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How Mt. Gox Debacle Won Over a Bitcoin Convert



http://online.wsj.com/articles/how-mt-gox-debacle-won-over-a-bitcoin-convert-1417471759

How Mt. Gox Debacle Won Over a Bitcoin Convert

SAN MATEO, Calif. -- One event that inspired venture capitalist Tim
Draper to amass a huge stash of bitcoin was the same one that turned
other investors away.

The Silicon Valley veteran says that he was so heartened to see
bitcoin withstand the failure of Japanese virtual-currency exchange
Mt. Gox in February that he decided to bid for nearly 30,000 bitcoin
that were auctioned by the U.S. government in June.

Continued bitcoin use by merchants and others after investors lost
money in Mt. Gox "made me realize that there is a need for this,"
Mr. Draper said in a recent interview. "It is so important to people
that they were willing to put up with that."

Mr. Draper won all the bitcoin, making the co-founder of venture-capital
firm Draper Fisher Jurvetson one of the world's largest holders of
bitcoin. Thursday, Mr. Draper will try to increase his pile by
bidding in another government auction of 50,000 bitcoin.

The 56-year-old Mr. Draper is one of bitcoin's biggest advocates
even though the price is down about 60% in the past year amid
concerns about the Mt. Gox collapse, looming regulation and the
stigma that the virtual currency is a haven for illicit activity.

This week, Mr. Draper's bitcoin pile was worth about $11 million,
down from roughly $17 million in June, based on the CoinDesk price
index.

Like many bitcoin enthusiasts, Mr. Draper compares the current state
of the fledgling industry with the early days of the Internet. At
Draper, Fisher, Jurvetson, he backed Internet companies from Hotmail
and Skype to Paperless Post, an online invitation company

Mr. Draper is one of a number of well-known investors who are pouring
money into bitcoin, which was originally dominated by technology
geeks and libertarians. Other bitcoin investors include Internet
pioneer Marc Andreessen ; Virgin Group founder Richard Branson ;
and Tyler and Cameron Winklevoss, twins who are best known for
battling Mark Zuckerberg over ownership stakes of Facebook Inc.

Launched in 2009, bitcoin is an online currency that isnt backed
by a central bank or government. It is created on computers; bought,
sold and traded on exchanges; and stored in virtual wallets.

A growing number of merchants are accepting bitcoin for payment,
in part because it helps them avoid fees and other costs associated
with credit cards, debit cards, checks or cash.

Bitcoin's increased awareness and popularity hasn't resolved price
volatility that has roiled the virtual currency over the past year.
The price of a bitcoin soared to more than $1,100 last year, but
it has been sliding ever since. On Monday, bitcoin was trading at
$377.90 on the CoinDesk price index of major exchanges.

In an interview, Mr. Draper shrugs off the recent drop in bitcoin
prices. He has recently predicted that the price will rise to $10,000
in three years.

"I am looking at this as a great long-term opportunity," he says,
adding that he checks the price only every two or three weeks.

Mr. Draper, working through Bitcoin exchange startup Vaurum, was
one of 45 bidders in the auction conducted by the U.S. Marshals
Service auction in June. The government seized the bitcoin last
year when it raided Silk Road, an online black market.

Mr. Draper hasn't disclosed the price of his bid, made when the
market price of the virtual currency was roughly $580.

"When you win an auction, you have mixed feelings because you know
that means you paid the most," he said with a chuckle.

Still, he says he is confident with the purchase because he wouldn't
have been able to amass such a stash in the open market, which is
thinly traded and volatile.

That thin market is one of the things that concerns Mark T. Williams,
a Boston University finance professor who says the recent bitcoin
forays made by big investors such as Mr. Draper aren't enough to
make it thrive. "The probability of success is low, but if it does
hit, the reward will be very large," he said.

Mr. Draper says his interest in virtual currencies goes back 20
years, when a business associate described his sons fascination
with an online game that allowed players to buy items for virtual
characters with virtual cash.

Outside of bitcoin, Mr. Draper has also plowed money into job-hunting
startup Jobs Inc., Tesla Motors , and Xpert Financial, an online
marketplace for pre-IPO companies.

In 2012, Mr. Draper and other investors put a $500,000 investment
into CoinLab, a bitcoin business incubator. He made his investment
through Draper Associates, an entity that puts money into new
ventures.

He has also put money into a $6.6 million fund that was recently
raised by his son, Adam, to support fledgling bitcoin entrepreneurs.

Mr. Draper is particularly interested in using bitcoin to speed
payments in less-developed countries. He also sees promise in using
bitcoin's underlying technology to create financial contracts that
can skirt the traditional fee structure of big banks.

"Banks are afraid to embrace bitcoin, but I'm not sure they're as
afraid as much as threatened," he says.

Mr. Draper spends much of his time building Draper University, an
eight-week entrepreneurship program that he launched last year.

The school isn't accredited, but students can pay their $9,500
tuition with bitcoin.