Goldman Sachs Invests in Bitcoin Startup Circle Internet Financial

(Los Angeles Times/TNS) -

Circle Internet Financial, a bitcoin startup led by internet entrepreneur Jeremy Allaire, said it raised $50 million from investors including Goldman Sachs Group Inc., giving the virtual currency a jolt of credibility even as it struggles to gain consumer acceptance.

Circle said the new group of investors included a major Chinese investment firm, IDG Capital Partners, to help the Boston-based firm’s expansion in that giant market.

“We could not be happier with our new strategic investors,” Allaire wrote in a blog post on the company’s website. “They bring unique, powerful capabilities and capital that will help us continue building a new kind of global consumer finance company, one based on open platforms, open source software and ubiquitous mobile devices.”

Circle said the new investment, which follows $26 million raised from other investors in 2013 and 2014, will allow it to expand beyond bitcoins themselves to provide services in U.S. dollars.

Customers will be able to keep accounts in dollars, eliminating the risks associated with bitcoin price volatility, while still being able to send and receive currency both in dollars and bitcoins. In the latter case, the company would automatically convert the sums from dollars to bitcoins. Significantly, the dollar accounts would be insured by the Federal Deposit Insurance Corp., the company said.

“Customers with dollar accounts gain all of the benefits of digital currency — instant, secure and free payments to anyone in the world — without holding or explicitly converting dollars into bitcoins,” Allaire wrote.

The new dollar feature could represent an important step in the bitcoin industry’s bid to make inroads in the lucrative money-transmission business dominated by big banks and players like PayPal and Western Union. As a currency created outside the reach of central banks and regulators, bitcoin has the potential to revolutionize money storage and payments by driving down costs — potentially to zero — in the way that the internet revolutionized media and communications.

Indeed, Circle describes itself not as a “bitcoin company,” but as a consumer finance company that “leverages bitcoin technology to make money transfers and payments instant, secure, free and global,” according to a spokesman.

But bitcoin’s growth among consumers has been hampered by price volatility of the virtual currency itself, its murky regulatory status and the instability of key players, represented by the 2013 crash of a prominent Japan-based exchange known as Mt. Gox. A number of state financial regulators, including New York, have begun to issue guidelines to safeguard consumers in the market.

But while consumers have been slow to embrace the virtual currency, major banks have been studying it carefully both as a potential competitor and as an opportunity to move into the growing peer-to-peer payments market. The Goldman investment comes from its principal strategic investments group, which focuses on financial technology.

In a statement in the Circle blog post, Tom Jessop, a Goldman managing director, said: “As the financial services industry continues to become more digital and open, we see significant opportunities in companies and solutions that have the promise to transform global markets through technical innovation.”

A Goldman spokesman didn’t have further comment.

Bitcoins were trading at $234.73 Thursday, up nearly 4 percent from a day earlier, according to market-research firm Coindesk.com. Bitcoins peaked at $946.92 in December 2013.