Bitcoin Marketplace
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If you only have a few minutes to spare, here’s what investors, operators, and founders should know about Buttercoin (S13).
Buttercoin was a Bitcoin exchange that did everything a startup is supposed to do — great investors, a real product, a big vision — and still died because its survival depended on two things it couldn't control: the price of Bitcoin and venture capital's appetite for crypto. Founded in 2013 in Palo Alto by Bennett Hoffman and Cedric Dahl, it aimed to be a low-fee, high-volume Bitcoin marketplace and raised roughly $2 million from Google Ventures, Y Combinator, Initialized Capital, Floodgate, and angels including Alexis Ohanian and Kevin Rose.[2]
When Buttercoin raised, Bitcoin traded near $1,000; by early 2015 it had fallen to around $220, and venture interest in Bitcoin startups froze with it.[6] Unable to raise the follow-on funding a capital- and compliance-heavy exchange required, Buttercoin shut down at the end of April 2015. Dahl's own verdict was blunt: "The big lesson is that you cannot rely on venture. You have to make a product that is self sustaining."[4]
Bennett Hoffman and Cedric Dahl founded Buttercoin in 2013, during the first great wave of Bitcoin enthusiasm, and took it through Y Combinator.[2] The vision was ambitious: a high-performance, low-fee Bitcoin exchange, with early framing around serving high-volume traders and emerging-market use cases like remittances where moving money was expensive. The team built an open, performant trading engine and attracted a genuinely elite investor list — Google Ventures, Reddit's Alexis Ohanian, Kevin Rose — signaling that smart money believed in both the founders and the category.[8]
That pedigree, Dahl later reflected, was double-edged. Buttercoin's affiliation with large investment firms shaped it as a venture-scale bet dependent on continued rounds, rather than a lean operation focused on reaching self-sustaining revenue quickly.[3] Running a US Bitcoin exchange is capital- and compliance-intensive — money-transmitter licensing, banking relationships, security — so the model inherently required significant funding to reach the scale where exchange economics work. The company was built to be financed to scale, which meant a funding freeze was existential.
Buttercoin was a Bitcoin exchange: a platform where users could buy and sell Bitcoin, with an emphasis on low fees and a fast, high-volume trading engine.[7] The technical ambition was real — the team built exchange infrastructure designed to handle serious trading throughput, and open-sourced components of it. The early positioning toward high-volume traders and cross-border use cases reflected a bet that the winning exchange would be the cheapest and most performant.
Operating a US exchange, however, means far more than software. It requires navigating a patchwork of state money-transmitter licenses, maintaining banking partners willing to serve a crypto business (scarce and skittish in that era), securing customer funds against theft, and complying with anti-money-laundering rules.[5] This regulatory and operational overhead is expensive and slow, and it consumes capital before an exchange reaches the trading volume where fee revenue turns profitable. Buttercoin was building that heavy foundation exactly as the funding to complete it evaporated.
Buttercoin targeted Bitcoin traders and, aspirationally, users needing cheap cross-border value transfer — a real but early market whose size was tied to Bitcoin's uncertain adoption.
The Bitcoin exchange market in 2013–2015 was small, volatile, and speculative, with total activity swinging wildly with the coin's price. The addressable market shrank as the price crashed and mainstream interest cooled.
Read the complete post-mortem, the rebuild playbook, and the exact reasons Buttercoin is still worth studying now.