Barry Silbert, the founder of Digital Currency Group, is far from crypto’s most colorful executive.
(Bloomberg) — Barry Silbert, the founder of Digital Currency Group, is far from crypto’s most colorful executive.
In an industry rife with billionaire impresarios, die-hard evangelists and outright fraudsters, the 46-year-old chief executive has the look and bearing of a middle manager at a regional bank. His inoffensive demeanor — and relatively long tenure in Bitcoin — served him well as he drew funding from companies like SoftBank and built a sprawling web of businesses that touch virtually every corner of cryptocurrency.
That reach put him at the center of a storm battering crypto lenders like DCG’s Genesis Global Capital — with bad loans, runs on deposits and growing mistrust threatening to send the loosely regulated industry into its own version of Wall Street’s 2008 credit crisis.
The turmoil has left Silbert locked in an escalating battle with Gemini crypto exchange co-founder Cameron Winklevoss, whose customers have lost access to $900 million of funds that were placed with Genesis. US authorities are said to be investigating DCG’s web of internal financial dealings. And Genesis has warned that it may file for bankruptcy if it can’t raise needed cash.
Even DCG’s Grayscale Bitcoin Trust, the world’s largest crypto fund, has been trading at a deep discount to the amount of cryptocurrency it holds, vexing its shareholders.
The struggles mark an about-face for Silbert, a former investment banker who worked on Enron’s bankruptcy. His push into crypto left him with a personal fortune once estimated at $3 billion. As the crypto boom gathered force, he aspired to turn DCG into a conglomerate akin to Standard Oil that would dominate the world of digital currencies.
The downturn, however, has caused his net worth to tumble to less than $700 million, according to the Bloomberg Billionaires Index. And Silbert, an entrepreneur who built a career in opaque markets, is now contending with a crisis of confidence among investors suddenly panicking about risks they may not see.
A Difficult Year
In a letter to DCG shareholders Tuesday, Silbert sought to allay such concerns.
“This past year has been the most difficult of my life – both personally and professionally,” he wrote. “It has been challenging to have my integrity and good intentions questioned after spending a decade pouring everything into this company and the space with an unrelenting focus on doing things the right way.”
At the heart of Stamford, Connecticut-based DCG’s recent trouble is Gemini Earn, a product offered through the Winklevoss twins’ crypto company in partnership with Genesis.
With a simple name and premise, it offered crypto investors a tantalizing opportunity: Park your virtual coins and earn as much as 8%. It was the type of return that particularly appealed in an era of rock-bottom interest rates, when traditional savings accounts yielded almost nothing. Business boomed.
Yet even during crypto’s peak, doubts spread about how Genesis could deliver such high returns. One prospective business partner, who requested anonymity because the talks were private, said Genesis failed to answer a series of questions, including a request for the names of its banking partners and its financial statements.
Such questions now seem prescient. In November, after the swift collapse of FTX sent shockwaves through the crypto market, Genesis abruptly halted withdrawals. Some 340,000 Gemini users were unable to access about $900 million of funds.
Since then, Gemini’s Cameron Winklevoss has waged an increasingly public fight with Silbert. On Tuesday, he called on DCG’s board to oust the CEO, alleging he defrauded Gemini customers and lied about its support of Genesis after the downfall of hedge fund Three Arrows Capital, one of the first high-profile casualties of the crypto crash.
In an emailed statement, DCG spokesperson Amanda Cowie called the request to the board a “desperate and unconstructive publicity stunt from Cameron Winklevoss to deflect blame from himself and Gemini, who are solely responsible for operating Gemini Earn and marketing the program to its customers,” adding that the allegations were “malicious, false, and defamatory.”
Silbert said in his letter that DCG hasn’t been commingling cash from its businesses and that the company is unaware of any investigation into it by federal prosecutors in New York, as was previously reported by Bloomberg.
Silbert has experience with companies in crisis. After graduating from Emory University during the dot-com bubble in 1998, Silbert started his career as an investment banker at Houlihan Lokey Inc., where he worked on bankruptcies of Enron and WorldCom.
The work helped spark his idea for SecondMarket, a marketplace he founded for difficult-to-trade assets. SecondMarket carved a niche brokering trading in shares of companies that hadn’t yet gone public, such as Facebook and Twitter. That part of the business was sold to Nasdaq in 2015.
“He was ahead of the curve, identifying opportunities, but we always moved to create black-and-white rules around things that were grey,” said Annemarie Tierney, founder of Liquid Advisors, who was SecondMarket’s general counsel and worked with Silbert for nearly five years.
While running SecondMarket, Silbert liked to describe it to investors as a technology company engaged in projects like building a sophisticated piece of exchange technology called a matching engine, according to a person familiar with the matter, even though it relied heavily on the telephone-based techniques long used on Wall Street.
Former colleagues described Silbert as an entrepreneur with a knack for sniffing out trends before they erupted to the surface. In 2012, he invested in a small Wisconsin-based company called Murfie, which stored people’s CD and vinyl collections and uploaded their music virtually, at a time when music streaming was nascent.
“He really understood things from a founder’s perspective,” said Matt Younkle, Murfie’s former CEO. “He was knowledgeable, well-connected, and always available to provide advice.”
That same year, a more cutting-edge technology caught Silbert’s eye: Bitcoin. He bought his first token, without telling his wife, according to an interview with the New York Stock Exchange. He founded DCG in 2015.
‘Just Go Long’
Like other early adopters, he was staunchly bullish. In an interview with Fortune Magazine, Silbert described DCG’s strategy for investing in digital assets: “We don’t trade, we don’t use leverage, we don’t short. We just go long.”
DCG went on to control several crypto companies and back over 200 blockchain-related businesses globally. Its investments helped legitimize digital currencies as a credible asset class for millions of investors.
DCG also owns CoinDesk, a news site whose revelations about Sam Bankman-Fried’s crypto empire helped trigger his demise. Genesis had been one of the largest lenders for institutional investors, dishing out $130.6 billion in loans in 2021. Now its fate appears uncertain.
As Silbert’s influence and fortune ballooned, he kept a lower public profile than some of his peers, shunning his earlier penchant for media appearances that earned him the nickname Barry “Shillbert.”
The crypto downturn of 2022 has thrust him back into the limelight. It has also resurfaced some familiar figures.
Houlihan Lokey, the investment bank where Silbert began his career, has been working with Gemini. Its mission: Recover funds stuck in limbo at Genesis.
–With assistance from Tom Maloney and Anna Irrera.
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