FirstMark manager believes Bitcoin needs participants who understand currency

Despite the record-breaking amount of venture capital that has poured into the Bitcoin community, there is another decisive factor that is hindering the overall development of this community: the lack of experience of Bitcoin’s participants.

At least that's what Lawrence Lenihan thinks. Lenihan, managing director at FirstMark Capital , oversaw his firm's first investment in bitcoin in October, called Coinapult , and calls himself a "bitcoin advocate." He believes many bitcoin players today don't understand how the traditional financial system works.

Lenihan, whose firm has backed some of the best startups, including Lumosity , Pinterest , and Shopify , said his company has been able to benefit from the bitcoin community thanks to the gaps in bitcoin players’ knowledge of the traditional financial system.

“Honestly, I think a lot of people in the bitcoin community don’t understand money,” Lenihan told CoinDesk . “They may understand bitcoin, but that’s just because they read about it or they were exposed to it early on. But they don’t understand how the global monetary system works, which is where bitcoin starts. With FirstMark , we invest in deals that have an industrial advantage, and I want to see entrepreneurs who have an industrial advantage doing those deals.”

Despite his criticism of the Bitcoin community as a whole, the board member of equity trading platform SecondMarket also said that he first learned about Bitcoin from SecondMarket 's chairman and former CEO Barry Silbert, and since then he has been convinced of the long-term potential of this emerging currency.
“I’m a big believer that once you get past all the crap and pretense surrounding Bitcoin, you’ll see that Bitcoin as a currency is incredibly helpful, both as an asset and as a platform,” he added.

Threats from traditional finance

In order to fill the gap left by Bitcoin players in the traditional financial industry and to fully realize the potential of Bitcoin, Lenihan suggested that the Bitcoin circle needs the participation of entrepreneurs who understand traditional finance.

"People who deal with money today, understand money," Lenihan said. "They can learn about Bitcoin. I think it's going to be hard for Bitcoin players to understand Bitcoin the way that people in financial institutions understand money."

However, Lenihan does not believe that Bitcoin players are burdened by "historical biases" that are the underlying factors that motivate them to innovate. He also firmly believes that people who have been trained in traditional finance can look at Bitcoin with a more open mind, and such people are best suited to attract investment from companies like FirstMark .

"We want to invest in companies like this, and I want to see that the members of the company know the security consequences that money can lead to and the transaction consequences that money can trigger," he said.

He said Coinapult met and even exceeded that requirement. Lenihan also called Coinapult 's team "the best technical workers and inventors in the Bitcoin community." He said: "Investing in them is a no-brainer."

Fixed value

Lenihan said Coinapult 's key innovation is its ability to reduce bitcoin's volatility through its "locking" service, which allows customers to exchange their bitcoins for another currency, such as gold or dollars, fixing the value of the bitcoin through a currency exchange.

Lenihan commented that Coinapult is an innovative customer application, and he believes that more products like Coinapult are needed to attract more people to the Bitcoin circle. It is worth noting that the "lock-in" service is only available to customers outside the United States.

"Bitcoin will be truly successful when no one realizes that the currency they hold is Bitcoin," Lenihan said. "Lock makes your Bitcoin convertible into a currency that you can use wherever you are. The current Bitcoin has its own volatility risk, but Lock eliminates that risk."

Lenihan believes that when Bitcoin becomes a more common means of payment, solutions like "locking" services will not be needed. But as long as the dollar and Bitcoin coexist, consumers will want to avoid price fluctuations between the two currencies.

"If I'm paying with dollars and I have Bitcoin whose value changes every day, I don't want that. Changing every day is not why I want Bitcoin, I want Bitcoin because I can spend it," he said, echoing the view of thought leaders in the field.

A waiting game

Finally, Lenihan said that while “everyone” in the venture capital world is eyeing Bitcoin, he is still waiting for the right investment because Bitcoin may have a long growth timeline.

“Everyone is watching Bitcoin, but I don’t think it’s going to be the next big thing,” he said. “I think it’s going to remain a small thing until it becomes the biggest thing ever.”

Lenihan even predicted that in the future Bitcoin could dismantle the highest level of money issuance systems. He said: "Before you know it, you'll see governments no longer printing money, they won't have dollars anymore, they'll be distributing Bitcoin because everyone has a cell phone."

When asked how that shift would happen, Lenihan was noncommittal, saying only that when bitcoin becomes widely used it would lead to “a catastrophe that would shake up governments.”

Lenihan concluded: "Could we see something like that in five years? Yes, I think so. But it would take something like that for it to happen."