Barry Silbert has seen his share of bitcoin startups. The SecondMarket founder and former CEO has invested in more than 30 such deals personally and via his Bitcoin Opportunity Fund (BOF), spanning exchanges, wallets, payments platforms, and on and on. As a result, Silbert has perhaps a better pattern recognition filter than most in the business.

With this in mind, it caught my attention when Silbert emailed me over the weekend to say BOF made an investment in the “Coinbase of India.” It’s a bold claim, but Silbert would know as well as anyone being that he’s an investor in the real Coinbase – and its biggest US competitors, Bitpay and Circle. (But more on this in a minute).

Bitcoin Opportunity Fund put $250,000 into Tumkur-based Unocoin which, to Silbert’s knowledge, is the largest investment into the crypto-currency ecosystem in the country. It’s fitting, given that he describes Unocoin as the largest, fastest growing bitcoin company in India.

I asked Silbert for his thoughts on what makes Unocoin unique and exciting, and he offered the following via email:

As an early investor in BitPay and Coinbase, I saw firsthand how first mover advantage, coupled with a great team, can lead to market dominance. Given this, I believe that Unocoin has the potential to be the dominant bitcoin company in India for buying, selling and storing bitcoin, as well as merchant processing.

Bitcoin awareness and adoption in India is growing rapidly, but it is still very early. To me, it is reminiscent of where the US was in early 2012 and, as such, there is a fantastic opportunity for a well run, well capitalized bitcoin business like Unocoin in India.

Most importantly, I’m excited about how transformative bitcoin can be in India for the unbanked, as well as the $70 billion remittance business. As Silbert notes, India seems like an ideal market for bitcoin. The large population of 1.2 billion people is 40 percent un- and under-banked, while the local currency has been significantly inflationary at times. The country also receives $70 billion in remittances annually from around the globe. Add to this a relatively technologically savvy population and the market would seem ripe for the fee-reducing and value storing benefits of crypto-currencies.

Nevertheless, India hasn’t always been friendly to bitcoin. Regulators halted the operations of most businesses within the category last year, including Unocoin, citing a breach of existing Foreign Exchange Management laws. The company has since established official banking relationships to facilitate its bitcoin-to-rupee trading service, and has installed anti-money-laundering and know-your-customer systems.

Silbert’s investment in Unocoin seems like a smart bet on an early leader in a still up-and-coming market. But the deal raises some questions around the investor’s role as a shareholder and advisor to competing (or potentially competing) companies.

In the institutional venture world – where BOF squarely resides – it’s an absolute no-no to invest in competitive companies. With companies regularly sharing proprietary information with their investors, it’s understandable that many would be concerned over these highly strategic details reaching their competitors – either directly or indirectly. There is also the issue of which company the investor advocates on behalf when it comes to recruiting, business development, and general evangelism.

As noted above, Silbert is already an investor in Coinbase, BitPay, and Circle, in the US. Each competes directly by offering consumers bitcoin buying and wallet services. In the case of Coinbase and BitPay, the two businesses also compete in the merchant processing sector as well. Not all of these conflicts were present at the time that Silbert invested, thereby excusing away some of Silbert’s responsibility for this mess. But, at least when it comes to Circle, his most recent of the three checks, the conflicts were obvious to all involved.

Silbert defends his portfolio, saying:

I try not invest in directly competitive businesses and, in situations where I have made investments in potential competitors, I’m transparent with both teams and commit to not disclosing any info to their competitor, or anybody else for that matter.

I do not think we will see a dominant exchange, wallet or merchant processor globally in the near term and, instead, we’ll see winners emerge in various countries and regions around the world. Ultimately however, there will be consolidation, which I hope to facilitate. It's hardly an ironclad guarantee, but it's the best he can offer under the circumstances.

A few bits of good news: Silbert doesn’t take board seats and rarely if ever leads follow-on rounds. Together these two facts serve to reduce (but not eliminate) the level of conflict between investments and all but eliminates signaling risk in his portfolio. Silbert also adds that investing in similar businesses in different geographic markets can actually be a benefit to the respective portfolio companies in terms of sharing learnings and conducting cross-border business development. His portfolio entrepreneurs collaborate directly as well via an active email group, Silbert adds.

Perhaps the most controversial aspect of Silbert’s philosophy, as it relates to Unocoin, is the idea that there will be no dominant, global bitcoin exchange, wallet, or merchant processor. In this sense, Coinbase and Bitpay may be competitive, but Coinbase and Unocoin would not. It’s certainly true today and given all these businesses have to do address their local markets it’s unlikely to change in the near future.

But considering the magnitude of the global opportunity, the benefits of scale, and historical examples we’ve seen in the traditional banking sector, it’s hard to think this remains the case forever. To Silberts credit, the involvement of any seed investors will likely be long outgrown before anyone begins conquering international markets. If anything, these startups are likely to expand through acquisition, making Silbert a natural (albeit conflicted) potential facilitator of such deals.

The bitcoin ecosystem remains nascent and is very community oriented, making it in some ways different than other categories attracting angel and venture capital investment. At this stage, the biggest competition is less from fellow startups in the space, and more from the banking status quo and protectionist regulators. In this sense, the success of one bitcoin venture acts as a rising tide that lifts the entire ecosystem of boats a little bit higher.

Silbert has proven himself to be a prolific and highly committed investor in the space. With India’s bitcoin economy barely out of the starting gates, Silbert’s involvement should be viewed as a strong positive, indicating his commitment to supporting bitcoin within this large and rapidly growing emerging economy. Let's just hope the rest of his portfolio sees it that way.

[Image via GravesInIndia]