Despite Crypto-dip, Bitcoin Infrastructure Startups are ripe for investment

Bitcoin investors have been hiding behind the couch in the first half of 2022, as they have seen the cryptocurrency fall by 70% since the all-time high of a striking $ 68,990.90 in November last year. And while brave investors and bitcoin fans have “bought dip”, the dramatic fall will no doubt have frightened many more traditional investors, who may be wondering if the long-predicted crypto implosion has finally arrived.

But while Bitcoin’s potential for quick rewards may temporarily be in doubt, do not depreciate the digital currency yet. Many of the most exciting bitcoin opportunities are just in their infancy, with an exciting wave of startups coming through, leveraging their unique capabilities for a range of products and services, while building the foundation for a whole new financial system. For VCs and LPs, there is a chance to get into these innovative businesses while the market is not boiling.

Bitcoin – not crypto

Venture capital firms have plowed billions of dollars into crypto startups in recent years, but their scattergun approach reveals a lack of in-depth expertise and a lack of certainty about the likely winners that will emerge. But in the midst of all the noise, bitcoin has always stood out from the cryptocurrency. It is well established and traded a lot – with both corporate and superb adoption that now entices. Despite the current downturn, it has proven to be stable, secure and technologically unique over a long period of time.

As Andrew Howard, Chief Business Development Officer at bitcoin brokerage firm Bitcoin Reserve, puts it: “Bitcoin is honest money. It’s the most moral money system we have.”

And while bitcoin still represents a compelling asset class for LPs looking to diversify into crypto – especially now that prices are under pressure – perhaps the most important investment opportunity lies elsewhere: building the infrastructure needed to establish bitcoin as the monetary protocol for the whole planet.

The internet of money

According to Howard, “The more users a network has, the more valuable it is, and there is a clear parallel between bitcoin, the monetary protocol, and TCP / IP, the Internet protocol. TCP / IP was created in the 70’s, fought in the “protocol wars” of the 80’s, and had managed the winning networking effect of the 90’s, which made the competitors obsolete. but it scared some potential users off because no one seemed “responsible.” Even more, absolutely no one is responsible for bitcoin. Bitcoin is the TCP / IP of money. “

Bitcoin’s core design has been carved in stone from day one. It is available as an open source for all to see, without any central power monitoring the development or manipulating monetary policy. Its scarcity cannot be replicated, which helps it retain its value over time, while being significantly more robust and more secure than many of its peers, thanks to its decentralized nature.

But to become the monetary protocol for everything requires an additional function – the ability to decide who owns what and when, accurately and indisputably. Again, bitcoin’s immutable ledger stands alone in this regard. It is a unique technology that is able to establish time flow (and thus the transfer of value) in the digital realm.

Infrastructure in action

As a monetary protocol, bitcoin allows us to transfer values ​​anywhere in the world at the speed of light, in an unauthorized manner and at an insignificant cost. From rebuilding how governments make payments to letting web creators regain ownership of their content and IP, the potential applications are already huge and probably extend far beyond the current limits of the imagination.

A great illustration of startup activity already underway in this area is impervious.ai, which is building a data transfer layer on top of bitcoin that will enable censorship-resistant p2p data streams – a panacea for a wealth of issues related to consumer privacy, data security, censorship and monitoring . Another is Bolt.observer, which builds tools to allow individuals and institutions to profitably interact with Lightning Network and paves the way for a number of utility cases in the future.

Innovation requires investment

Making such applications a reality requires significant investments in bitcoin infrastructure, including the scaling of the “lightning network” needed to allow bitcoin to be used for daily financial transactions – no easy task. A high degree of technical expertise is required to build and scale the network in a commercially viable way, and this in turn means that startups need the budgets to be able to recruit the very best developers and engineers.

Many other potential applications will even require the development of additional protocols on top of bitcoin, much like TCP / IP gave rise to the IMAP, STMP and POP protocols that serve as the basis for e-mail. Bitcoin’s transformative potential will only be realized if the startups responsible for developing highly complex bitcoin infrastructure receive the early financial support they need.

The ability to influence once in a generation change

Founders operating in this area require patient capital, from VCs, family offices, successful entrepreneurs and other people with high net worth with a passion for innovation. These investors are in the long run and know that success will not only provide oversized economic returns, but, more importantly, enable transformative macroeconomic and societal change.

And, as the last decade of bitcoin development has proven, the start-up of infrastructure will meet with great resistance along the way – from payment providers, the economic and political elite and anyone with a vested interest in maintaining the status quo. Founders will need to use a wide range of expertise to remove these barriers, and the presence of VCs and LPs with a wealth of multi-generational sector experience would be very welcome at the board.

But as always with venture investments, only a handful of start-ups in the area will continue to realize their full potential. With so much noise surrounding the category, choosing winners requires a strong understanding of the technology – its true use and commercial viability – and the ability to leverage relevant professional networks to uncover early bitcoin companies with the strongest foundation and prospects. For this, there is a growing network of specialist funds working to close the funding gap at an early stage in the development of bitcoin infrastructure – which includes our spin-off fund, TimeChain.

Now is the time to invest in Bitcoin infrastructure

Such is the current level of crypto confusion and misallocation of resources across the VC world that many start-up values ​​with high potential for bitcoin are underpriced, which provides an attractive opportunity for LPs who want to go into infrastructure investments.

Bitcoin certainly gives us an opportunity to rebuild many aspects of our money system more efficiently and fairly. And for LPs, investing in long-term bitcoin infrastructure projects can be the perfect bridge to the cryptocurrency category, giving them exposure to the cryptocurrency world in a context that still feels inherently familiar and inherently rewarding.