The Andreessen-Horowitz firm is keeping a close eye on the Bitcoin market. At Pandomonthly, Marc Andreessen confirmed that they've been meeting with lawyers to discuss the possibilities. They're "optimistic" and "enthusiastic" about Bitcoin.

A top security lawyer told them, "Good news guys. Here you have a financial instrument that can be simultaneously regulated as a currency, a commodity, and a security. He says, 'You have the perfect storm. Every single regulator is going to lay claim to this.'" On the bright side, said regulators will fight over who, exactly, gets to regulate it, and VCs job is to sneak through the fight.

Andreessen believes that Bitcoin will ultimately be accepted and regulated in the United States. However, the countries where it will make the biggest impact are those with disastrous currency systems. Andreessen says, "It's going to be adopted precisely because it's not controlled by the government of -- pick a country -- that has bad policies."

Andreessen told Sarah Lacy that radical new ideas are a reaction to overregulation already happening. After all, if world currencies were completely fluid and you could move money freely across borders, you wouldn't need Bitcoin, because you'd have the free flow of money. "The more people try to add more control, the more it just creates the need for the uncontrolled alternative." He went on to explain that if it's a genuinely radical new idea, it will tend to benefit in the long run by attempts to clamp down on it. "The Internet was a little bit like that in the early days."

So was the music industry. First there was Napster, then Kazaa, then BitTorrent, then Tor. Each time a regulator went after one organization, another sprung up, a million times worse. "Take smart coders, and tell them they can't do something, and that is very inspiring," Andreessen says.

But Andreessen-Horowitz has not yet invested big in Bitcoin, a point that Sarah Lacy called him on. He hemmed and hawed and made a joke that he'd have no money left if he invested "Sarah Lacy: Venture Capitalist" style. But then he explained why he hasn't made the Bitcoin jump. If he invested in a Bitcoin exchange company, he can only make one bet while that company is in business. "It's the compact between the entrepreneur and the venture capitalist that most venture capitalists take really seriously. If I bet on your company, I'm not going to also back one of your competitors," Andreessen says.

He pointed out that at the moment a bunch of companies look really promising. Experienced, high quality, proven entrepreneurs are coming after Bitcoin now. They have all kinds of new ideas, but some of them aren't ready to raise money. In the meanwhile, Andreesseen-Horowitz is just navigating through, trying to place the right bet on the right company.

"We would love to make a bigger bet faster," Andreessen says. "Like the Internet, Bitcoin is one of those things where it's probably going to be hard -- it's either going to work or it's not, but if it works it's going to work at such scale it will be hard to make a venture investment too late." For Bitcoin to become a big success, it will have to handle a lot of trading volume in the world. If you take the global flow of goods, services, and money and you run the numbers -- it's astronomical. Even if Bitcoin only represents one percent of that market, it's trillions of dollars.

"Just like with the Internet there will be new ideas every step of the way, were going to watch and work. Help people as much as we can and place careful bets."

[Disclosure: Marc Andreessen is an investor in PandoDaily.]

[Photo by Yelena Sophia/ Bloom Productions]