Leave it to a Millennial to come up with a way to disrupt
disruption. Olaf Carlson-Wee, 27, was working as head of risk
at Coinbase, a San Franciscobased exchange for buying and
selling digital assets like Bitcoin, when he noticed several
new developments in the nascent
cryptocurrency sector. I thought, As an
investor, how can you best take advantage of these
trends? recalls the founder of hedge fund firm
Over the past year the distributed ledger technology that
powers cryptocurrency transactions specifically, the
ever-growing blockchain database has begun to move far
beyond the Bitcoin digital payment network. Financial
techsavvy entrepreneurs are hitching their digital
payment wagons to several sectors and trying to raise money for
their efforts via cryptocurrency.
Data storage network and electronic currency Filecoin, for
example, allows users to rent out extra space on their
computers for file storage. Tech companies that might
previously have used an initial public offering to raise funds
have begun holding so-called initial crowdfunding offerings,
issuing blockchain tokens instead of stock.
Carlson-Wee aims to capitalize on these shifts with
Polychain, a long-only firm he launched this month to build a
diversified portfolio of blockchain-based cryptocurrency
platforms such as Bitcoin and Ethereum.
I view investing in the blockchain itself as the best
way to take advantage, he says. That way the risk
is not consolidated to an individual person, company or legal
jurisdiction you just bet on an open-source program. Any
individual can go under, but a protocol can continue, as
weve seen with Bitcoin.
Industry observers have warned of the hype surrounding
blockchain technology, and many venture capitalists and
other investors are wary of new currencies whose value is
determined by a small, though growing, market. But Carlson-Wee,
who grew up in Minnesota across the river from Fargo, North
Dakota, is a true believer.
At Vassar College, where he earned a sociology degree in
2011, he wrote his undergraduate thesis on distributed networks
and financial cryptography. After graduation he spent several
years living mostly on Bitcoins until the influx of new
blockchains and distributed ledgers made it complicated. His
salary at Coinbase, where he was the first employee and worked
for three years, was paid in the cryptocurrency; although his
savings are in dollars, he still uses Bitcoins whenever
In addition to his role at the head of Polychain, which has
no employees yet, Carlson-Wee is the managing member of
Cryptographic Financial, a limited partnership in a fund
operated by Numerai, a San Franciscobased hedge fund firm
whose capital is run by artificial intelligence. Richard Craib,
Numerais founder, is a friend of Carlson-Wee and an
investor in Polychain.
So far, much investment in blockchain technology has been
through the currencies built on top of the databases
protocols; Bitcoin and Coinbase are two of the biggest and most
Polychains thesis is that no matter which of the new
technologies including Filecoin; Augur, a decentralized
prediction market built on the blockchain-based computing
platform Ethereum; and blockchain-based social media platform
Steem grow and succeed, betting on blockchain as a whole
will pay off as the phenomenon evolves.
Still, Carlson-Wee has been surprised by the healthy
investor interest in his new firm. Blockchain has been a
buzzword in financial circles for a couple of years, but its
ins and outs are so esoteric that few investors are willing to
put much weight behind strategies like Polychains.
Most of those who have ponied up are the same kind of people
who would use a cryptocurrency: early adopters, many of them
high-net-worth individuals. Carlson-Wee hopes that after
Polychains launch which took place this past
Thursday, with about $5 million the fund will get more
attention from institutional investors that want to take a
position on blockchain.
Carlson-Wee likens the cryptocurrency environment to the
Internet in its early days. If youre betting solely
on Bitcoin right now, its sort of like putting all of
your money into a single Internet company instead of a number
of different companies, knowing the technology will grow
exponentially for many years, he says. The Internet
did grow, and blockchain will too.
Follow Kaitlin Ugolik on Twitter at @kaitlinugolik.