(Bloomberg) -- Digital currencies are risky, volatile investments, and that's what speculators love about them. But a group of Silicon Valley venture capitalists and Wall Street fixtures are spending $133 million on a cryptocurrency that's boring by design.
The concept is called Basis. The startup behind it wants to create an “algorithmic central bank,” inspired by economic principles that underpin fiat currency to adjust supply and minimize price swings. “We've designed this to be a cryptocurrency but without the volatility that we believe has prevented popular adoption to date,” said co-founder Nader Al-Naji.
Basis said Wednesday that it sold $133 million in a pre-sale coin offering to the venture capital arms of Alphabet Inc. and Bain Capital, as well as Andreessen Horowitz, Foundation Capital and Lightspeed. Stanley Druckenmiller, a billionaire hedge fund manager, and Kevin Warsh, a former governor of the U.S. Federal Reserve, also bought in.
Economists have supported Basis's thesis that drastic price fluctuations common among digital currencies will limit their mainstream appeal as a place to store money long-term. Late last year, Bitcoin rose to nearly $20,000 before crashing below $7,000 in just a few months.
But Basis's approach has drawn skepticism. Preston Byrne, a blockchain consultant, described the project, formerly known as Basecoin, as “the worst idea in cryptocurrency.” He argues that the startup over-promises on the potential and its implementation has little in common with a central bank.
To contact the reporter on this story: Julie Verhage in New York at jverhage2@bloomberg.net.
To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, Andrew Pollack
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