With its best friend broke, bit­coin can’t af­ford lob­by­ists any­more

The Bit­coin Foun­da­tion cuts oper­a­tions amid a bud­get crunch “I don’t know if the foun­da­tion has a fu­ture”

Bloomberg Businessweek (Asia) - - Contents - −Olga Kharif

Since it formed in 2012, the non­profit Bit­coin Foun­da­tion, run by a col­lec­tion of soft­ware ex­ec­u­tives and tech­nol­ogy an­a­lysts, has been the go-to ad­vo­cate for the dig­i­tal cur­rency. When a state reg­u­la­tor tried to stop bit­coin trans­ac­tions in its ju­ris­dic­tion, it got a let­ter from the foun­da­tion. When Congress called a hear­ing on cryp­tocur­ren­cies, some­one from the or­ga­ni­za­tion was on the panel. So it’s some­thing of a blow to bit­coin die-hards that the foun­da­tion is broke and that some of its own direc­tors re­cently said rais­ing more money to run it would be a waste of time.

The foun­da­tion, funded mostly through do­na­tions, con­fer­ences, and some mem­ber­ship fees, has seen $7 mil­lion evap­o­rate in the past two years and was left with only $12,553.06 in to­tal as­sets at the end of Novem­ber. Ex­ec­u­tive Di­rec­tor Bruce Fen­ton be­gan the non­profit’s Dec. 15 board meet­ing by an­nounc­ing that “we need ad­di­tional funds if we wish to re­tain employees,” ac­cord­ing to the min­utes. When the board dis­cussed ways to raise funds, Di­rec­tor Olivier Janssens sug­gested the foun­da­tion may not be “fix­able.” Di­rec­tor Jim Harper put it more bluntly: “Ask­ing for money is just throw­ing money away.”

Some peo­ple are say­ing the same about bit­coin it­self: The global, de­cen­tral­ized cur­rency for the In­ter­net Age has proved to be more volatile than many penny stocks. In­vestors who bought at $13 per bit­coin in the foun­da­tion’s early days are prob­a­bly still happy now that it’s hov­er­ing around $430. Less for­tu­nate are the peo­ple who bought near the height of bit­coin fever in late 2013, when the cur­rency’s value peaked at $1,137. “Bit­coin is only an ap­pro­pri­ate in­vest­ment for spec­u­la­tive in­vestors,” says Gil Luria, man­ag­ing di­rec­tor at Wed­bush Se­cu­ri­ties.

Bit­coin’s role in money laun­der­ing and other il­le­gal ac­tiv­ity is a con­stant source of volatil­ity. The cur­rency fell to $183 in Jan­uary 2015 fol­low­ing a slew of prob­lems, in­clud­ing the col­lapse of Mt. Gox, once the world’s largest bit­coin ex­change. Mark Karpelès, for­mer chief ex­ec­u­tive of­fi­cer of Mt. Gox and a Bit­coin Foun­da­tion di­rec­tor, was ar­rested in Tokyo and charged with em­bez­zle­ment in Septem­ber. Karpelès didn’t re­spond to a re­quest for com­ment. For­mer foun­da­tion Vice Chair­man Char­lie Shrem is serv­ing two years in fed­eral prison, hav­ing pleaded guilty to help­ing laun­der money through Silk Road, an on­line black mar­ket, in 2014.

“I don’t know if the foun­da­tion has a fu­ture,” says Gavin An­dresen, a for­mer board mem­ber who now holds the ti­tle of chief sci­en­tist at the foun­da­tion. “The il­le­gal be­hav­ior of two of the foun­da­tion’s for­mer board mem­bers de­stroyed a lot of trust.” Fen­ton, the ex­ec­u­tive di­rec­tor, ac­knowl­edges, “There were a lot of bad de­ci­sions and a lot of lost money,” but he says his ad­min­is­tra­tion wasn’t re­spon­si­ble. (He started in April.)

Harper says the burst­ing of the bit­coin bub­ble had led the or­ga­ni­za­tion to mod­er­ate its am­bi­tions by about the time Shrem ad­mit­ted guilt. “I hired lob­by­ing in Brussels in 2014, and then we scaled it right back be­cause the money was gone,” he says. The foun­da­tion says it’s cut its an­nual bud­get by 95 per­cent in the past two years, to about $100,000. It now fo­cuses on pro­vid­ing tech­ni­cal de­vel­op­ment and for a while gave up lob­by­ing en­tirely. The or­ga­ni­za­tion “thrived while the bit­coin price was ris­ing, so it never put a plan in place to sus­tain it,” says Harper.

Not ev­ery­one is shy­ing away from bit­coin, which per­formed well in 2015. IBM, Nasdaq, and the big­gest banks are ex­per­i­ment­ing with the un­der­ly­ing tech­nol­ogy, known as blockchain, for use in stock is­suances, money trans­fers, and other trans­ac­tions. Ven­ture cap­i­tal firms have in­vested more than $1 bil­lion in bit­coin-re­lated star­tups since 2009, ac­cord­ing to re­search from dig­i­tal cur­rency an­a­lyst Coin­Desk. Trade groups such as the Cham­ber of Dig­i­tal Commerce and the year-old Coin Cen­ter are pick­ing up some of the Bit­coin Foun­da­tion’s lob­by­ing slack. Roger Ver, an an­gel in­vestor known as Bit­coin Je­sus who helped fund the Bit­coin Foun­da­tion in the early days, says, “The mis­sion will carry on.”

For now, the Bit­coin Foun­da­tion is press­ing on, too, try­ing to re­stock its cof­fers—but with­out some of the dis­senters who spoke up on Dec. 15. Harper has agreed to step down, and the other direc­tors have re­moved Janssens. At the meet­ing, Di­rec­tor Bobby Lee said, “If some­one does not want to be on that ship, they should step off.”

The bot­tom line The long­time bit­coin lob­by­ing leader, its for­tunes closely tied to the cur­rency’s tra­vails, has about $12,000 in as­sets.

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