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Only tangentially related, but, provided the founders know what they are doing, is there any kind of bitcoin startup that can eventually become cash flow positi

by Mahn 12y ago

Only tangentially related, but, provided the founders know what they are doing, is there any kind of bitcoin startup that can eventually become cash flow positive on its own today? Because I've been thinking a lot about bitcoin startups and it seems to me that barring a massive stroke of luck, with the adoption that there is today, one could only survive if backed by hopeful investors. Namely I can't picture bootstrapping an exchange, a payment processor or an ATM provider. Then again you could argue than "get lucky or go home" applies to any kind of startup, but to me it looks like it's specially harder in the case of bitcoin.

IkmoIkmo 12y ago
Not in the US. South America, Africa, a few Asian markets, yeah quite likely. But you'll need to be scrappy, low-cost. i.e. it might mean having you and 3 others working in someone's living room and manually processing money. But in the US, nah I doubt it, it's really hard. I wrote a bit about some of the issues if you're late to the came, Ctrl F my name in this thread if you'd like. In short, there's a huge regulatory burden, very difficult to get a bank relationship, competition is pretty fierce while volume isn't exploding, you need quite a few employees to succeed, and that means you need a certain amount of revenue to break even, and you can only get that if you capture 10-30% of the market, a market with the likes of Coinbase ($100m+ investment). Things completely change when bitcoin is in a hype cycle. Exchanges make money on volume, and trading volume when the price is volatile is so much larger. Late 2013 trading volumes were about 20x what they average today. Add to that the price being 4x what it is today, and you essentially know that total exchange revenue in late 2013 was close to 100x what it averages today. That's such a gigantic difference, it's like the number of internet users drops by 99% and we wonder if internet companies can stay alive, or new ones thrive. That doesn't say all that much about bitcoin's future in general by the way. Usage, transactions numbers & volume, wallets, payments, those are all up compared to 2013. But exchanges need fiat-bitcoin and bitcoin-altcoin transaction volume and a big part of that volume was speculation. The speculative trading has disappeared for a large part, or quieted down, while use of bitcoin has grown. (not explosively, but still quite significantly)
- Mahn 12y ago
  > South America, Africa, a few Asian markets, yeah quite likely. Today? Isn't the demand in those markets for bitcoin even lower than what it is in the US? I understand it is speculated bitcoin has a better chance of penetrating those markets, but currently, if one were to open an african bitcoin exchange, I don't think one would see enough volume to become cash flow positive in a very long time.
  - IkmoIkmo 12y ago
    Thing is, there's potentially a bigger use case in these markets. Plus these markets are underserved. Plus the cost basis for employment like customer service and manual money processing is a bit better. And lastly, the regulatory burden is often lighter. In the US to get money transmitter licenses in all states is already a few million, and much more in surety bonds (which you can pay for yourself for many millions, or buy, but very few companies want to offer a surety bond to a bitcoin company right now, and virtually nobody to new startups) I mean I agree, it's true that the US/Europe are the large markets. But there are so many exchanges serving this market that a new exchange can barely get customers/volume, and therefore it's hard to be cash flow positive. And you're competing for financial services with modern banking, Paypal, Stripe, Creditcards etc. And you're competing with the dollar, a stable currency. But in various African markets, there's no modern payment system and volatile high-inflation currencies. In those markets a bitcoin exchange, linked to say a dollar-pegging service like Bitreserve, is an interesting use case. And there's few other exchanges competing for those customers. If I want to send money to family in France, it's literally free from the Netherlands. Bitcoin isn't super useful for this kind of transaction. But sending money back to say family in the Phillipines can often cost me 5% or so, while bitcoin exchanges in the Phillipines allow me to buy bitcoin here for 0% or near 0%, send it there for near 0% costs, and sell it there for 1-2%. Bitcoin actually undercuts banks in many countries outside the OECD. In OECD countries like the US or Europe, bitcoin is less useful. And there already are exchanges in South America, Africa, Asia btw, which are doing fine. But it's definitely not a goldmine, don't get me wrong. It's just that you can hardly start a new exchange and compete in Europe or the US anymore, while other continents aren't easy either, it's comparatively easier to become cash flow positive.

by Mahn 12y ago

IkmoIkmo 12y ago

Not in the US. South America, Africa, a few Asian markets, yeah quite likely. But you'll need to be scrappy, low-cost. i.e. it might mean having you and 3 others working in someone's living room and manually processing money. But in the US, nah I doubt it, it's really hard. I wrote a bit about some of the issues if you're late to the came, Ctrl F my name in this thread if you'd like. In short, there's a huge regulatory burden, very difficult to get a bank relationship, competition is pretty fierce while volume isn't exploding, you need quite a few employees to succeed, and that means you need a certain amount of revenue to break even, and you can only get that if you capture 10-30% of the market, a market with the likes of Coinbase ($100m+ investment). Things completely change when bitcoin is in a hype cycle. Exchanges make money on volume, and trading volume when the price is volatile is so much larger. Late 2013 trading volumes were about 20x what they average today. Add to that the price being 4x what it is today, and you essentially know that total exchange revenue in late 2013 was close to 100x what it averages today. That's such a gigantic difference, it's like the number of internet users drops by 99% and we wonder if internet companies can stay alive, or new ones thrive. That doesn't say all that much about bitcoin's future in general by the way. Usage, transactions numbers & volume, wallets, payments, those are all up compared to 2013. But exchanges need fiat-bitcoin and bitcoin-altcoin transaction volume and a big part of that volume was speculation. The speculative trading has disappeared for a large part, or quieted down, while use of bitcoin has grown. (not explosively, but still quite significantly)

Mahn 12y ago
> South America, Africa, a few Asian markets, yeah quite likely. Today? Isn't the demand in those markets for bitcoin even lower than what it is in the US? I understand it is speculated bitcoin has a better chance of penetrating those markets, but currently, if one were to open an african bitcoin exchange, I don't think one would see enough volume to become cash flow positive in a very long time.
- IkmoIkmo 12y ago
  Thing is, there's potentially a bigger use case in these markets. Plus these markets are underserved. Plus the cost basis for employment like customer service and manual money processing is a bit better. And lastly, the regulatory burden is often lighter. In the US to get money transmitter licenses in all states is already a few million, and much more in surety bonds (which you can pay for yourself for many millions, or buy, but very few companies want to offer a surety bond to a bitcoin company right now, and virtually nobody to new startups) I mean I agree, it's true that the US/Europe are the large markets. But there are so many exchanges serving this market that a new exchange can barely get customers/volume, and therefore it's hard to be cash flow positive. And you're competing for financial services with modern banking, Paypal, Stripe, Creditcards etc. And you're competing with the dollar, a stable currency. But in various African markets, there's no modern payment system and volatile high-inflation currencies. In those markets a bitcoin exchange, linked to say a dollar-pegging service like Bitreserve, is an interesting use case. And there's few other exchanges competing for those customers. If I want to send money to family in France, it's literally free from the Netherlands. Bitcoin isn't super useful for this kind of transaction. But sending money back to say family in the Phillipines can often cost me 5% or so, while bitcoin exchanges in the Phillipines allow me to buy bitcoin here for 0% or near 0%, send it there for near 0% costs, and sell it there for 1-2%. Bitcoin actually undercuts banks in many countries outside the OECD. In OECD countries like the US or Europe, bitcoin is less useful. And there already are exchanges in South America, Africa, Asia btw, which are doing fine. But it's definitely not a goldmine, don't get me wrong. It's just that you can hardly start a new exchange and compete in Europe or the US anymore, while other continents aren't easy either, it's comparatively easier to become cash flow positive.