Coinbase Global Inc.’s filing to become a publicly traded company provides a glimpse into the remarkably small circle of mostly men who command the incredibly lucrative digital landscape.
This U.S.-based power list starts with Brian Armstrong, the now billionaire chief executive officer of Coinbase, and his co-founder, Fred Ehrsam, who went on to create Paradigm Operations. Fellow billionaire Fred Wilson of Union Square Ventures, and Andreessen Horowitz’s Chris Dixon, are among the original venture capitalists that will reap large windfalls from the direct listing of the exchange.
Even though verified users of Coinbase, the largest U.S. digital-asset exchange, jumped 34% to 43 million last year as Bitcoin more than quadrupled, control of the largest cryptocurrency remains narrow. Less than 2% of the anonymous ownership accounts that can be tracked on Bitcoin’s blockchain control 95% of the digital asset, according to researcher Flipside Crypto.
Included in the influential group of U.S. holders is Dan Morehead, who founded Pantera Capital Management in 2003 and launched the first U.S. cryptofund in 2013. Digital Currency Group founder Barry Silbert has created an empire that touches every corner of the cryptocurrency world. Cameron and Tyler Winklevoss bought their first Bitcoin stake in 2012 when it traded as low as $8 and then co-founded Gemini Trust Co., the first crypto firm to be regulated by New York state as a trust.
Like many within this select circle, Ehrsam seemed perfectly poised to adopt the new digital world. He played video games professionally in high school, then studied computer science at Duke University before becoming a foreign-exchange trader at Goldman Sachs Group Inc. in New York. Yet he grew bored at the bank and as he looked for things that interested him after work, he discovered Bitcoin through a Georgetown professor’s blog. He was instantly fascinated.
“I would literally trade Bitcoin in the bathroom on my phone at Goldman,” Ehrsam said in an interview. Bitcoin was going for about $6 at the time, compared with a record $58,000 last week. Back then, the main way to buy it was on the now bankrupt exchange Mt. Gox or through intermediaries, and Ehrsam realized there needed to be an easier way to buy and sell crypto.
After meeting Armstrong on the Bitcoin subreddit forum, they started Coinbase in 2012 out of an apartment in San Francisco. Armstrong declined to comment.
Morehead remembered the early days of Coinbase as he was creating the Pantera Bitcoin fund in 2013. He had been an investor for a while, taking huge macro risks on things like Russian privatization and farmland in Argentina, bets with very steep downside potential but that could also pay off enormously if successful.
“I was first attracted to Bitcoin as an investment, it was something really interesting to learn about,” Morehead said. In 2013, however, amassing a large stake in the new digital currency wasn’t easy.
“I sent $2 million to Coinbase, and I started trying to buy $2 million of Bitcoin,” Morehead said. “My daily trading limit was $50.” Pantera has grown into one of the largest holders of cryptocurrencies and has invested in over 50 startups, including Circle, Bakkt, Polychain Capital, Shapeshift and Zcash, according to its website.
In the early days, though, Morehead had to contend with the drugs and criminals narrative that dogged Bitcoin. He went to every major university endowment in 2015 when Bitcoin was at $100 to tell them they should have it in their portfolio.
“The conversation was all Silk Road, drugs, whatever,” he said, referencing the early black-market exchange shut down by U.S. authorities.
That dark element to Bitcoin didn’t deter Wilson at Union Square and DCG’s Silbert, both of whom were series A investors in Coinbase. The company’s shares changed hands in recent private transactions at levels that would value Coinbase at close to $100 billion, a person familiar with the matter have said.
Union Square has focused its cash on about 15 firms in two main areas, infrastructure providers like Protocol Labs and Helium and in other cryptocurrency investment funds like Polychain Capital and Autonomous Partners. Wilson declined to comment.
That’s a far cry from what Silbert has created at DCG. Among its nearly 300 investments and acquisitions it touches upon every part of the cryptomarket. Among them, it has stakes in Etherscan, the block explorer used for the Ethereum blockchain; Coindesk, a crypto news service; Genesis Global Trading, one of the largest over-the-counter crypto dealers and lenders; Chainalysis, a blockchain forensics firm; Decentraland, a virtual world built on Ethereum that sells plots of digital land and has its own cryptocurrency Mana.
Silbert also created the Grayscale Bitcoin Trust in 2013, which is the largest cryptocurrency investment product with assets of about $31 billion. Silbert declined to comment.
A lack of a career on Wall Street helped the Winklevoss twins approach Bitcoin with an open mind, Cameron Winklevoss said.
“Tyler and I didn’t have 20 years of capital markets experience when we came to Bitcoin,” he said. “We were very open to this possibility and that’s how we’ve always been, driven by curiosity.”
The brothers famously battled Mark Zuckerberg over the early fate of Facebook, an experience that left them with lessons about Bitcoin.
“In the early days of Facebook, in watching and being a part of that ride, we saw the power of networks, and so many people dismissing social networks as a fad,” Winklevoss said. Yet he’d watched as 90% of the Harvard University student body signed up for Facebook within 48 hours. When Bitcoin came around, the twins recognized the same forces at play.
“It’s a money network,” Winklevoss said. “What happens when you put an economic incentive around that network? That’s possibly the most effective network in the world.”
For Paradigm’s Ehrsam, the size of Bitcoin and crypto in general has exceeded his wildest dreams. If you’d told him in 2012 that Bitcoin would top $1 trillion as it did at one point last week, “people would think you were absolutely insane,” he said.
“The idea of a new digital money seemed very strange to most people because a new money has never come about in our lifetimes, at least as Americans,” Ehrsam said. “So you’re not used to seeing a phenomenon you’ve never seen before.” That will eventually change.
“It just takes time for a powerful new idea like that to permeate society and build trust in it,” he said.
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