Bitso and the importance of Centralized Crypto Exchanges

August 20, 2021

Valor understood how centralized crypto exchanges were important for mass adoption from our experience of investing in Coinbase in 2014. Although it seems obvious today, this was not a consensus then. These companies during the early years faced some controversy in the ecosystem. The reasoning was that the key innovation in blockchain technology is the decentralization of trust, which is the elimination of central counterparties like in the traditional financial system. What a crypto centralized exchange like Coinbase or Bitso offer instead is the service of holding and transacting client’s funds similarly to how a traditional bank would. This goes against the “Crypto Philosophy”. However, customers get in return a high level of trust in a complex system. They don’t have to worry about losing their money if they misplace a hundred-long password composed of numbers and letters. They can just email the exchange and reset. It turns out that the mainstream crypto user today prefers this format of interaction with their holdings. Human beings still prefer to trust someone else.

In addition to this key insight, we got multiple additional lessons from our early investment in Coinbase, such as the importance of  “KYC” and “AML” regulatory-friendly approach is the winning strategy, the importance of building a strong product culture and developing real life use cases solutions for crypto when deciding on product roadmap. 

All of the Coinbase learnings were important when we met Daniel Vogel, co-founder and CEO of Bitso. The company was built under the same pillars of Coinbase with the additional understanding of how Latin Americans could use crypto. We saw how Daniel early on understood that crypto could address local challenges, such as remittances, high transaction fees and an overall volatile currency environment. We like to invest in founders we have known for years and were impressed as each year that passed the company had evolved tremendously. 

We are proud to be investors in Bitso, the largest cross-country crypto exchange in Latin America. Let us share some of reasons for our excitement: 

Bitso was granted the first Fintech License by the Mexican government: 

The company is proactive about educating regulators on crypto and adopting smart strategies, such as segregating fiat and crypto operations, which has allowed it to be faster at getting access to local payment systems. Regulation in crypto is inevitable, so better to help shape policy than to oppose it. 

Forward-thinking product culture

Bitso has, in our opinion, the easiest process for onboarding users in crypto, an elegant user experience and simple interface. The company is one of the safest exchanges in the world and offers consumers insurance against the risk of hackers or exploits, the first exchange in the continent to offer these features.  

Product offerings have Product-Market-Fit with Latin American needs:

(i) Bitso App is the consumer product, allowing Latin Americans to buy, sell, transfer and get exposure to crypto currencies, protecting themselves from local hyperinflation;

(ii) Bitso Alpha offers a more sophisticated solution for traders. In Latin America, there is substantial demand from both retail and institutional investors to gain exposure to crypto assets; 

(iii) Bitso for business offers crypto-powered financial solutions to companies, helping them especially in dealing with crossborder business operations; 

(iv) Bitso’s remittance solution was able to capture 5-7% of the ~$40Bn remittance market between the US and Mexico, using blockchain to offer lower fees; 

Bitso’s team is one of the best we have seen

Under the leadership of Daniel Vogel and Bárbara González, both Harvard MBAs, the company has the right mix of local expertise with international experience we have come to see in the best startup teams we have backed. As Ricardo Marino, Vice-Chairman of Itaú Unibanco and a Special Advisor at Valor has said: “Daniel is one of the most visionary founders I have met. He thinks big. He has execution track record and a deep understanding of the Culture in Latam. Like few entrepreneurs, Daniel is creative and sensitive in order to customize value-added products that, simply and cheaply, solve client’s needs in region”.

Typical Valor Cross-Border investment: 

Earlier this quarter Bitso announced a $250M Series C co-led by Tiger Global and Coatue, making it one of the largest fintechs in the region and its first crypto unicorn. The goal of the round is to expand geographically and Brazil is priority number one. To help tier-1 teams to enter Brazil has been Valor’s wheelhouse on our cross-border investments.

Centralized Exchanges will be protagonists of the crypto industry

As aggregators of liquidity in a relatively new asset class, exchanges benefit from moats such as regulation, brand and network effects. We believe the leading Latam exchange will be one of the most valuable crypto companies in the world and Bitso is the frontrunner for that position. 

We are happy to be investors in Bitso and have rolled up our sleeves to help them win in Brazil.