Bitcoin Foundation hit by big bitcoin losses

The Bitcoin Foundation, formed in 2012 to promote the virtual currency, has rejected claims by a board member that it’s bankrupt but has acknowledged significant financial problems — ironically as a result of a big drop in the value of its bitcoin holdings.

On Tuesday its board of directors rejected claims made a day earlier by board member Olivier Janssensthat it was “effectively bankrupt,” but said the bitcoin roller coaster has forced it to drastically cut back its operations.

In early 2013 a bitcoin was valued at around $14 but that soared to $1,145 by November that same year,according to Coinbase. Three weeks later, it had collapsed to $569 and continued wide swings throughout much of 2014. Today, a bitcoin is worth about $258.

Those swings add up to bad news for the organization.

“The drop in bitcoin price drastically affected the Foundation’s bottom line as the majority of assets were held in bitcoin,” it said.

As a result, the foundation has cut programs to concentrate on one mission: development of the Bitcoin Core Protocol. Staff numbers have also been cut, although the foundation rejected Janssens’ claim that 90 percent had been fired.

“Some team members left voluntarily and agreed to continue helping on a volunteer basis to help the Foundation during this financially austere time,” it said.

The foundation hasn’t revealed exactly how many bitcoins it holds, but a filing with the Internal Revenue Service said the holding was worth $4.5 million at the end of 2013. Based on figures from Coinbase, that was equivalent to just over 6,000 bitcoins. Today, those bitcoin would be worth $1.5 million.

The current state of the foundation’s finances should become clearer in the coming weeks when its latest IRS filing, covering 2014, becomes public.

And when it does, the board might face questions about why they didn’t diversify the foundation’s assets to put it on a more stable base, instead choosing to keep them all in a volatile investment.

Gavin Andresen, chief scientist of the foundation and a former board member, said the bitcoin price wasn’t the only issue at play.

“The Foundation started a lot of ambitious projects at the end of 2013 and beginning of 2014,” he said in an email. “Unfortunately, most of those projects never had a chance to show any results, because they had to be cut back or dropped as funds dried up due to the combination of a falling Bitcoin price and declining membership revenue.”

In 2013, the foundation disclosed membership revenue of $358,000 but that, like other items on the balance sheet, was probably held in bitcoin.

Membership was hit when two board members “resigned in disgrace,” he said. They were Charlie Shrem, who is currently in prison for money laundering related to bitcoin and the Silk Road underground marketplace, and Mark Karpeles, who ran the failed Mt. Gox bitcoin exchange in Tokyo.