ETHGBP Ethereum

If 2017 saw the rise and fall of the cryptocurrency, it was also the year in which a newly minted class of super-rich emerged — individuals who through impeccable foresight, sheer luck or a combination of the two happened to buy in at the right time.

While most people were struggling to understand what bitcoin was, the cryptocurrency’s value exploded during the second half of the year, followed shortly by surges in the price of Ethereum, Ripple and a host of others.

Amid talk of mania, the 1,000 per cent year-on-year returns produced a clutch of crypto-millionaires and billionaires seemingly overnight. “This has definitely changed my net worth a bit,” says Roger Ver, an early evangelist who has been promoting the cryptocurrency since it was valued at less than $1, earning him the nickname Bitcoin Jesus.

The price of bitcoin fluctuated between $6,000 and $10,000 last month, according to the CoinDesk Bitcoin Price Index, having reached a high of $19,343 in late 2017.

But this group of wealthy individuals extends far beyond the activist cryptographers and anti-central bank types who were instrumental in bitcoin’s development and promotion a decade ago. Newcomers of all stripes have since piled in, from clean-cut mainstream actors such as the Winklevoss twins — who reportedly boast a crypto-fortune of $1.3bn — to corporate executives and teenagers trading in their spare time.

While all may not fully grasp the nuances of the underlying technology, they are drawn to its allure as an alternative to fiat capital and as a new, more accessible asset class.

In 2012, when Erik Finman was 12 years old, he repurposed a $1,000 gift from his grandmother for his university fund to buy 100 bitcoin at roughly $10 each. Three years later, after a dramatic upswing in price, he dropped out of secondary school to trade cryptocurrencies, start a business and ultimately become a millionaire by the time he turned 18 last year.

“It’s definitely a 21st-century millennial, Generation Z kind of story,” he explains, adding that today he spends his time investing, travelling the world and working on a project with Nasa to launch a mini-satellite that will catalogue modern culture for future generations — or other worlds — to discover (like the Voyager Golden Record launched in 1977).

"I still work all day, because I’m excited about the underlying changes this is going to bring to the way societies work"
Roger Ver

Globetrotting lifestyles aside, these holders of crypto-wealth aren’t quick to rest on their laurels. Many hold the sincere belief that the decentralised technologies have the potential to reconcile many of the inequities and institutional failures that they see as having plagued history.

“I still work all day, every day, seven days a week because I’m excited about the underlying changes that this is going to bring to the way societies work worldwide,” says Ver, who splits his time between Japan and the Caribbean island of St Kitts.

He has shifted his focus to promoting bitcoin cash, a new cryptocurrency that spun off bitcoin last August. He argues that it has the capacity to process transactions much faster than bitcoin and is therefore a better candidate to realise the vision of the global decentralised peer-to-peer payment rail laid out in 2008 by Satoshi Nakamoto, the elusive founder of the cryptocurrency.
----
Dan Conway, a self-described “failing executive” at US telecoms group AT&T turned crypto-millionaire, was not trying to get rich as much as he was trying to send a message in 2016 when he invested his net worth in Ethereum — priced below $10 at the time and now worth $1,300.

He saw the cryptocurrency as a disrupter of the modern companies in which he had spent his career miserably climbing the corporate ladder. “I invested because I wanted the underdogs to win for once — losers like me who didn’t make the rules and didn’t have the money,” says Conway, who is in the process of publishing a book about his experiences.

“We aren’t Wall Street traders staring at our Bloomberg terminals trying to make a quick buck. We’d been forced to tweet corporate philanthropy hashtags and we weren’t going to take it any more,” he continues. “We have scores to settle and getting rich is just the first milestone.”


Cryptocurrency mining computers on sale in Hong Kong © Alex Hofford/EPA

But joining the crypto-millionaire class is not always a ticket to a care-free life. As the December 2017 kidnapping of the head of a Ukraine-based bitcoin exchange illustrates, there are risks far beyond a drop in the price of bitcoin. (Pavel Lerner was released after a $1m bitcoin ransom was paid.)

“Those types of things are not so fun,” says Ver, who says he has often been threatened. Indeed, many crypto-holders prefer to remain anonymous. “If I were a crypto-millionaire, the last thing I would want to do is tell you about it,” says one investor.


An advert for the Bananacoin cryptocurrency, which is linked to banana prices © Bloomberg

More prosaically, stories have emerged from the UK of banks, fearful of breaching money-laundering regulations, refusing to accept windfalls from bitcoin investors. Banks need to be able to establish an audit trail to ensure funds they accept are legitimate, but the very nature of cryptocurrencies makes this hard to provide.

Ultimately, though, most investors are worried about the volatility of crypto-markets, where double-digit price swings are a regular occurrence.

Underlying structural and regulatory issues are also a concern. News of clampdowns by authorities — in China and Europe, for example — have regularly caused prices to plummet. A full crash — triggered by market sentiment, if not national regulators — could happen at any moment, Ver warns. “You could have this cascading effect where everybody’s running for the exit, and it could be the death spiral for bitcoin.”

Copyright The Financial Times Limited 2018. All rights reserved.