Not to be by shown up by Silicon Valley, Wall Street wades into bitcoin

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Much of the $75 million that just got poured into the startup firm Coinbase came from the type of names you’d expect to see attached to a bitcoin play—Andreessen Horowitz, Draper Fisher Jurvetson (DFJ), Union Square Ventures and so on. And then there were investors like the New York Stock Exchange.

Proving that it’s not just venture capital types who are undeterred by bitcoin’s terrible performance as a currency, the NYSE, USAA, and Spanish megabank BBVA contributed to the funding round with investments of between $1 million and $10 million each. Former Citigroup CEO Vikram Pandit and former Thomson Reuters CEO and Morgan Stanley board member Tom Glocer also made personal investments.

Coinbase, a virtual wallet service that lets people buy and store bitcoin, says the capital raise marks the single largest funding round to date for a bitcoin-related business, and brings the total raised by the startup to $106 million.

The investments come after an awful year for bitcoin. The crypto-currency’s value plunged 76% last year, making it a worse performer than both crude oil and the ruble. (Thanks to the rout, DFJ founding partner and bitcoin evangelist Tim Draper’s 30,000 bitcoin haul from the US Marshals’ auction of the now-defunct black market bazaar Silk Road has sunk from $19 million in July to just over $6 million.)

The investors would argue, though, that the value of bitcoin lies not with its future as a currency, but with the underlying technology that allows the whole thing to work. If companies built around bitcoin can figure out how to transfer and store money around the world in safer and less expensive ways than how it’s being done now, then banks, stock exchanges, and other legacy financial players can apply the technology to other currencies, not just digital ones.

“Bitcoin as a currency has been a red herring driven by speculative investment, but that’s not the ultimate potential or the most exciting thing about it,” Coinbase CEO Brian Armstrong tells Quartz.

The speculative bubble was helpful, though, in bringing bitcoin into the mainstream, which attracted more users, lots of press, VC money, and regulatory interest (the latter perhaps a threat to innovation, but an important imprimatur for a currency famous for facilitating shady dealings).

The attention also helped persuade big companies like computer maker Dell and online merchant to start using Coinbase to take payments in bitcoin, providing respite from the hefty fees charged to retailers for credit-card transaction.

Coinbase now has 2.1 million consumer wallets and 38,000 participating merchants. Transactions from companies accepting bitcoin for payments of goods and services have risen to 12% of Coinbase’s activity, Armstrong says, up from 4% a year ago. But the bulk of Coinbase transactions are people buying and selling bitcoin as an investment, rather than for commerce.

Those investments would have performed poorly last year. But that’s the risk of being on the bleeding edge.

In the speculative phase of a new product, “early adopters might take some losses,” acknowledges Glocer, who says he bought a fractional amount of bitcoin he needed to set up a wallet on Coinbase.

“It’s no different than the California gold rush in the 1800s,” he says. “First you need the wildcatters and eventually the numbers get big and the suits move in.”