Sideways: Masters of the bitcoin universe


Jon Macaskill
Published on:

The search is on for masters of the bitcoin universe to rival the bond traders who appalled and fascinated the public in the 1980s.

The Winklevoss twins are the highest profile bitcoin investors, largely because of their role as figures of fun in the movie ‘The Social Network’ about the foundation of Facebook, where they were mockingly known as the Winklevii.

They have become the faces of bitcoin investment because they have a widely known redemption story based on early adoption of the cryptocurrency. The twins – Cameron and Tyler – sued Facebook founder Mark Zuckerberg, claiming that he stole the idea for the social network from a similar system developed when they were at Harvard.

The twins were paid around $65 million, but Zuckerberg remained in full control of Facebook and now has a net worth of over $70 billion.

This left the twins looking like losers in the court of public opinion.

As the twins searched for a comeback, they were early investors in bitcoin and became evangelists for its wider adoption. They seemed to have suffered another setback in March 2017 when their plan for a bitcoin exchange-traded fund was rejected by the SEC. But the recent explosive rise in the value of bitcoin has taken the twins to a theoretical worth of over $1 billion, given that they started buying when it was worth around $120 and claimed to own 1% or more of the total stock of a cryptocurrency that was trading near $20,000 by mid December.

JPMorgan chief executive Jamie Dimon – who has called bitcoin a fraud – is also worth a little over $1 billion, according to a Forbes estimate based on holdings in his bank’s stock.

So the best known adversaries on the value of bitcoin have a similar current net worth that is based on holdings of a single asset. 

Bitcoin seems to have much more current upside potential than JPMorgan stock, as well as an appreciably greater downside. 

It is this volatility that has attracted some financial market veterans to bitcoin trading, and the advent of futures contracts in the cryptocurrency is set to widen the pool of investors.

Agnostic view

Michael Novogratz was an early proponent of taking an agnostic view on the actual value of bitcoin while embracing its volatility. Novogratz had an early career suggestive of a master of the universe prototype designed in a lab. He served in the New Jersey national guard as a helicopter pilot and was captain of the wrestling team at Princeton before honing his trading skills at Goldman Sachs, including a five-year stint in Asia.

He left Goldman to join Fortress before the investment firm went public and was co-head of its hedge fund business. His net worth was estimated at over $1 billion before the 2008 financial crisis but subsequently fell, and he shut down his macro funds and left Fortress in 2015 after a series of poor trades.

Like the Winklevii, Novogratz was undaunted and did not emerge from his dealing reverse as a pauper – he sold his remaining stake in Fortress for $255.6 million when he left the firm.

Novogratz does not maintain that bitcoin will supplant existing currencies or rise indefinitely. He thinks it will see enough liquidity and volatility to generate a profit, however. 

Novogratz has said he started building his bitcoin holding when the price was $90, in anticipation of a bubble forming in the cryptocurrency, so he could easily be back in the billionaires’ club simply on the back of speculation and some adroit promotion on cable TV.

It isn’t hard to provoke Dimon, but the Winklevii went ahead anyway with a recent challenge to the bank CEO to short bitcoin and back his bearish view.

It is safe to say there will be teeth-gnashing at JPMorgan’s Park Avenue headquarters until and unless there is an almighty crash in the value of bitcoin.