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The rollercoaster ride of the bitcoin price captivated many in the finance industry in 2017, but according to Glenn Hutchins, one of the biggest establishment names to venture into the Wild West world of cryptocurrencies, this is just noise that distracts from the bigger developments that are taking place.
Mr Hutchins, the co-founder of Silver Lake Partners, a big technology-focused private equity firm, is far more excited by the broader cryptocurrency ecosystem than he is by bitcoin smashing through price records.
Indeed, while Mr Hutchins has sprinkled about $5m from his family office North Island on a series of early-stage investments in companies operating in the cryptocurrency world — and is looking to invest more in the embryonic industry — he says he has yet to buy a single bitcoin himself.
“I just really think [people are] missing the point . . . They should be talking about the companies,” he says in an interview with the Financial Times. “Bitcoin could turn out to be the winner; it also could turn out to be Betamax.”
Mr Hutchins is not the biggest or earliest investor in the digital currency world. The Winklevoss twins’ bitcoin bet has now turned into a billion-dollar fortune (at least on paper), while Michael Novogratz, a former Fortress hedge fund manager, has recently become a prominent evangelist. But Mr Hutchins is arguably the most widely-known, Establishment-with-a-big-E figure to take a deep dive.
The former private equity tycoon sits on the boards of the Federal Reserve Bank of New York, the Brookings Institution, the Economic Club of New York, the Center for American Progress, AT&T and until this summer, Nasdaq. He is a fellow at the Council on Foreign Relations, once advised president Bill Clinton and co-owner of the Boston Celtics basketball team. Mr Hutchins’ credibility is in contrast to bitcoin’s early popularity as a way to buy and sell narcotics.
He likens it to a railroad, where bitcoin represents the boxcar, the cryptographic bitcoin protocol is the actual rail, and the “blockchain” — the underlying decentralised technology that underpins the digital currency — is the cargo manifest. But instead of moving barrels of paraffin, crates of apples or boxes of widgets, this ecosystem can in theory facilitate financial transactions instantaneously and cost-free, he says.
“It’s the biggest opportunity I’ve seen because the two most important things are business information and value. We can now move information around the world at the speed of light at no cost. Why can’t we do that with value in the future?” he asks.
Underlining the experimental, early-stage development of the cryptocurrency industry, Mr Hutchins refers to his investments as his “skunk works”, a nod to Lockheed Martin’s radical tech laboratory founded during second world war. His first foray came in early 2016, when he invested in Digital Currency Group, a venture capital firm set up by early proselyte Barry Silbert.
Mr Hutchins refers to DCG as the “bitcoin primordial soup”, and his primary gateway into other companies attempting to harness the underlying technology. DCG has invested in a further 110 digital currency-based companies. Mr Hutchins, who sits on the board of DCG, has separately invested in about 10 of these.
“It’s like every cognisable company that was coming up in the bitcoin world I got a chance to look at and understand,” he says. “What I’ve done in my mainstream career is invest in companies that use technology for a competitive advantage. That’s what I’m thinking about, I want to make sure I understand how that happens.”
Mr Hutchins points out that Levi Strauss made more money selling jeans in the Klondyke than most prospectors did from finding gold. “I’m the guy who’s thinking about building companies. Not much speculating in currency.”
Among his separate investments are Ripple, a blockchain-based cross-border payments company; Abra, a digital wallet where people can store their cryptocurrencies; Chain, which helps other companies build and operate their own blockchain-based networks; and Circle, a mobile payments company.
“I’m trying to put a chip down because, if this thing works, if this thing takes off, one of these will be Google, one of these will be Amazon, one of these will be Yahoo,” he predicts.
Sceptics scoff at this kind of hype, which has become par for the course for the cryptocurrency ecosystem. Enthusiasts argue the development of bitcoin and the host of related digital currencies are the greatest technological breakthrough since the invention of the internet. Yet the echoes of the dotcom mania are uncanny.
For example, bitcoin’s remarkable price rise has stirred interest, but its volatility renders it practically useless as a traditional means of exchange or store of value, the two traditional gauges of a currency, according to critics. “It could be a bubble,” Mr Hutchins admits, saying that as a digital currency bitcoin suffers from several “serious issues”, such as how expensive and energy-intensive it is to maintain.
“But the underlying companies that I’ve invested in are very serious businesses that are doing very important things, and if they get it right, have the chance to change the way we make payments around the world,” he argues.