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VC Fred Wilson Thinks Coinbase Is the Goldman Sachs of Bitcoin

Mar 31, 2017

Fred Wilson, the venture capitalist known for backing Twitter (twtr) and Tumblr, has made a big bet on blockchain cryptocurrencies including Bitcoin—and he thinks regular investors should buy some too.

Speaking Thursday at a conference hosted by StockTwits, the social network for stock traders, Wilson said the equivalent of a Wall Street bank now exists for the digital currencies, in what is otherwise a Wild West: Coinbase, the Bitcoin and Ethereum brokerage that has recently come under fire for the apparent failure of its investors to disclose their profits to the IRS.

Coinbase was Wilson's very first investment in Bitcoin and now has a reported valuation of more than $400 million. "They're like J.P. Morgan or Goldman Sachs for blockchain," he said at the event, called Stocktoberfest East.

Not only has Wilson's Union Square Ventures backed several blockchain companies, but the VC has also personally bought cryptocurrencies including Bitcoin and Ethereum as well as a bit of Litecoin, representing "some small percentage of my net worth," he said.

“If I were a trader, a stock trader or hedge fund person, I might think of having 5% of my assets in something like this,” Wilson added. “It’s still early days; I don’t think you want to go all in on it, but I think you want to be in it.”

Earlier that day, he said, a retail investor had emailed him wanting to invest in private startups, wondering how to put money into Union Square Ventures. But Wilson had to inform the man, who made $50,000 a year, that he was not wealthy or experienced enough to qualify as an “accredited investor” and was therefore prohibited by law from investing in startup companies before they went public.

Wilson was able to give him an alternative recommendation: Buy Bitcoin instead. “The cool thing,” Wilson said about Coinbase, is that “anybody can buy”—accredited or not.

The accessibility of Bitcoin and other cryptocurrencies, however, has also raised questions as to whether the average investor should own the assets, which are not only unusually volatile but vulnerable to risks including theft via cyberattack, leaving many Bitcoin buyers burned.

Yet that's where Coinbase has an advantage, and why blockchain investors will see it as a safe haven akin to Goldman Sachs (gs) or J.P. Morgan (jpm) in a world of robber barons, Wilson said.

"If you look at what they are world class at, it's security, trust, safety, fraud—all these things that frankly banks are good at," he said. "If you go back to the 19th century, banks got robbed a lot, and the truth of the matter is, most companies like Coinbase have gotten robbed, because it's pretty easy to rob these companies—you hack in, you take the Bitcoin, and you get in the car and you drive away."

That's not to say that other problems won't arise among Bitcoin traders on Coinbase, just as they did in the early days of Wall Street, and still continue to a lesser extent. "We’re going to have all the same things that happened—we’re going to have pump and dump, front-running, all the things that people did," Wilson acknowledged. "There are some people who are going to use it as a way to defraud people. But I think a lot of people should do it for the right reasons."

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