New Venture Aspires to Be the Sotheby's of Bitcoin

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A startup set to launch Thursday is betting wealthy individuals will buy and sell luxury items like upscale condominiums, art works and jewelry with bitcoins, a digital currency.

BitPremier is aiming to act as a middleman, listing items for sellers who want to be paid in bitcoins. The venture is backed by Barry Silbert's Bitcoin Opportunity Fund, an investment vehicle. Silbert is better known in the banking world as the founder and chief executive of SecondMarket, a brokerage that deals in the illiquid stocks of privately held community banks.

His brother, Alan Silbert, will run BitPremier from Gaithersburg, Md.

BitPremier is opening up shop at a time when many Bitcoin-related businesses have struggled or closed because of the currency's volatility and a regulatory clampdown. A "gray zone," Alan Silbert admits, is whether the Financial Crimes Enforcement Network's recent guidance, which requires registration and licensing for certain companies that deal in virtual currencies, applies to BitPremier.

Bitcoin, created in 2009 by a pseudonymous programmer, has drawn attention in recent months as its exchange rate against the dollar has bounced around. It hit an all-time high of $266 in mid-April before plunging to $50. Bitcoin's exchange rate has since regained some ground and was trading at $97 midday Thursday.

Often overlooked is the fact that Bitcoin is also a payment system potentially rivaling PayPal (Ebay), Western Union (WU), Visa (NYSE:V) and MasterCard (MA). The decentralized, peer-to-peer network is available to anyone with Internet access and offers minuscule fees and fast transfers of unlimited sums. Users also have the option of making transactions anonymously.

But save for a few high-profile names, like WordPress and Reddit, bitcoins are only accepted by a random assortment of independent, mostly online merchants.

"There are a lot of people out there with a lot of bitcoins and nowhere to spend them," says Alan Silbert. BitPremier aims to fill a void for them - as well as for those who want to obtain significant quantities of bitcoins without buying them on an exchange, like Japan's MtGox, where large orders can drive up the price.

"There's not a very efficient way to get tens of thousands of dollars of them [bitcoins] through the normal channels," Alan Silbert says. Selling big-ticket items is "a good way to monetize assets and get your hands on some bitcoins."

Alan Silbert, who has worked in commercial finance since the mid-1990s, acknowledges that real estate transactions will be "tricky" for his new business. Some jurisdictions may not allow BitPremier to act as an escrow agent, for example. In the Bahamas, where the site has listed an oceanfront condo for $550,000, a lawyer is required on both sides of a deal.

Among BitPremier's current listings are a platinum designer watch, a condo in New York's Trump SoHo Hotel and a screen print by the artist LeRoy Neiman.

Sellers can submit items through BitPremier's website. After verifying an item is genuine and fits the brokerage's criteria (e.g., handbags and accessories must list for at least $5,000, automobiles for $50,000 or more), BitPremier will post a listing online and email it to subscribers of its newsletter. The prices are set in dollars and every few minutes the website updates the cost in bitcoins, in which all transactions are settled.

Buyers can indicate their interest in listed items to BitPremier, which will forward these offers to the sellers. Until the terms of a transaction are agreed upon, both sides remain anonymous.

Once terms are finalized, a buyer will zap the digital money to a Bitcoin network address provided by BitPremier. BitPremier will hold the coins in escrow until the buyer confirms receipt of the item and both parties agree the deal is completed. The coins "are moved and held offline, and stored on USB drive and paper backup in a bank vault until funds are ready to be released," according to the company website. Then the brokerage sends the coins on to the buyer, minus a 5% commission to BitPremier.

Barry Silbert's Bitcoin Opportunity Fund has also invested in Ripple, a payment network started by Chris Larsen, of Prosper and E-Loan fame.

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