Why is Goldman Sachs backing Bitcoin?

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Since the Bitcoin boom and crash in late 2013 the cryptocurrency has been in Limbo, gaining recognition from international bodies - but loosing credibility through frauds and exchange crashes.

In a move that could bolster the currency's standing on Wall St, Goldman Sachs has co-led a $50 million financing round in Circle Internet Financial, a Bitcoin wallet company.

Institutions like Goldman Sachs have traditionally been skeptical about Bitcoin - and unwilling to sink money into it.

Circle Internet Financial's product is aimed at facilitating everyday Bitcoin usage, Fortune now estimates that the company is worth $200m (€178m).

The project is led by Jeremy Allaire who Quartz describes as a "serial tech entrepreneur" - he says that irresponsible behaviour from some Bitcoin pioneers hurt the reputation of the currency, and that the backing of firms like Goldman Sachs "brings more legitimacy" to the electronic currency.

There has been a spike in the value of Bitcoin against the dollar today - although this could be due to the weakening of the dollar after the Fed released poor economic data yesterday.

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A look at a chart covering even a few weeks shows that the currency's value is still unstable, and surges like this are not uncommon.

XE.com

The company's app allows users to link an online wallet to their bank account and make free transfers to any digital wallet, including PayPal accounts.

Mr Allaire says that the company isn't worried about the lack of revenue generated by the free model, he says that he is "not concerned with making money" at the moment as the company focuses on increasing its user base.

So, what's in it for Goldman Sachs?

It's unclear exactly what the company's motives are - it is worth pointing out that Circle and Goldman Sachs share a common board member in Michele Burns.

In a statement commenting on the investment, Tom Jessop, Managing Director and member of the Goldman Sachs Principal Strategic Investments, said that he thought Circle’s "product vision and exceptional management team present a compelling opportunity in the digital payments space." The firm's involvement could indicate that the traditional financial world is taking Bitcoin, and the broader area of decentralised electronic currencies seriously again.

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