A Bitcoin Bear in Silicon Valley, It’s True

bull bearWell, yesterday was crazy.

Newsweek published a story saying it had finally found the elusive original creator behind the digital currency bitcoin. People on Reddit then went nuts, arguing that the world should leave the guy alone. On Twitter, journalists then weighed in on whether Newsweek had put his life at risk, before a gaggle of them in L.A. (where the man lives) converged on his home, then chased him around town by car until he denied to reporters that he has anything to do with bitcoin.

Plenty of investors appeared to be following the action, too. At Andreessen Horowitz, for example, at least three partners who are well-versed in bitcoin tweeted of their skepticism that Newsweek had the story right, with Balaji Srinivasan observing that bitcoin connoisseurs know that “there are vastly more credible candidates” than the 64-year-old California man that Newsweek turned up.

So much of the day revolved around the story that you might think that everyone in the tech world is convinced that bitcoin will be as big as the Internet itself.

You would be wrong, though.

While venture capitalists often seem in league on Next Big Things, Josh Stein, a managing director at the storied venture firm DFJ, says that when it comes to bitcoin, he isn’t convinced of anything — even calling himself a “bitcoin bear” in an interview early yesterday (that I’ll run more of next week).

Stein is a savvy investor who is known, among other things, for writing the first check to the online data storage company Box. It isn’t surprising that he doesn’t like advertising his position on bitcoin, which he says is personal and not a reflection of the firm’s interest. (He says others at DFJ are “looking at it.”)

As he explains it, “I’m at a huge disadvantage to the bulls. Bulls have huge incentives to make elaborate arguments for why bitcoin is going to work. But I’m not going to short it, so I have zero upside [in discussing at length why it may fail].”

Still, given that the “bulls” have had the floor for much of 2014 (Marc Andreessen in particular has been actively promoting the currency since his firm placed its first big bet on a bitcoin company, investing $25 million in Coinbase in mid-December), I pushed Stein for more.

Noting that if Andreessen is right, he’ll “make a billion dollars,” and that if Stein is right, “I don’t make any money — so who do you think will spend more time refining their argument?” – he continued.

“Look, why does everyone think bitcoin is going to work? Well, you say, it [offers] a lower transaction cost between existing systems. But anyone can [enjoy low to no costs] with ACH,” for Automated Clearing House, a widely used electronic network that allows financial institutions to process transactions in batches, transactions that are often free for customers.

“People also say bitcoin is a hedge against inflation. And why? Because they say it’s like gold. But gold actually has value. People want gold, aside from its value, and that’s been true for thousands of years. Bitcoin has no intrinsic value. It’s electrons; it doesn’t exist.”

Here, Stein abruptly stopped talking, noting that publicly stating his position on bitcoin would only serve to “cue the trolls.”

I hope he’s mistaken. Forgive the pun, but there are two sides to every coin, and skepticism is a good thing; it strengthens the development of new technologies. Silicon Valley is often an echosphere. In just a few months, the tech cognoscenti have seemingly anointed bitcoin as the currency of the future. It’s refreshing to hear a VC challenge this new conventional wisdom and express a little doubt once in a while.

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