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BIT PART

Goldman Sachs is parking millions in a bitcoin business with no pressing plans to make money

AP/Mark Lennihan
Banks are scared of the golden B.
By Shelly Banjo

Reporter

This article is more than 2 years old.

The battle to control how people pay for stuff is heating up and Goldman Sachs wants a piece of the action.

In its first publicly announced bitcoin-related investment, Goldman said on April 30 that it co-led a $50 million financing round for Circle, a bitcoin startup led by serial tech entrepreneur Jeremy Allaire. The startup offers a new digital wallet meant for everyday consumers. China’s IDG Capital Partners was the other lead investor on the round, which brings Circle’s valuation to what Fortune estimated at $200 million.

Allaire says nefarious behavior among early bitcoin adopters drove away mainstream consumers from the crypto currency. But every new investment from Wall Street bigwigs like Goldman Sachs, “brings more legitimacy to the space,” Allaire tells Quartz. (It doesn’t hurt that Circle and Goldman share a board member.)

“We want to get people to think of transferring value as something as easy and utilitarian as sending an email,” Allaire says.

The recent cash infusion, Allaire says, will focus on international expansion and greater adoption of the service for both bitcoin and other currencies, such as the US dollar and Chinese yuan.

Circle offers free money transfers for people who download the app by hooking up their bank accounts or bitcoin wallets to the service. Unlike services like Venmo and PayPalthe app can send money to people with any digital wallet, not just Circle account holders. While money transfers at traditional banks can cost $15 to $60 and take two to three days to clear, Circle transfers the money instantly.

But by offering the service for free, there’s little prospect for turning a profit anytime soon—a point Allaire shrugs off with little concern. “When [venture capitalist and early Facebook investor] Jim Breyer invested in Facebook, he wasn’t focused on generating revenue,” he says.

Of course, many startups—as well as big public companies like Twitter and LinkedIn—aren’t profitable from the outset. They operate at a loss because they are spending more money than they are taking in. But with a commitment not to charge fees for its money-transfer service, Circle doesn’t come close to explaining how it will generate revenue.

In essence, Allaire’s argument is: If we build a big enough social network, we’ll figure out how to monetize it somehow.

Allaire would not disclose any details of its business model with Quartz, explaining that the company “is not concerned with making money.”

“We have ideas of how we can make money in the future,” he says, “and no we can’t share it.”

As for Goldman, the bank’s interest seems to be in keeping up with the threat that fast-growing mobile payment companies pose to traditional banks.

In a blog post announcing the investment, Tom Jessop of Goldman, whose group makes early-stage investments focused on the future of financial markets, says the bank wants in on the part of the industry that’s becoming “more digital and open.”

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