Bitcoin Believers See a Role for Wall Street

A venture capitalist, a former regulator, a lawyer and a pair of entrepreneurs — Bitcoin evangelists all — gathered on Tuesday in the private dining room of an upscale Manhattan restaurant to discuss their vision of a world in which the currency plays a role in mainstream finance.

It may be a far-fetched notion — Bitcoin, despite the attention it has received in recent months, is still largely a plaything for speculators online, with stomach-turning price swings — but it is one that these men have bet millions of dollars can be achieved.

“The rising value of Bitcoin is a put option, or a bet, that Bitcoin gets adopted as a medium of exchange,” said Jeremy Allaire, the founder of Circle Internet Financial, a start-up in Boston that seeks to be a payment-processing system for Bitcoin. Mr. Allaire, who sponsored the gathering, said he had a modest position in Bitcoin, which he did not disclose.

“Wall Street will find a way” to get involved in Bitcoin, said Barry Silbert, the founder of SecondMarket, which created a Bitcoin fund that has $62.9 million in net assets under management as of Tuesday afternoon. “It doesn’t take a lot of money to move the needle in the Bitcoin world.”

“We’re in inning one of a nine-inning game,” said Chris Daniel, a lawyer at Paul Hastings who represents Circle Internet Financial.

The event, held at A Voce in Time Warner Center, showcased the arguments that some of Bitcoin’s most influential advocates are using to promote the currency’s adoption. They insisted that Bitcoin, a digital asset without backing from any central bank or government, could one day become widely used in money transfers and payments large and small.

A prominent venture capitalist, Jim Breyer, has given his vote of confidence to that proposal, participating in a $9 million investment in Mr. Allaire’s company. Mr. Breyer mingled with others at the restaurant on Tuesday before the dinner began.

The Bitcoin advocates emphasized that the process of “mining” Bitcoin — essentially, using powerful computers to solve complex equations — contributes to the infrastructure of the decentralized currency. But they held out hope that Wall Street firms would get involved, lending Bitcoin a measure of stability.

Raj Date, a former official at the Consumer Financial Protection Bureau who recently joined the board of Circle, offered a hypothetical case to illustrate the currency’s promise. Suppose he was trying to call his parents in Turkey, he said. He could do that free over the Internet. But to send them $100? That would cost him.

Not if he used Bitcoin, however.

There are several serious obstacles in the way of this vision, including Bitcoin’s extreme volatility. But this could be ironed out if big financial firms entered the market, Mr. Date said.

“The path to lower volatility, absent significant market makers, is possible theoretically; I don’t think it’s ever happened,” he said.

Mr. Silbert, the entrepreneur behind the Bitcoin fund, said another large player was getting involved in a Bitcoin venture.

“There’s a very large fund family that’s launching one soon that’s not yet public,” he said.

Last week, on the same day that the Chinese government threw cold water on Bitcoin, Bank of America Merrill Lynch became the first main Wall Street firm to release research about the currency. The report said that a “fair value analysis” of Bitcoin suggested a maximum value of $1,300. Currently, the price of one Bitcoin is about $928, according to the Mt. Gox exchange.

That report “woefully undervalued” Bitcoin, Mr. Allaire said.

“He positioned himself for lots of Bitcoin upgrades over the next six months,” Mr. Silbert said.

The Bitcoin supporters played down the significance of the decision by China, which moved to restrict banks from using Bitcoin in transactions. They pointed to a Senate hearing last month at which federal officials spoke optimistically about the benefits of digital money – a hearing at which Mr. Allaire testified.

Another obstacle for Bitcoin believers is the problem of fraud. Bitcoin transactions lack transparency and can be used to facilitate money laundering, Peter J. Henning wrote in DealBook’s White Collar Watch column.

Mr. Daniel, the lawyer in the room, said that such fears were behind the times.

“If you called me in January of this year, I would have told you that, through back channels, we were hearing that there was a real propriety issue with Bitcoin,” he said. But he said that governments are less focused now on shutting down Bitcoin operators than on “encouraging innovation.”

For Mr. Silbert, defending Bitcoin has become a regular occupation.

“I’m invited to do these dinners almost nightly,” he said.