Digital currency group adds new advisors and shifts away from bitcoin
That is a lot of money, making ICOs large in terms of their sheer dollar-scale. Following the money is their jam. As with any boom, there are bad actors to be found in the land of ICOs.
In the world of ICOs, fraud is never hard to find. Add in regular sums of incompetence that any new venture could fall prey to, and ICOs feel a bit Old West. There is an argument to be made that a dearth of regulatory oversight is actually good, as it allows the ICO market to iterate and innovate quickly. Is there a chance that ICOs will slow? Of course, but the forces behind them run a bit deeper than we might have first guessed.
If it is fueling the ICO craze, we could be in for a long cycle. That ICOs would eventually get ahead of themselves and bubble like so many young technology niches was predicted at least since last October. The cryptocurrency market is hot once again. Should you buy into an ICO? Only if you have a massive appetite for risk, zero fear of losing your capital and are willing to take a flying chance on an idea that could flop. He invested his bar mitzvah money in stocks.
As a high school junior, he landed a part-time job at a Washington brokerage firm. Sensing his interest in the markets, the portfolio managers and traders there encouraged him to take the six-hour, question General Securities Representative Exam, which would qualify him to be a stockbroker. If he passed, he would be granted a Series 7, or General Securities license, allowing him to buy and sell stocks, options and all other types of securities.
Silbert took the test at age 17, becoming one of the youngest people ever to pass. In his second year, he was adopted into the financial restructuring division — with the dot-com bubble just about to burst.
The years to were "the boom years of the bust," fat years for the restructuring division of Houlihan Lokey, Silbert said. He was promoted from analyst to associate, and worked on some of the decade's headlining bankruptcies, including Enron and WorldCom. But then the pool of clients began to dry up, even as competition for their business grew fiercer.
And Silbert had become bored with the work. He wanted a change. The simple phone brokerage aimed to make a market for investors with assets they were having trouble unloading through traditional means. His first target was restricted stock in public companies, sales of which had to be kept private in accordance with Securities and Exchange Commission regulations. It was a huge opportunity. He asked whether the firm would like to invest in Restricted Stock Partners. Werbalowsky considered the business plan risky and passed, but was struck by the young former associate's entrepreneurial zeal.
That was our marketplace. The business grew rapidly, surviving the death of Silbert's business partner, Brad Monks, from cancer in , and launching an electronic trading platform. One of the early investors was Lawrence Lenihan, managing director of FirstMark Capital, who now sits on DCG's board of directors and investment committee. Lenihan's first impression of Silbert was that "he looked like he was about 12 years old.
As the financial crisis deepened, SecondMarket expanded into new asset classes: It was a tough time for the established players, but for SecondMarket it was a bonanza. Trillions of dollars of assets had turned illiquid during the meltdown. Hearing what her husband intended to do for auction-rate securities, Lori Silbert asked, "Do you even know what they are? That was how Silbert got into buying and selling stock in private companies, making a market for early investors and employee shareholders who wanted to liquidate their stake in hot startups.
Facebook was a popular one, as was the video game maker Zynga. In the world of startups, early employees often take a deep pay cut in exchange for a stake in the company. There had never been an organized market for turning these shares into cash, but now, suddenly, there was. It was SecondMarket's platform for these sales — known as liquidity events — that eventually attracted Nasdaq's interest. It was now the world's largest centralized exchange for a wide variety of illiquid assets.
But then SecondMarket went through a lean season. As the financial sector recovered from panic and the national economy began dragging itself slowly out of the doldrums of recession, secondary trading in many of the exotic financial products that had fueled SecondMarket's success began drying up. Meanwhile, the mania for over-the-counter sales of private-company stock was temporarily dwindling.
SecondMarket was forced to close its offices in Israel and Hong Kong and move its headquarters out of the financial district. The company's New York workforce shrank by nearly two-thirds. Silbert began buying bitcoins in the summer of Initially he kept quiet about his stake in the digital currency, worried it would damage his reputation if word got around.
Even his wife was in the dark at first. But gradually he became convinced that its technology could change the world and, consequently, that it was a spectacular long-term investment.
At first, the process of acquiring the digital currency — going through an unlicensed online exchange whose office was in Japan — made him nervous. Gox, be scared shitless that I was never going to see it again," he said. Once he'd bought his first batch of bitcoins, though, he didn't wait long to buy more. He had caught the bug. Initially bitcoin was simply his hedge against what he sees as a dangerously overleveraged world. After spending his early twenties helping to liquidate failed companies, he then built SecondMarket on the bones of Wall Street's failures, its toxic assets, bad debt repackaged as good debt, on other men's missed opportunities.
By the time he heard about bitcoin, he felt a little like Noah in his ark, looking out on a world awash in debt. But economically it just kind of made sense. At one time he had been something of a gold bug, but no longer. Too many governments were stockpiling gold as a backstop to their economies. Gold had history on its side, but eventually Silbert came to see bitcoin as a far more secure investment than precious metals. While others were debating whether digital currency met the textbook definition of money, Silbert saw that bitcoin was a triple threat to established markets, because it could function as a store of value, like gold; as a method of payment for online commerce, like credit cards or PayPal; and as a global transaction network, like Western Union or MoneyGram.
What if bitcoin were to claim even a small percentage of any of these markets, never mind all three? The value of bitcoin relative to the dollar, he thought, had the potential to increase by 50 or even times. You had the money, why didn't you do it? In the summer of , the entire staff of SecondMarket, more than 50 employees, gathered in the rec space on the top floor of their building in the Chelsea neighborhood of Manhattan. A kind of loft with hardwood floors, it was kept stocked with snacks and drinks and served as the event space for twice-monthly "town halls" — loosely structured meetings at which employees were encouraged to speak up and ask questions.
Most of them knew next to nothing about bitcoin. Their CEO, dressed summer casual, his short blond hair combed forward in a youthful style, gave a PowerPoint presentation. He had briefed his senior leadership team ahead of time, but he knew what he was about to say would come as a surprise to the rest of his staff. He introduced the concept of bitcoin, giving an overview of its innovative features — its immunity to counterfeiting and double spending — before taking a stab at evaluating its potential for their business.
He compared it to gold, to major fiat currencies. If bitcoin could capture just a fraction of that wealth, its value would skyrocket. The fund he was creating would enable investors to get in on the action without taking any of the risks or hassles of sourcing, storing and securing the bitcoins for themselves.
But Silbert also gave a few words of caution. There was no guarantee that bitcoin would survive, and that made his new direction for the company a risky one. Despite the potential, "there is a real chance that it will go to zero and this was a passing fad. Throughout the presentation, however, Silbert made no attempt to hide his enthusiasm.
And he had another surprise. To familiarize his staff with the digital currency, he was going to give each of them, out of his personal hoard, two bitcoins — one to save and one to spend. At that point, most of them had heard Silbert talk about bitcoin, but very few understood what it was. If you could have measured employees' attitudes as they filed out of the meeting, they would have presented as a bell curve — a small number of people totally on board with their CEO's plan, a small group of skeptics at the other end, and the majority in between, excited by the prospects but still harboring various doubts.
Silbert wasn't just planning to provide a market for bitcoin trading, as he had done with other alternative investments; he was creating a bitcoin fund.
If investors didn't buy in, he would be in trouble. SecondMarket could survive, because it was doing brisk business arranging stock sales for private companies, but he would have to lay off most of his traders.
The secondary market for auction-rate securities was becoming a desert, and pretty soon, if his trading team wasn't trading bitcoin — mainly, at first, sourcing it for investors in the new fund — it wouldn't have much of anything to trade. He'd also have to fire legal and technical staff who were focused on the intricacies of bitcoin.
A failure of the BIT would mean cuts across the board. He was also putting a lot of company money on the line. Silbert's plan was to kick-start the fund with about two-thirds of the company stash; the remaining money would be kept on SecondMarket's balance sheet. The trust would provide same-day settlement of orders.