Forbes Interview: Bitcoin-Focused Venture Capitalist - Strategies for Investing in Payments, Mining, Memecoin, and AI

Jonathan is a co-founder and managing member of Ten31, a venture capital firm that invests exclusively in the Bitcoin ecosystem. In this discussion, we discuss why Ten31 is only focused on Bitcoin, how his company is trying to pick winners in this space, his thoughts on the rise of ordinals and meme tokens on Bitcoin, and how he is investing in Combined companies get ready. We also focus on Bitcoin miners and the way they are trying to capitalize on the surge in demand for artificial intelligence.

Forbes: Tell us about your company.

Jonathan Kirkwood: We have invested more than $100 million in more than 30 companies in the Bitcoin space over the past four years. This includes vertically integrated miners, whether oil and gas, renewable energy, co-location, on-grid or off-grid companies, or others that are building connections to financial services such as Strike, Unchained Capital, and Fold.

Forbes: Are you only investing in the Bitcoin ecosystem?

Kirkwood: We like to think of it as technology companies leveraging the bitcoin stack. You might have a company like Fold that offers bitcoin rewards. They use the attributes of the assets to attract customers to their products and services, but you have other companies like Strike that use the Lightning Network to provide instant global finality and settlement. We thought it was fun.

Forbes: What about exchanges? Obviously, they must integrate with the network, and many also integrate Lightning for easy deposits and withdrawals.

Kirkwood: They're slowly doing it, and some of them are working with companies that we invest in.

Forbes: How do you invest? What are you looking for in investing?

Kirkwood: Our North Star has been a bitcoin winner, building great products and services that we want to use. We write checks for early-stage companies, starting at $200,000, where there's only one founder working on the idea they're working on, all the way up to Series B. We led Strike's Series B last year, they raised $80 million and provided more than half through our strategic partners.

Forbes: What types of services do you provide to your portfolio companies?

Kirkwood: Between myself and my partner, Grant Gilliam, we sit on seven boards. We also have two other partners, Marty Bent and Matt Odell. One of the very unique things that we do, and we started last year, is do portfolio retreats. We think Bitcoin is a very interesting model because it's an open, permissionless system. It is tearing down walled gardens. In October we bring all our portfolio companies together. They all work in different sectors of the economy, but they all interact with Bitcoin in some way. So there's this initial bond of friendship that easily fuels the synergy. We've seen real dividends from the events we've hosted over the past year.

Forbes: I think people misunderstand that Bitcoin is just a static, rigid thing that was released into the world 15 years ago and hasn't really changed much. Obviously, this is not the case. How do you see the Bitcoin ecosystem evolving? What are you trying to sell to your future LPS when they say what's next?

Kirkwood: We think Bitcoin as an ecosystem is still nascent and emerging. Since 2013, the U.S. government has held that Bitcoin is a commodity — that it will be treated as such and taxed as such — and has remained absolutely consistent over the past decade, through various governments and regulators. Therefore, on a risk-adjusted basis, we view Bitcoin as very low-risk, and as Bitcoin adoption spreads outward, the number of dollars entering the space and the number of users will grow exponentially. As these users come, infrastructure will be built around the network and assets, which will capture value. The early movers and companies we identify and target are building the technology to be able to meet the needs of new users entering the Bitcoin ecosystem. Those different infrastructure plays or their technologies will ultimately be the infrastructure that underpins the entire ecosystem, whether it's mining, financial services, Lightning or other layer services, consumer applications, or emerging markets. Each of these buckets will have original movers who will gain such an advantage that trying to replace them will become nearly insurmountable.

Forbes: Why hasn't bitcoin adoption really taken off, especially from a payments perspective?

Kirkwood: It's not a one-year or five-year time frame. We believe Bitcoin will be the next world reserve asset. The world is in turmoil right now. We believe that the world has yet to identify a world reserve asset. After the past 40 years of U.S. fiscal markets approaching zero bounds, we end that period. So right now, in the next 10, 20, 40 years, when Bitcoin climbs to the reserve asset of the world, we think there will be mass adoption.

A huge recent signal is the entry of BlackRock via its Bitcoin spot ETF. I think what it's doing is lowering the bar for financial institutions and financial advisors because they don't have an occupational risk anymore. For the past 15 years, the mainstream media has categorized Bitcoin as something only used by criminals for the black market or money laundering. But now, with BlackRock lowering the barriers to entry for these institutions, I think that's an important signal. I don't think BlackRock will make a shot unless they think they'll catch it. The second idea is that it reduces the friction for anyone, anywhere to be able to sell Apple stock and buy a Bitcoin ETF with two clicks of the mouse.

Forbes: How does all of this fit into your strategy? How much utility must Bitcoin have to be worthy of the digital gold narrative?

Kirkwood: Let me answer it this way: look at what Strike is doing, its Send Globally payments service. This example highlights the second part of the Bitcoin network or Lightning Network. It took us five years of maturation and continued building of the Lightning Network to get it to where it is today. Yes, Strike allows users to send value across the world through the Lightning Network. But the really interesting part, which I don't think people understand, is what they allow businesses to do. Suppose a business in Nigeria wants to buy products from Ghana. But they can't move in or don't want naira currency. They want dollars. Now through Strike's Send Globally, Nigerian businesses can convert their naira to bitcoin, move it to a US bank account, live there in US dollars, and then use the US dollars to buy those inputs in Ghana to build and grow their business in Nigeria business. All of this happens instantly. This has nothing to do with the bitcoin price because this happens within a second. All because this is a final settlement network.

Forbes: What are your thoughts on BRC-20 tokens, the Ordinals protocol, and Bitcoin meme tokens?

Kirkwood: Block space is a finite resource. I wrote an article about block space at the end of last year, and I didn't realize that you would come out with ordinal or BRC 20 in three months, and we would innovate the way we use block space. Do I think the ordinal or the BRC 20 are novel and investable so far? I do not think so. I wait for more clarity, actual market time for people to decide. But I do think it's valuable and there will be use cases.

Forbes: I want to go back to mining. Do you invest in public or private miners or both?

Kirkwood: Primarily private, but we do have a public miner. We usually look for the best, like Upstream Data.

Forbes: What is the most important thing in mining for you right now?

Kirkwood: I think the most important thing is rack space. Who has the ability to build low cost rack space in highly attractive locations. What happened with the TVA (Tennessee Valley Authority) is fascinating because they are really leaning toward Bitcoin miners and the programs they offer. One of our companies targets rural deindustrialized areas, so the regulators in these co-ops approach us and say, well, we have 10 megawatts or 20 megawatts for you guys. So we'll go in, we'll co-locate a 10 megawatt site. What we offer is to buy power, otherwise the co-op would have to reduce the amount of power it buys. This will then increase the rate the end user pays. That's why they seek us out, because we come in to either maintain the current electricity rates for end users within rural communities, or lower it, and the ability to shut off or put energy back on the grid during peak hours.

Forbes: Many miners are now clamoring to enter the field of artificial intelligence. What do you think?

Kirkwood: I would classify this as distributed computing because Bitcoin was the first distributed computing that could be easily shut down and the network continue to operate. So will the amount of rendering required for AI. You can tell a few years from now that I fully anticipated where the LLM would be and you would be able to watch a movie that didn't exist until you watched it. But in order to be able to deliver all that rendering volume to a billion people on Earth would require a lot of computing power. If you go back 15 years, building a 50 megawatt site for a data center was huge. Now that's pretty much average. So I think we're going to have to increase rack space by a factor of 1,000 over the next decade to meet distributed computing demand,

Forbes: Will there be companies that only do bitcoin mining and want flexibility? How do they do this in a cost-effective manner?

Kirkwood: I think there will be multiple revenue streams. Now there is only one source of income for data centers, you are taking energy, and using that energy to generate hashrate. We're now getting into a place where you have two revenue streams where the second add-on is where you put electricity back into the grid. So I locked in a 5-cent power contract for five years and then sold it back to the grid for 15 cents during peak hours. You'll add the AI amount, so you'll have 30%, 20%, 40% (depending on market drop) for AI in the same container as the bitcoin miner. So you have very recent multiple lines for these bitcoin miners to use.

Forbes: The halving is about a year away. I would like to hear your thoughts on how the halving will impact the entire investable Bitcoin ecosystem.

Kirkwood: We made a strong push in the first quarter of 2022 to ensure we have enough runway across all of our companies through the second half of 2024. Halving, the BlackRock ETF, the upcoming election cycle and the fed funds rate in the second half of the year are expected to be the perfect storm for Bitcoin and the mid-2024.

Then the second part is that 90% of the total bitcoin supply has been distributed. So, over the past 15 years, I guess it's been an abundance of Bitcoin, it's been thrashing around in the market and it's easy to get. The next 10% will not be distributed for the next 120 years. The next 5% is not in the next ten years. So if you look at the next ten years, you're going to see that the supply of Bitcoin is going to decrease a lot. This will make Bitcoin even more scarce and, over time, more precious.

Forbes: Are there any interesting use cases or innovations coming up related to Bitcoin that you think people should pay attention to?

Kirkwood: I think we need to pay attention to Nostr. This has to do with Bitcoin offering the best way to build a business from scratch. If you think of Bitcoin as a company, the asset has amassed a market value of $600 billion, with no CEO and marketing budget. I think Nostr, as an open source communication protocol, will be the same in the next ten years. We will use Bitcoin to transfer value for value on this open source communication layer, so that eventually Twitter, Meta, and Instagram will all be Nostr clients, running on the open permissionless network Nostr built.

Forbes: Thank you.