specializes in safeguarding bitcoins. Stapper said their cold storage methods for storing the digital currency are extremely safe, which is important because at this point, hackers have stolen millions of dollars' worth of bitcoins from various websites and investors. However, in the event that an attack or hack does occur, he said a major global insurance provider is insuring the bitcoins at the value they were worth on the date the hack occurred.
He says what they're offering is a 2.0 version of a gold fund. He said they take an asset that's difficult to acquire, purchase it, and then store it on behalf of investors. They aren't trading bitcoins, but rather, simply holding them on behalf of their investors. According to Stapper, this is just the first phase of what they have planned. He couldn't go into further detail about future phases, but he said they have intentions to offer several other bitcoin-related products and services.
His firm's Facebook page indicates that they are in the process of reaching out to the FBI with the goal of purchasing the bitcoins the agency seized from the illicit marketplace Silk Road. However, Stapper told ValueWalk this morning that they have yet to receive a yes or no answer.
Stapper on Mt. Gox
Mt. Gox took its website down yesterday, and since then, speculations that the bitcoin exchange is bankrupt have been swirling. However, today the exchange has posted another statement on its website, assuring investors that they are still working on resolving the issues they have been facing. Stapper says although the company's problems are a bit of a speed bump for the crypto-currency, they are a necessary one.
"It's kind of sad to see, because I know a lot of people have lost a lot of money, Stapper said." But it is a sacrifice for bitcoin to be successful. The problems did affect it now, but in the long term, they will be a big benefit to the community."
Stapper sees one of Mt. Gox's biggest problems—other than the technical ones of course—as being a lack of communication with investors. He said it just isn't a good idea to leave them in the dark as the exchange has, particularly because they have so much money invested through the company.
"We are big believers in bitcoin"
In spite of the issues at Mt. Gox, he sees future potential in the digital currency. He would like to see bitcoin go into the mainstream, and part of what they've been doing ahead of their fund's start date is explaining the digital currency. Although so many investors see it as a sort of "rebel PayPal" system which doesn't respect the rules of the financial industry, he says in reality, it's nothing like PayPal.
"We focus on the bitcoin technology more than just the bitcoin currency," Stapper says. "They're two very different things. Bitcoin itself is based on the technology. We focus on the benefits of the technology and the industry it can disrupt."
For example, he sees the possibility of bitcoin being used to transmit information in the future. He said there's no way for countries to block access like some do with various websites. He also sees it as a possibility for migrant workers, who spent between $400 billion and $500 billion using services like Western Union to send money back to their home countries. They pay fees of up to 20% on that money, but bitcoin does what companies like Western Union for free.
Bitcoin as a ledger or the Internet
Stapper says there are some major misunderstandings when it comes to bitcoin. He explained that just as banks keep a private ledger in their system which shows who has how much money, bitcoin is a sort of public ledger. It isn't maintained by a private company like a bank, but rather, by all the computers in the network, with no computer having more power than others.
Another comparison he used is the Internet. He compared it to the invention of the Internet in that people didn't really understand what it could be used for, but now, large portions of the world are online. He also noted that just as people see bitcoin as a currency for criminals, the Internet got its start as a place for criminals to exchange information and files.