Thiel backs bitcoin trading platform startup

Peter Thiel said in an interview in March that bitcoin “may well be a bubble.”

Billionaire Peter Thiel’s venture capital firm Founders Fund is backing a startup that aims to bring Wall Street electronic trading expertise to the bitcoin market, the Wall Street Journal reports.

Tagomi Systems expects to be the bitcoin version of a broker-dealer, executing orders to buy or sell cryptocurrencies, the report says.

Mr Thiel has said bitcoin could become the digital equivalent of gold and is a potentially useful hedge against global chaos.

The Tagomi investment is the latest foray into digital currencies by his San Francisco-based Founders Fund.

Greg Tusar, the former head of electronic trading at Goldman Sachs Group, is reported to be among the other backers.

He worked at Goldman from 2000-13, then left to join high-speed trader KCG Holdings, where he spent the next four years. He left KCG in July after it was acquired by rival Virtu Financial.

The Journal report says there’s no guarantee Tagomi will succeed, despite Founders’ involvement. Bitcoin has lost about 50% of its value since December, cooling investor enthusiasm for digital currencies.

Tagomi also faces competition from hundreds of other crypto startups.

Trading issues
However, it does offer a service that could solve some issues affecting cryptocurrency trading.

Buying or selling large quantities of digital currencies is tricky because the market is fragmented across more than 100 crypto exchanges around the world.

Connecting to all of them requires setting up a separate account with each one. 

Crypto exchanges generally impose limits on daily flows in and out. This makes it cumbersome and time-consuming to pull off a big trade. 

Tagomi hopes to make this easier by borrowing a page from the stock market. In US equities, broker-dealers use systems called smart order routers that dispatch their clients’ buy and sell orders to various venues, including a dozen exchanges and more than 30 off-exchange “dark pools.”

These routers make rapid-fire decisions about which market is the best place to execute a trade at any given time. Tagomi is looking to develop a similar tool for the crypto markets, the Journal says.

$US15.5m raised to date
Tagomi has raised $US15.5 million to date. It isn’t clear how much Mr Thiel’s Founders Fund has invested.

Founders Fund has more than $US3 billion under management and has taken stakes in more than 100 companies, including Facebook and Airbnb.

It is an investor in the crypto-focused hedge funds Metastable Capital and Polychain Capital, as well as Harbor, a startup building a platform for digital tokens that represent real-world assets like real estate and art.

In January, the Journal reported that Founders Fund had amassed hundreds of millions of dollars worth of bitcoin, characterising it in communications with investors as a high-risk, high-reward bet.

Mr Thiel, a co-founder of digital payments service PayPal Holdings, said in an interview in March that bitcoin “may well be a bubble” but it could also help investors hedge against “the world ... falling apart."

“My view is that there’s going to be one cryptocurrency that will be the equivalent of gold,” he said in the onstage interview at the Economic Club of New York.

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NZ could have been a leader in cryptocurrencies and attracted captial, technologists and hi-tech jobs. Instead we get this asinine proclamation from some dinosaur at the IRD that essentially froze all investments in the next fintech wave in NZ.

Gold and bitcoin can be leased out for the purposes of market hedging strategies, so asserting they are 'non yielding' assets (whatever that means) is plainly false, and ignorant of modern financial markets. The IRD stuffed up big time here, for an enforcement agency to making tech future defining policy is wrong on too many levels to mention anyway. Where's the government oversight?

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Fair point but the underlying 'asset' being traded is a little flaky to say the least.

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There are many 'flaky' currencies out there, Zimbabwe dollar, Venezuela peso, Argentinian peso, eg. that are properly treated as foreign currencies. So that argument is bogus and simply a smear tactic with no objective basis. The original IRD advice was that bitcoin would be treated like a foreign currency, and this was exactly the correct and consistent ruling that eventually the courts in NZ will uphold in I'm sure.

Unfortunately, in the mean time we'll get a chilling effect surrounding blockchain developments and investments in NZ while the current ill-informed, ignorant or malicious advisement is in the media. Do we know why the IRD has made this special ruling proclamation? Was it driven by a tax grab motive or perhaps some threatened entrenched special interests like banks got in the ear of the IRD to effect a shut out of their new competitors? It's a really terrible way to make policy having 1 unelected bureaucrat issuing edicts that radically affect the future of a whole segment of industry, a nascent industry with enormous potential to be crucial to NZ's future no less. Where's the consultation with the affected stakeholders? Government for the people and by the people and all that.

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