Blockchain

Why This Google-Backed Y-Combinator Bitcoin Startup is Closing Down

MEDICIFounder and Chief Strategy & Innovation Officer

Buttercoin is turning off its services on April 10th. Current users have been advised to move their bitcoins to another service and remove their dollar balances. The bitcoin exchange startup was part of the Y-Combinator batch YC S13 and backed by Google Ventures. The company has cited that with the dip in bitcoin interest among Silicon Valley investors, it wasn’t able to generate enough venture capital interest to continue funding Buttercoin. The company was founded back in 2013 with the aim of targeting the global remittance market.

This is quite a contrast to what some eminent silicon valley investors and global corporate influencers are saying:

Mark Andreessen had tweeted the following:

“In the short run, Bitcoin is still highly useful as a transaction and trust network in many uses cases even with high volatility. For example, payment applications of Bitcoin don't require users/merchants to hold BTC for any period of time. All benefits still gained. Further, all other uses cases of Bitcoin and the blockchain are unhampered by [the] volatility of BTC. The system continues working just fine. What to watch in 2015: New apps, new use cases, international adoption, consumer education, technological innovation & spinoff ideas!”

A report was recently released by the Goldman Sachs Group, Inc. research division titled The Future of Finance: Redefining the Way We Pay in the Next Decade. The report primarily discusses the future impact of bitcoins. It highlights that bitcoins are expected to rise in popularity because the concerns around security have been addressed, thus obviating the need for security clearances.

Now let's look at it this way. Maybe this startup is right? I searched through the Google trends from January 2013 until now and here is what I found:

bitcoin google trend

As for the people who were using Buttercoin—should they be worried?

Buttercoin is taking the following measures to ensure settlement of funds:

  • Dollar balances not removed will be sent back to the accounts they came from.
  • Bitcoin balances in Buttercoin after April 10th will be converted to USD and sent to the bank linked to the Buttercoin account.

Buttercoin had raised around $1.3 million by the end of 2013.

We have witnessed other bitcoin firms shutting down due to cyberattacks. For example Instawallet, which helped create Bitcoin wallets to store the currency, was shut down post cyberattack. What makes this case peculiar is Buttercoin’s  mere lack of funds for investments. This particular case shows that the the industry is still conflicted about the interest in Bitcoin. Some investors are certainly developing growing skepticism about putting their money in bitcoin firms.

However, there is a silver lining to the dark cloud. Bitcoin has always been associated with a mixed bag of news. There is never a dull moment in this space. Coinbase recently raised $75 million in a funding round, which involved investors such as DFJ, USAA Bank, NYSE, Andreessen Horowitz, Union Square Ventures, and Ribbit Capital. This is the largest funding round yet for any bitcoin company and comes at a time when the cryptocurrency itself is facing very low trading rates. The participation of a financial institution like NYSE in this funding round shows that there is still hope for Bitcoin in the financial world. Former CEOs of Citigroup and Thomson Reuters have also invested in Coinbase.

As far as the specific case of Buttercoin goes, let me know your thoughts?

Amit Goel

MEDICIFounder and Chief Strategy & Innovation Officer

“Amit Goel is the Founder & Chief Strategy & Innovation Officer for MEDICI. Amit’s vision is to build a strong FinTech market network that involves financial institutions, banks, startups, investors, analysts & other key stakeholders across the ecosystem – helping each one of them in a meaningful way by removing the asymmetry of information and providing a platform to engage & transact.\ \ Amit is passionate about bringing actionable FinTech-focused insights, innovative products & services for the FinTech ecosystem. Some of his work involves startup scores, bank scores/assessments, predictive viewpoints & other innovations that have helped MEDICI’s customers and the ecosystem. He has been named amongst the Top 100 FinTech thought leaders/influencers in the world & Top 10 in Asia multiple times by reputed agencies, consulting firms as well as financial institutions. Amit has built MEDICI (formerly LTP) as a new-age, tech-enabled advisory/research firm, which is now considered the #1 global research & innovation platform for FinTech in the world.\ \ Amit has been writing pioneering viewpoints on financial technology space that have been ahead of the curve since 2010. His data-driven predictions have helped the customers as well as the ecosystem. His past work experience includes a strong background in strategy & market analysis and advisory to clients (from big business houses to Fortune 500 firms) in payments, commerce, financial services & IT/technology. In the past, Amit had also founded a successful consulting & research practice called GrowthPraxis and has worked at Boston Analytics, Frost & Sullivan, and Daimler Chrysler in strategy & research.”