23

GOING MAINSTREAM

“It isn’t A1, but it’s above the fold,” Tyler shouted through the open door of his glass walled office at Winklevoss Capital, his voice carrying across to Cameron’s own identical glass-walled office across the hall. “Business section, front page. Everyone on Wall Street is going to be reading this in about twenty minutes.”

Six weeks after the high of Bitcoin 2013, they were back in New York. It was well before seven in the morning and the streets of the Flatiron District hadn’t awakened around them yet. The sound of garbage trucks and street-cleaning vehicles seeped in through the windows onto the newly painted five thousand square feet of office space. Tyler’s copy of the New York Times print edition was spread out on his desk. He knew his brother had his own copy open to the same page, the highly vaunted Business Section. They waited until they were both ready to read the article so that they’d be getting the information at exactly the same time. They knew their dad and mom were at their home in the Hamptons doing the same.

This time, at least, Popper’s headline avoided using the word “Facebook”:

WINKLEVOSS TWINS PLAN FIRST FUND FOR BITCOIN

Tyler knew this was an even more significant announcement than the one that had alerted the world to their massive bitcoin stash. As the article explained, Tyler and his brother had just filed a registration statement for the “Winklevoss Bitcoin Trust” with the U.S. Securities and Exchange Commission (SEC) to create a Bitcoin ETF, an exchange-traded fund, that would allow anyone to purchase bitcoin as easily as they could buy a stock.

“They use the word ‘audacious,’ ” Tyler said.

“I love it when they use SAT vocabulary words. Reminds me of mom and her flash cards: ‘The Winklevoss twins are Audacious. What makes them Audacious?’ ”

If the ETF was approved by regulators, it would make it as simple for anyone to buy bitcoin as it was for them to buy a share of Apple or even Facebook. It would bypass the shadowy process that existed at the moment, like having to go to shady exchanges like Mt. Gox, or, let’s face it, BitInstant, which was not any more reliable under Charlie’s stewardship than it had been before San Jose.

At the moment, buying shares in an ETF was typically the way investors got exposure to commodities and precious metals like gold. The first gold ETF had in fact launched back in 2004, under the ticker symbol GLD. It was an enormous success. By making it easy for people to invest in the metal, it had ushered in unprecedented amounts of liquidity and investor interest, totally transforming the gold market. You no longer needed to go through the trouble of buying a bar of gold, storing it in your safe at home, and worrying if the plumber was going to rob you when you weren’t there. With GLD, all you had to do was call your stockbroker or, better yet, go online to E-Trade, Charles Schwab, or Fidelity, and type these three letters in before pressing the buy button. That’s how simple the Winklevoss twins wanted to make buying bitcoin. Except for the twin’s ETF, the ticker symbol would be four letters instead of three: COIN.

Tyler knew that if COIN ever got through the regulatory hurdles and was approved, it would be a game changer. They would have succeeded in bringing bitcoin to the masses. As the New York Times also pointed out, it was a direct effort to “remove the stigma hovering over Bitcoin” and put it right into the laps of regulators.

The ETF filing wasn’t just going to send a signal to the legacy banking community that Bitcoin was on its way into the mainstream; the filing would also etch a permanent line down the middle of the Bitcoin world, between people like the twins, who knew that Bitcoin’s future had to include regulation, and those who believed Bitcoin was meant to exist apart from Wall Street, the SEC, or any other regulator or government. The Winklevoss Bitcoin Trust was a preemptive strike, meant to end the war before it began.

People were going to notice, both inside and outside of the Bitcoin world. And they were going to react.

“Holy shit,” Cameron yelled from his office. “Forget the paper, look online. This is insane.”

Less than an hour after it had been announced, COIN was going viral.

“We’re trending number two on Yahoo. Guess what’s number three?”

Tyler hit his keyboard, then laughed out loud.

Number three on the Yahoo list, right after their ETF, was a new movie, due to hit the theaters that Independence Day weekend: The Lone Ranger, starring Johnny Depp and Armie Hammer, the latter having played the Winklevoss twins in The Social Network, the movie about their battle with Zuckerberg.

“Says here they spent seventy-five million dollars in marketing and advertising,” Cameron said.

“It shows. Every cab, bus, and train in Manhattan is covered with the movie poster. Even the fountain soda cups in Subway have Tonto and one of the Winklevii on them,” Tyler said.

“That’s insane, we spent zero dollars, and our ETF is beating them by a country mile in Trending.”

How was a financial product—a financial acronym like ETF—something many Americans had never even heard of—melting the internet?

Tyler had no idea how the SEC was going to react to the COIN proposal. Most likely, they would move cautiously, at a snail’s pace, which is to say, the speed of government. Making a virtual currency available to everyone, like a stock, would make Bitcoin as accessible as gold, which was a multi-trillion-dollar market. It would also mean that every bank and wire house on Wall Street would have to adapt, start a bitcoin trading desk, hire virtual currency analysts and compliance officers, and maybe even start their own virtual currency funds. Change like that was going to take time, it wasn’t going to happen overnight.

But the twins had taken the first step. And for them, the timing couldn’t have been better.

The glow of Bitcoin 2013 had faded. Charlie’s promise to buckle down, put his blinders on, and be the corporate leader BitInstant needed, hadn’t stuck. He had snapped back into his old ways, traveling all over the place to promote what could only be described as his personal brand, while BitInstant was plagued by myriad issues, including delays of service and the threat of losing its relationship with Obopay. After speaking to their lawyers, Tyler wasn’t even sure that BitInstant was still compliant with U.S. money transmission laws, and it was growing more and more clear that if Charlie didn’t get ahold of things, the company wasn’t going to last much longer.

Worse yet, the company wasn’t profitable. In fact, it had eaten through most of the twins’ investment, including a last-minute $500,000 bridge loan they’d given Charlie a few months ago. Giving Charlie $500k, on top of everything else they’d already invested, now seemed to be the definition of “good money chasing after bad.” But Charlie had begged for the money, telling them at the time that it was needed immediately in order to secure the company’s account at Mt. Gox after BitInstant’s bank had let them down. The twins had reluctantly wired him the money. It had seemed like the best of two terrible options—the other being the immediate death of BitInstant.

The $500k loan was meant to be temporary, for a few weeks at most. However, after a few weeks, when they’d asked Charlie to wire back the money, he had been evasive, telling them that the company didn’t have it at the moment but would have it soon. It had gotten to the point where it was pretty obvious that Charlie was again outright dodging their calls, texts, and emails.

Cameron had hoped that Charlie was going to be able to grow past the resignations of Erik and Ira, but it now appeared like the reverse had happened. Even when Charlie was in New York, he wasn’t at BitInstant; he was the CEO of his corner table at EVR, entertaining his legions of Bitcoin fanboys.

Whatever confidence they’d had in Charlie was dwindling by the day. Filing the ETF felt like a rebirth. If Charlie couldn’t change, they would have to move beyond BitInstant for good; and even if he somehow could change, well, there was a good chance it was already too late.

• I will be in the office every day from 9-6 Monday through Friday unless it’s essential BitInstant business (like bank visits)

• I won’t leave NY for the next month—I’ll be focused and at the office

• I won’t talk to any press or reporters in person, over the phone or via email

• My time will be focused on fixing immediate problems (sourcing technology leadership and other star team members to fill the gaps and get things done)

• I will provide regular updates about the status of things (good and bad)

Charlie hunched forward over his computer keyboard in BitInstant’s new offices, blocks from its original headquarters. It wasn’t SoHo, but it wasn’t Brooklyn either; the place had enough room for thirty employees, natural light streaming through multiple windows, and the electricity worked—for the moment. Two weeks into their new digs, even Charlie, the ultimate optimist, was wondering how long they’d be able to continue to afford to keep the lights on.

“You think it will be enough?” Courtney asked, from over his shoulder.

Her shift at EVR wouldn’t begin for another hour, and it wasn’t uncommon for her to stop by Charlie’s office before work. Over the past three days, Charlie had basically been living at BitInstant. He’d only gone back to the apartment above EVR to shower and to get away for a minute from the electronic hell he was now facing on a day-to-day basis at work.

It had all come to a head over the Fourth of July weekend, during a frantic conference call with his team of lawyers. All of those things that had kept him busy since Bitcoin 2013—servers getting overloaded with traffic, website issues, bugs in the codebase—paled in comparison to what his lawyers were telling him now: Obopay was officially gone as a partner, and BitInstant could no longer continue operating until it addressed its licensing issues. Though the current money transmission laws had not been designed for the Bitcoin economy, and might not apply, which meant not having licenses might be okay, Charlie’s lawyers had cautioned him otherwise. They believed it was too dangerous for BitInstant to continue doing business now that Obopay was no longer providing them with licensing.

Charlie felt certain this was not an insurmountable problem. Given time, he could find a new licensing partner. Or perhaps he and BitInstant could go out and get licenses in each state themselves.

But first, he also had a more personal issue.

“I think I’m being as honest as I can be. I’m here and ready to work.”

No more partying, no more late nights, no more travel. Focus. That’s what he was promising the twins, and that’s what he was going to provide. If they only gave him the time, he could fix BitInstant.

Of course, he’d have to listen to the lawyers and shut the site down for now as he dealt with the licensing issues. It wasn’t something he was going to mention in the email he was writing; he knew how poorly that would go over. Telling them that the site had to be shut down, even temporarily, was going to set them off. He didn’t want that to happen.

Charlie wasn’t naive enough to believe that this email was anything more than a stopgap. But right now, he desperately needed any time he could get. Even a Band-Aid would do. The twins had been breathing down his neck, so he had to respond with something.

They were probably already in a less-than-agreeable mood. When the twins had first filed their ETF just days earlier, Charlie had been thrilled by the amount of positive attention it had been getting. But that morning, as he’d looked through the new round of articles, he’d noticed that the tone of the follow-up pieces was decidedly different. The optimism and excitement had suddenly morphed into something else: a digital cacophony of ridicule, contempt, and abuse. The mostly positive reception, evidenced by the original New York Times article, had been overwhelmed by a fresh round of negativity coming from the Silicon Valley establishment.

Charlie had browsed through the articles, stopping on the ones that seemed most prominent. First, there was Michael Moritz, the famed head of Sequoia Capital, one of the biggest and most famous VC firms in Silicon Valley and an early backer of Google. Speaking sarcastically to CNET, Moritz had said, “You know when the Winklevosses get into the business, it’s serious.”

Felix Salmon, a financial journalist, writing for Reuters:

To be clear: this thing is a really, really silly idea, from a pair of brothers whose main ambition, these days, is to be the biggest helminths in the bitcoinverse. The Winklevii, muscling in to the financial-innovation game, are being much more selfish about the whole thing. They’re going to fail; I just hope they don’t cause too much harm to others in doing so.

Bill Borden, a senior vice president at UBS:

When I read the headlines my initial reaction was to chuckle … while I find developments in the Bitcoin story to be intriguing, I doubt that the Winklevoss ETF would be how I would play it should I ever decide to buy Bitcoin.

Reginald Browne, a managing director of Cantor Fitzgerald, widely known as the godfather of ETFs:

The Bitcoin ETF idea is so far-fetched that SEC approval, if it comes, could take years. I think it’s a riot.

And for the encore, economist and New York Times columnist Paul Krugman had written an op-ed titled “Bitcoin Is Evil,” after previously calling it the “Antisocial Network.”

The pundits had all shown themselves to be either against the Winklevoss twins, Bitcoin, or both. In retrospect, the negativity wasn’t surprising. Big ideas were scary, little ones were not. The ETF was a big idea, a challenge to the status quo. Even the Silicon Valley elites like Moritz had a failure of imagination when it came to anything outside of the framework they knew.

With the ETF, the twins were challenging the legacy banking world right where it lived. No matter how well the twins dressed it up, it was still all about Bitcoin, a barely four-year-old digital currency.

Charlie knew exactly what the legacy banking world really thought of Bitcoin. BitInstant was hanging by a thread—despite huge demand, loyal customers, fanatical fans—precisely because the legacy banking world wasn’t ready to embrace the digital coin.

That’s what Charlie needed the twins to understand. He, and they, were fighting the same fight. Sure, maybe he hadn’t been the best soldier. Though he’d tried to put on a good face after the resignations of Voorhees and Ira, the loss of his brain trust had knocked the wind out of him. He knew that his friends had done fine since they’d left. Voorhees was eclipsing all of them; he’d recently sold his side project, SatoshiDice, for a whopping 126,315 bitcoin, which at the time of the sale, was valued at around eleven and a half million dollars.

But without Voorhees and Ira, BitInstant hadn’t felt like home. Even Ver seemed to have moved his focus to other investments, and Charlie couldn’t really blame him. It had been Charlie’s idea to go with the twins in the first place, and if BitInstant didn’t get through its current problems, it would be on Charlie’s head alone.

Reading over his email one last time, Charlie knew that ultimately his pleas, no matter how heartfelt, would not be enough; he would need to produce. But he did truly believe that all he really needed was more time. Everyone knew that Bitcoin was volatile. One day, it could dip toward a soul-crushing abyss. The next day, it could soar just as high. Like entrepreneurship itself, the twists and turns of the price were not for the faint of heart. Catch it on the way down, you could lose your shirt. But if you could handle the abyss long enough, if you could hang on through the dark times, maybe you’d get the chance to catch it again, on the way back up.

Charlie gave Courtney his most confident smile, then hit send.