Bitcoin is controlled by a small circle. The secrets revealed by Coinbase's listing

Bloomberg reported that the news that Coinbase Global, the largest Bitcoin exchange in the United States, applied for an IPO revealed to the outside world a small circle of men who dominate the Bitcoin field.

The Bitcoin power list in the U.S. begins with billionaire Brian Armstrong, current Coinbase CEO, and his co-founder Fred Ehrsam, who later founded Paradigm Operations. Union Square Ventures billionaire Fred Wilson and Andreessen Horowitz’s Chris Dixon will be the first venture capitalists to reap the big gains from the exchange’s IPO.

Although Coinbase, the largest U.S. digital asset exchange, saw its verified users surge 34% last year to 43 million, largely due to a more than threefold increase in the price of bitcoin, control of the largest cryptocurrency remains concentrated. According to researcher Flipside Crypto, less than 2% of the anonymous owner accounts that can be traced to the bitcoin blockchain control 95% of digital assets.

Dan Morehead is one of the most influential cryptocurrency holders in the United States. He founded Pantera Capital Management in 2003 and launched the first U.S. cryptocurrency fund in 2013.

Barry Silbert, founder of Digital Currency Group (DCG), has created a business empire that touches every corner of the crypto world.

Brothers Cameron and Tyler Winklevoss first bought Bitcoin in 2012 when it was priced as low as $8, and subsequently co-founded Gemini Trust Co., the first cryptocurrency company regulated as a trust by the State of New York.

Like many in the community, Ersam seemed perfectly suited to the new digital world. He majored in video games in high school, studied computer science at Duke University, and later worked as a foreign exchange trader at Goldman Sachs in New York. However, he grew bored with the bank and while looking for something to interest him outside of work, he discovered Bitcoin through a Georgetown University professor's blog. He was immediately hooked.

“At Goldman, I would literally trade Bitcoin in the bathroom on my phone,” Ehrsam said in an interview. At the time, the price of a single bitcoin was about $6, compared with last week’s record high of $58,000. At the time, the main way to buy cryptocurrencies was on the now-defunct exchange Mt. Gox or through an intermediary, and Ehrsam realized there needed to be an easier way to buy and sell cryptocurrencies.

They started Coinbase in 2012 in a San Francisco apartment after meeting Armstrong on Reddit’s Bitcoin subreddit. Armstrong declined to comment.

Morehead remembers the early days of Coinbase when he founded the Pantera Bitcoin Fund in 2013. He’s been an investor for a while, taking big macro risks like privatizations in Russia and farmland in Argentina, bets with big downside but also big rewards if they work out.

"I was initially attracted to Bitcoin as an investment, and it was something really interesting," Morehead said. However, in 2013, it wasn't easy to accumulate a large reserve in the new digital currency.

“I wired $2 million to Coinbase and started trying to buy $2 million worth of Bitcoin,” Morehead said. “My daily trading limit was $50.”

Pantera has grown to become one of the largest holders of cryptocurrency and has invested in more than 50 startups, including Circle, Bakkt, Polychain Capital, Shapeshift and Zcash, according to its website.

In the early days, though, Morehead had to deal with the drug and crime stories that plagued Bitcoin. In 2015, when the price of Bitcoin hit $100, he went to all the major university endowments and told them they should put Bitcoin in their portfolios.

“We were talking about Silk Road, drugs, that kind of stuff,” he said, referring to the early black market Silk Road that was shut down by U.S. authorities.

Bitcoin’s dark side hasn’t deterred Union Square’s Wilson and DCG’s Silbert, both Series A investors in Coinbase, whose shares will be valued at nearly $100 billion in a recent private transaction, a person familiar with the matter said.

Union Square’s funding is concentrated in about 15 companies in two main areas: infrastructure providers such as Protocol Labs and Helium, and other crypto investment funds such as Polychain Capital and Autonomous Partners.

This is the exact opposite of Digital Currency Group’s Silbert, who has touched every part of the crypto market in nearly 300 investments and acquisitions. Among them, the crypto companies in which it holds stakes include Ethereum blockchain block explorer Etherscan, crypto news service Coindesk, Genesis Global Trading, one of the largest over-the-counter cryptocurrency traders and lenders. There is also blockchain forensics company Chainalysis; Decentraland, a virtual world built on Ethereum that sells digital land and has its own cryptocurrency Mana.

Silbert also founded the Grayscale Bitcoin Trust in 2013, which is the largest cryptocurrency investment product with about $31 billion in assets.

Cameron Winklevoss said the twins approached Bitcoin with an open mind because they had not worked on Wall Street.

“Tyler and I didn’t have 20 years of capital markets experience when we approached Bitcoin,” he said. “We were open to the possibility, the way we always are, driven by curiosity.”

Cameron and Tyler Winklevoss, who graduated from Harvard, accused and sued their former schoolmate, Facebook's Mark Zuckerberg, of stealing their ideas. The battle was detailed in the 2010 hit movie "The Social Network." The experience left them with a lesson about Bitcoin.

"In the early days of Facebook, we saw the power of the Internet by watching and participating in it, and a lot of people thought social networks were just a fad," Winklevoss said.

Yet he saw that 90% of Harvard students signed up for Facebook within 48 hours. When Bitcoin came along, the twins realized the same forces were at work.

“This is a network of money,” Winklevoss said. “What happens if you put economic incentives around this network? This could be the most efficient network in the world.”

Bitcoin 5-year trend

For Paradigm’s Elsam, bitcoin and cryptocurrencies in general have grown larger than his wildest dreams. If you had told him in 2012 that bitcoin would hit $1 trillion, as it did last week, “people would have thought you were absolutely crazy,” he said.

“For most people, the idea of ​​a new digital currency seems very strange because it has never happened in our lifetimes, at least for Americans,” Elsam said. “So you’re not used to seeing something you’ve never seen before. That will eventually change.”

He said, "It just takes time for such a powerful new idea to penetrate society and build trust in society." (The Paper)