Olaf Carlson-Wee, the first employee at venture-backed bitcoin exchange Coinbase, has departed as head of risk and product manager to focus on a new digital currency hedge fund, dubbed Polychain Capital.
While the firm does not yet have investors or even its own website, Carlson-Wee believes that his vision for Polychain Capital will be enough to turn it into one that generates significant returns for those who invest, given that the fund plans to invest solely in cryptocurrencies and other blockchain-based tokens.
In interview, Carlson-Wee asserted that, owing to the poor returns shown by VCs so far in the industry, investors are better off investing in bitcoin, ethereum, steem, as well as projects like The DAO.
Carlson-Wee told CoinDesk:
"Most of the hackers I know have made 50x returns and they’re not VCs. I think we’re entering a new model, where people who will be rewarded are the token holders themselves. You’re supporting the protocol, not a company."
That said, Carlson-Wee believes he’s identified three reasons why large investors aren’t already active in digital currency markets.
For one, he noted that it’s a difficult and financially dangerous process, given that they trade on rapidly changing markets that are open for business 24 hours a day. Sometimes, he said, large investors simply can’t jump into the fray due to legal reasons.
"If you’re a VC fund, and if you have limited partners, you can’t buy cryptocurrencies, and its difficult to keep on what’s going on. You find out by forum announcements and have to participate in some weird pre-sales," he said.
The solution, according to Carlson-Wee, is that Polychain Capital will create an actively managed portfolio of blockchain-based assets, something he argued makes sense for investors who believe broadly in blockchain, beyond simply the major digital currencies.
“If you invest into the hedge fund, you’re getting access to this tech, but you’re diversified across risk. No matter which tech emerges, I’m capturing gains the whole way.”
Founded in 2012, Coinbase is one of the largest and earliest bitcoin startups, having raised $117m in venture capital across five funding rounds. So, why leave Coinbase? After three-and-a-half years, Carlson-Wee said he was ready for a change.
Carlson-Wee said that he prefers to work in a small environment, and that he, perhaps, doesn’t function best in places with “protocols and people and communication”.
“I think, fundamentally, I do better in a very small entrepreneurial environment,” he said.
To start, Carlson-Wee’s team will be small, in that he’ll be the only employee, outsourcing legal work to attorneys. It’s notable also that Carlson-Wee’s first professional job was at Coinbase, and that he hasn’t worked for another company.
That said, Carlson-Wee said he isn’t deterred by the difficulty of navigating a new environment. Plus, he argued that what he lacks in experiences, he makes up for in deep subject-matter expertise.
"I have the core things that matter a deep knowledge of crypto protocols, and what’s going to do well and what’s not going to do well," he said.
But Carlson-Wee isn’t alone in offering a digital currency-focused hedge fund. Larger industry players like Pantera Capital and Crypto Currency Fund, for example, have been offering the service for years.
The difference with Polychain Capital, according to Carlson-Wee, lies in his vision for the future, and how he intends to position investors to capture earnings created through developments in the blockchain industry.
He noted that this thesis is in line with industry trends, and that today, more and more people are beginning to believe that there will be more than one blockchain in the future.
"I saw this emerging and I think the really interesting stuff isn't happening on the bitcoin blockchain, it’s happening on ethereum and with different blockchains," he said.
In particular, Carlson-Wee believes ethereum’s digital currency, ether, as well as the digital currencies that could one day be created on the platform to represent decentralized applications, will be a significant area of development going forward.
"The big returns and the best way to invest will be in the tokens themselves."
Image via Office Snapshots