SAN FRANCISCO-Olaf Carlson-Wee has amassed the ups and downs of a hedge fund career in about a year, all before his thirtieth birthday.
He turned $ 14.52 into a personal fortune of $ 150 million going all-in on cryptocurrencies just before bitcoin became a household name. Its fund, Polychain Capital, has earned investors including Silicon Valley heavyweight Andreessen Horowitz last year with an incredible 2,303% after tax – among the best performances for a billion dollar investment company in history – comparing Wall Street traders like John Paulson and George Soros.
Now, Mr. Carlson-Wee has to prove that it's not a single-blow marvel. It's not going well.
Polychain has lost about 40% of the 800 million dollars it has made to its customers last year through a combination of losses and withdrawals of investment from some of its early investors. Some supporters complain that Mr. Carlson-Wee refuses to change tactics despite a large retreat from the crypt. Mr. Carlson-Wee has grossed a large piece of his personal raid in the fund months ago.
The prominent venture capital company Union Square Ventures has ripped some of its money, while others have fallen privately with the company. An investor is suing, suspecting he was underpaid when he moved to redeem his investment. The lawyers of Polychain and Carlson-Wee deny it.
The crypto-fever, meanwhile, has been broken. After capturing the investment world in 2017, bitcoin, the best-known mushroom collection of so-called digital resources, is down 55% this year. It recently traded for $ 6,301, down from the peak of nearly $ 19,280 in December.
"How lucky is it, how much of skill and how much of luck is masked?" Asks Fred Ehrsam, one of Polychain's first investors, who is now starting his own fund.
At the center of the vortex is Mr. Carlson-Wee, a Silicon Valley star wearing neon overalls, has five earrings, and regularly only eats a plate of fried beans, garlic, and cheese for dinner. It is treated as an oracle by aspiring cryptocurrant magnates who kill him in public.
In interviews, he compared his relationship with cryptocurrency to romantic love and compared the current investment opportunity at the dawn of the Internet.
Through each downward decline, he continued to buy, particularly holdings in companies linked to bitcoin rivals such as the cryptocurrency ether. He manages the $ 650 million fund of Polychain, the world's largest crypto, from an Apple laptop surrounded by vintage boxes to secret and secret San Francisco offices.
"I want to emphasize how much time I've done this," says Mr. Carlson-Wee, who turned 29 last month. "This is just like breathing in and out for me."
This account of the contingencies and subsequent struggles of Polychain and Mr. Carlson-Wee is based on multiple interviews with people close to the firm, as well as audits and other investor documents reviewed by the Journal.
Jason Henry for The Wall Street Journal
Mr. Carlson-Wee's road to high stakes investment began in Minnesota, in the suburbs of Fargo, in the north, where his parents were Lutheran pastors. In high school, Mr. Carlson-Wee wrote a SAT tutoring program in his spare time. He said he had few friends; his classmates voted him "the most unique".
At Vassar College, he graduated in sociology and against the advice of his professors wrote a high-level dissertation on a virtually unknown digital currency called bitcoin.
Bitcoin is software that allows people to exchange value directly, without any government intermediary, essentially functioning as a digital form of money. It was created in 2008 by a person or people under the pseudonym Satoshi Nakamoto.
After graduating in 2012, Mr. Carlson-Wee became the first employee of Coinbase, a nascent cryptocurrency scholarship. Until the morning of the interview, he had only a pair of pants: jeans covered with sap from a short period as a lumberjack. A fool worked like a belt. His initial salary of $ 50,000 was paid in bitcoins.
In July 2016, Mr. Carlson-Wee resigned to start one of the first encryption funds from an apartment he shared with seven roommates in the gritty Mission District of San Francisco.
With a mullet, a large collection of vintage windbreakers and the tendency to speak extemporaneously on esoteric subjects, Mr. Carlson-Wee reminded some investors of the character of "Back to the Future" of the years. ; 80 Marty McFly.
The field worked: in December 2016, Union Square Ventures decided to invest in the young company with a valuation of $ 5 million, a steep price considering that its total assets under management was more or less the same.
Venture capitalist Ramtin Naimi simultaneously took a stake in Polacain, and later brought Mr. Carlson-Wee out for lunch. During the toast to the avocado, he asked the director how the great polichina could grow.
"Fifty million dollars is a big goal," said Carlson-Wee. A few months later, Mr. Naimi repeated the same question. "I think $ 400 million is really the right number," said Mr. Carlson-Wee.
The polichina was growing rapidly because the cryptocurrency was suddenly mainstream. Hundreds if not thousands of startups were forming to use the blockchain, the software that supports bitcoins. It is said that the blockchain is able to help airlines to track flights, banks to settle accounts and foodstuffs, among other uses.
New and uninterrupted cryptocurrencies sprout rapidly through the so-called initial offerings of coins that could raise hundreds of millions of dollars in an instant. The creators of some coins gave them to Polychain, Mr. Carlson-Wee and other early supporters, hoping for the approval imprimatur. Later the polichina would sell some for profit.
Mr. Carlson-Wee spent hours every day at his computer, occasionally answering strangers on social media sites like Reddit, encouraging them to buy bitcoins and the like. Other big Silicon Valley names were starting to invest in the fund, including Sequoia Capital, Bain Capital Ventures and the founding fund of Peter Thiel, all eager to get access and view the crypto phenomenon.
Around the summer of 2017, Polychain annoyed some of its earliest investors, including friends who had invested months before little more than faith, when they asked everyone to invest hundreds of thousands of dollars more. Some did not have the money and were forced out. Carlson-Wee states that the move was requested because Polychain made changes to accommodate larger investors and that only a small number of Polychain supporters were affected.
A Bumpy Ride
The world's largest cryptographic fund, Polychain Capital, has experienced strong fluctuations.
Mr. Carlson-Wee was becoming wary of former allies. He raged against an initial supporter, the San Francisco-based company Pantera Capital, which started a competing cryptic fund while it still had access to Polychain's commercial information. Mr. Carlson-Wee blocked Pantera from receiving updates on Polychain and threatened to force them and other initial investors to sell their holdings, before retiring under the promise of a prolonged legal battle.
In a statement, Pantera said that "it denies having misused any of Polychain's confidential information or otherwise violated any obligation to Polychain".
In early November, Mr. Carlson-Wee paid about a dozen employees to fly to an oceanfront resort in Cancún. The encrypted market was sky-high and everyone was relaxed, the participants say; one afternoon, some members of the group jumped an iPhone back and forth across the pool while discussing whether the device was waterproof. A few minutes later, the phone sank and was ruined.
Mr. Carlson-Wee blames a friend, Richard Craib, for the broken phone.
Mr. Craib was among the first investors to think again. He had invented his own coin, nicknamed Numeraire, which for a short time made it rich on paper, like the investors, including Polychain, who made an offer. Polchain later sold some numbers, depressing the value of Mr. Craib's property. Shortly after Craib redeemed his investment in Polychain funds, for what he said were independent reasons.
Union Square Ventures, one of the first supporters of Polychain, also discussed its investment. The polichina was accumulating millions of gains, but only on paper, and the digital currency was volatile.
Jason Henry for The Wall Street Journal
During a panel discussion at Union Square's annual investor meeting in November, a participant asked about the company's ideas on Polychain. "Oh, Olaf," Union Square partner Albert Wenger replied, inserting a prolonged pause, according to one participant. "He's a little gunman."
Union Square co-founder, Fred Wilson, says he does not remember Mr. Wenger making such a comment and says that the company still has faith in the Polyclinic. Still, Union Square decided to pull some of its money into Policlin at the end of last year, he says, in an attempt to "de-risk the investment". He says that Mr. Carlson-Wee is "an eccentric type" who "composes his own mind and calculates things in his own head".
Mr. Carlson-Wee is not bothered by bitcoin daily churns. On a recent afternoon of the week, he left his cell phone in his dusty, black Cadillac Escalade for a 90-minute technology-free hike on the site of an ancient volcanic crater in the hills of Oakland, California.
Between digressions on movie trailers (he will not watch them, fearing spoilers) and capitalism (in a natural decline, but not imminent), he talked about how he does not consider himself a trader.
"One thing I want to emphasize is that as a trader, when something doubles, you sell half or something," he says, making quotes on the word "trader". At the Polychain, he says, "We don" t trade. We move positions. "
Carlson-Wee describes his approach as "long-term investment based on the thesis". This philosophy, shared by blue-chip technology investors like Andreessen Horowitz, is that cryptocurrency is only part of a larger up-down of the digital world. Most existing online entities, from dating applications to corporate cloud computing, will be replaced by a less expensive and decentralized infrastructure, the blockchain.
The question for evangelists is which of the hundreds of competing blockchain platforms will reach widespread adoption. Last year, Mr. Carlson-Wee was betting largely that his favorite platform, Ethereum, would win; more than a quarter of the main fund of Polychain has been invested in Ethereum, according to its most recent audit.
Ethereum is down 74% this year and Polychain's main portfolio is down about 31% until the end of July, the latest data available. In the communications of this year with investors, the company has defended its performance as better than the encrypted market in general.
Investors in the fund credit a shift from assets such as Ethereum to less liquid and more stable holdings in cryptographic companies internationally. This is a less volatile bet, but more difficult to obtain in the event of a prolonged decline.
From the beginning of the year, Polychain has blocked investors from redeeming their money immediately, instead of investing in a so-called side pocket that now makes up more than half of the fund. This means that investors can not cash out completely, even if they wish.
"If the cryptocurrencies go to zero, let's go to zero," said Mr. Carlson-Wee. "I do not think anyone is mistaken that this is not the case."
Mr. Carlson-Wee is rich in both ways. Unlike many companies that hold illiquid assets that are only paid when they sell investments, Polychain's main fund takes its taxes each year on paper earnings. Mr. Carlson-Wee started last year with only $ 14.502 in the fund, and turned it into $ 150 million in taxes. It grossed $ 60 million, a move that raised concerns among investors about its commitment to its fund.
He says he put aside money for the family, and later invested more in company funds.
"This model will not last," says Jingcha investor Polychain. Polychain is now raising new funds that will not charge fees until they make money.
Carlson-Wee and Polychain face a lawsuit filed in March by an early investor, professional poker player Harry Greenhouse. In court, Mr. Greenhouse says he asked for his money back at the end of last year and was partly repaid "at cost", or for the price originally paid, as opposed to what he could be sold for. He says that Polychain will not explain in detail how they have valued his investment, and he suspects it has been underpaid.
The question is in arbitration.
Mr. Carlson-Wee is now straddling the crypt and the krypton king. He has reduced the time spent on online bulletin boards for 15 minutes a day, from an hour or more in past years, to spend more time on the bottom. He recently cut his mullet because being known for such idiosyncrasies reminded him of "something that a hedge fund manager would do".
He moved the company to new offices in a converted warehouse. The address of San Francisco listed in Polychain's public documents is a fake, designed to fool potential hackers and kidnappers who have targeted other cryptographic merchants.
"It will be such an epic adventure anyway," said Mr. Carlson-Wee, smiling. "Kind, if this whole thing had collapsed, it would be crazy, you know?"
Write to Rob Copeland at [email protected]