Why VC Tim Draper bought all those bitcoins

Tim Draper
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Bitcoin is creating a whole new platform for entrepreneurship and will provide an important alternative to fiat currencies in countries where people lack faith in their governments' currencies, said Silicon Valley investor Tim Draper.

"The bitcoin world is this new ecosystem where it doesn't cost that much to start a new bitcoin company, it doesn't cost much to start owning bitcoin either, and it is a much more efficient way of moving money around the world," Draper said on Monday's edition of Squawk on the Street.

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Draper also said investors should have some bitcoin in their investment portfolios.

Draper's long-term bet on bitcoin

The price of bitcoin on exchanges where it is traded has fluctuated, sometimes dramatically. Overall, though, Draper is confident the currency will trend upward; there is a limited amount of bitcoin and people are using it more and more, he said.

But the money does not lie in mining the currency, which is done with powerful computers which crack code problems to free up bitcoins. That space is competitive, and most of the people mining bitcoins are probably doing it for fun, Draper said.

Instead, it is the currency's usefulness that will fuel its ascent.

"Bitcoin is a great alternative for some of these economies where inflation really saps the strength of a country's economy," Draper said. "I expect Pagos in Argentina, Pagatech in Africa, and in Mexico Coincove—all these companies will really thrive because people in those countries are not as confident in their own governments' fiat currency."

(Draper's firm, Draper Associates, has made an investment in Nigerian mobile payments company Pagatech.)

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Draper took home all of the nearly 30,000 bitcoins that US Marshals had seized during a crackdown on illegal activity on the online marketplace Silk Road. The founding partner of venture capital firm Draper, Fisher, Jurvetson has not disclosed how much he and fellow investors paid for the chunk of online change, but the lot they took home has been valued at around $18 million.

"All I know is I paid more than all the other guys did, and so winning it at auction is a mixed bag," he said. "But I made a decision that this was going to be a long-term bet."

Despite the expense, Draper calls himself a "believer."

—By staff