Bloomberg Businessweek (Europe)
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”
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.