Charlie Shrem knew it would be difficult to convince investors to fund his startup, but he never expected that he'd have to beg on camera to raise the money he needed.

Shrem launched an online service in mid-2011 called BitInstant that lets users convert dollars into Bitcoins. This was more than a year before the digital currency's value skyrocketed into the triple digits and gained an incredible amount of media attention. Most investors — like most of the general public — either didn't know what a Bitcoin was, or else didn't take it very seriously. Recognizing that, Shrem initially avoided asking investors for funding and instead took $10,000 from his mother. His father had already turned him down. But by the end of that year, Shrem needed more funds and he had no choice but to start making the rounds to investors.

"I went to every VC firm and got laughed at. I was looked at like I was from Mars," Shrem told Mashable in an interview earlier this week. "I wanted to give up. I didn't know what I was doing."

After striking out with traditional investors, Shrem was invited to talk about his startup on The Bitcoin Show, an online-only program dedicated to all things Bitcoin. During the hour-long show, he pleaded repeatedly to anyone watching that he needed money to keep the site running. That night, Shrem was contacted by Roger Ver, an angel investor based in Tokyo, who ended up putting $120,000 in the company.

BitInstant's business ticked up in the months that followed, but it wasn't until earlier this year that the startup and the currency enjoyed a meteoric rise. Transaction volume on BitInstant has doubled each of the past three months and now totals in the seven figures on a monthly basis. BitInstant is currently "in negotiations" with the same kind of traditional investors that might have ignored the company back in 2011 to raise another round of funding at a valuation that Shrem says is in the "tens of millions."

BitInstant is just one of several Bitcoin startups attracting funding from established venture firms and investors at a valuation in the millions. Coinsetter, a New York startup working on a foreign exchange trading platform for Bitcoins, recently raised $500,000 led by Tribeca Venture Partners and SecondMarket's founder and CEO Barry Silbert at a valuation that we hear is in the "low single-digit millions." Coinbase, a startup that provides a digital wallet for Bitcoin transactions, has raised $600,000 to date from Y Combinator, IDG Ventures and others. (Cameron and Tyler Winklevoss, the twins who had a disputed role in the founding of Facebook, are also big Bitcoin investors, though they haven't publicly gotten behind any Bitcoin startups.)

"Obviously, it's not a market for the faint of heart," said Brian Hirsch, co-founder and managing partner at Tribeca Venture Partners, the day after Bitcoin passed $200 for the first time. Hirsch says his firm "spent a lot of time" trying to understand Bitcoin and its opportunities before making a financial commitment. Coinsetter is Tribeca's first Bitcoin-related investment, but Hirsch says it's likely the firm will invest in two to three more more. "We got comfortable that Bitcoin is here to stay," Hirsch says. "We could be wrong, but we got much more comfortable than we were a few months ago."

Even beyond Bitcoin, institutional investors are increasingly turning an eye towards the idea of digital currency. OpenCoin, which developed another currency called Ripple, raised an angel round of funding from several big name firms, including Andreessen Horowitz and Lightspeed Venture Partners. Chris Dixon, an investor at Andreesen, wrote a blog post two weeks earlier in which he declared math-based currencies like Bitcoin to be the third big era of currency.

If investors like Dixon and Hirsch are right and Bitcoin is here to stay, some of these startups may one day be valued in the billions rather than millions. But if the Bitcoin believers are wrong and demand for the new currency collapses from government regulation, security threats, general volatility, the rise of alternative digital currencies or any number of other risks, the startups may collapse with it. For some of the founders we spoke with, that could mean losing nearly everything.

For Bitcoin Believers, It's All or Nothing

Jaron Lukasiewicz, co-founder and CEO of Coinsetter

Jaron Lukasiewicz knows what it's like to run a failed startup. Before founding Coinsetter, he launched a company with his brother Ardon called Ticketometer that did crowfunding for concerts. As he describes it, Ticketometer misread who its customers were and never really found a strong niche in the market. He called it quits at Ticketometer in November, but he wasn't ready to go back to a typical 9-5 job. He believed that Bitcoin offered him a second chance.

"I knew that I would have to give another company a shot if I came up with another idea that I felt passionate about," said Lukasiewicz, who previously worked in investment banking and private equity. He had first heard about Bitcoin earlier that year and started having "a lot of late night conversations" about what opportunities there might be in the space. Shortly after finishing with Ticketometer he struck on the idea of giving investors a way to leverage and short the Bitcoin market — something that suited his financial background — and he decided to put all of his remaining funds towards the new company. "I had a certain lifeline in the bank and I literally risked all of it," Lukasiewicz said.

Lukasiewicz pledged to put up at least $50,000 of his own money towards funding the company. He is also an active investor in Bitcoin. "All of the investments I'm buying right now are in Bitcoins. I'm not investing in anything else." Lukasiewicz says.

Lukasiewicz isn't the only founder extremely invested in the success of Bitcoins. Shrem, the founder of BitInstant, says he too put "all of my money" into the company and currently has "more of my assets in Bitcoin than in cash," though he hedges somewhat by selling a portion of his Bitcoin holdings each time the value goes up by 20%. About half of the staff at his company gets paid entirely in Bitcoins, he says, and 20% get paid with a mix of Bitcoins and cash. He also notes that BitInstant has significant cash reserves at the moment, so if Bitcoin goes belly up tomorrow, his startup could potentially pivot to something else — though it's not clear what he would do.

Apart from the financial investment, there's the lifestyle investment. Shrem, now 23, spends every waking hour and many sleeping hours in the office to keep the operation running as smoothly as possible. When asked what motivated him to start the company and what motivates him to endure so much stress, he says his rabbi has told him he believes it comes from a desire to prove other people wrong.

"In elementary school and high school, I was just this short kid, an underdog always trying to prove myself," he says late one night while sitting in front of the computer as always. "Bitcoin is the ultimate proving myself kind of thing."

It's not just startup founders who are taking a big chance on Bitcoin; some VCs like Adam Draper are too.

Draper was considered part of the venture capital elite before he ever made a single investment. His grandfather Bill Draper founded two VC firms including Sutter Hill Ventures and Adam's father Tim Draper is a partner at the global VC firm Draper Fischer Jurvetson. Adam, 26, has followed in the family's footsteps and bet some of the prestige carried in his last name on what he sees as a huge opportunity in Bitcoin.

Draper, who is now the founder and CEO of the Boost VC startup accelerator, has already backed multiple Bitcoin startups, including Coinbase, and plans to fill up one-third to half of his upcoming class of startups with Bitcoin-related companies. He says he has also invested a "sizeable amount" of his personal funds in Bitcoins. As he sees it, the opportunity for Bitcoin is limitless: he believes the market, which is currently worth just more than $1 billion, could eventually be worth trillions.

"For Bitcoin, if it becomes a thing, it will become an enormous thing. It will be world changing," Draper says, describing his thought process leading up to his decision to enter the Bitcoin market. "But if it's nothing, it's nothing. There is no in between."

Ultimately, Draper decided that the potential rewards outweighed the risk, but shortly after we spoke, his faith in the market was tested.

Bitcoin's Terrible, Horrible, No Good, Very Bad Day

For months, Bitcoin hovered in the $10-$25 range and generally stayed under the radar. Then, in February, the currency topped $30 for the first time and continued a rapid rise throughout March driven in part by concerns of a fiscal crisis in Europe and a corresponding increase in press coverage. Bitcoin topped $100 on the first day of April and doubled again to $200 a week later, bringing the total market value of all 11 million Bitcoins in circulation to more than $2 billion.

Bitcoin's value continued to shoot up during the first half of Wednesday, passing $250 for the first time and going as high as $265, 10 times what it was worth just two months earlier. Then something went wrong. Bitcoin started crashing. It fell below $250, then below $200, then below $150. It fell all the way back to just above $100 before stabilizing somewhat. Bitcoin had crashed before, but not like this. In a matter of hours, the value of a Bitcoin was more than halved seemingly for no good reason.

At first, people assumed it must have been the result of a DDOS attack, which had caused a much smaller crash the week before, but apparently that wasn't the case. At the end of the day, Mt.Gox, the leading Bitcoin exchange, revealed that the incredible number of new and existing accounts caused its system to lag, which in turn caused Bitcoin buyers to panic and sell. "We were not last night victim of a DDoS but instead victim of our own success!" the company said.

Mt.Gox decided to halt trading for 12 hours Thursday — a move that would be unheard of in more traditional financial markets — in order to install more servers and improve the lag time. The price decline and the subsequent reaction from Mt.Gox was enough to spark dozens of articles speculating that the Bitcoin bubble had finally, and perhaps inevitably, burst.

During the 24-hour period while all that unfolded, Draper, the VC, says he got "philosophical" about Bitcoin and once again started thinking about his decision to be part of this market. "You don't want to see money disappear," he said. "I tried to think, 'Well, okay, we believe in Bitcoin and it will live through this... This is just a blip on the radar.'" So he spent his time researching reasons for the decline on online forums and calling up some of the Bitcoin companies and members of the Bitcoin community to hear their thoughts.

"Our whole business is high risk, high reward," Draper says. "It tested my faith in Bitcoin, but I didn't sell any [Wednesday] or panic too hard."

Meanwhile, the Bitcoin startups worked overtime to tend to customers and investors. Brian Armstrong, the founder of Coinbase, said his team was "frantically refreshing various graphs and screens" to see where to move funds and make sure customers weren't having any issues. Shrem said he and BitInstant were in "crisis management" mode all day and slept in his office that night. As he puts it, the team was busy "making sure customers are not going crazy filing lawsuits."

Like the other founders, Lukasiewicz says he was busy, but "not worried" about Bitcoin's future. "Obviously, this is extremely insane," he said of the severe price fluctuations. "I'm not sure if anything like this has happened ever, but I think we're okay with it." Of course, what choice does he have but to be "okay" with it. As Lukasiewicz had pointed out in our earlier conversation, for him and his startup, it's Bitcoin or bust.

"For us, for me, there definitely is no plan B," Lukasiewicz said. "I've put almost all of my money into starting this company. I'm a huge believer in it. If it doesnt work out, it's going to be a really bad day for me. It's about as simple as that."

When Mt.Gox finally re-opened trading at 10 p.m. ET on Thursday after having been halted for the better part of the day, Shrem scanned his computer screen to check market activity. The value of Bitcoin had plummeted to $74, and it would drop even lower as the night went on. No one can say with certainty how much further it will fall. No one knows for sure how much higher it can go.

"At this point, I'm so into it I have a responsibility to continue being into it," he said that night as trading resumed. "There are times I want to be done with this whole thing. It's tiring, it's frustrating, it's the Wild West. But I can't quit now."

Image courtesy of Flickr, Zach Copley