re­turn of the DAY traders


At the end of the 20th cen­tury, there was no bet­ter in­di­ca­tor that the dot-com bub­ble was about to burst than the mil­lions of ev­ery­day peo­ple—den­tists, lawyers and bank tell­ers—armed with cheap pcs and in­ter­net con­nec­tions who aban­doned their day jobs to trade newly born in­ter­net stocks like ex­cite and books-a-mil­lion, based on the rant­ings in mes­sage-board posts.

to­ken bub­ble traders have it even eas­ier. mid­dle­men, reg­u­la­tors and tax re­port­ing are eas­ily avoided. trad­ing is 24 hours, in­clud­ing week­ends. e-bro­kers have been re­placed by “ex­changes”—some 70 at last count—that of­fer “mak­ers” and “tak­ers” mar­gin trad­ing, pairs trad­ing and de­riv­a­tives, charg­ing trans­ac­tion fees that gen­er­ally range from zero to 0.3%. one San fran­cisco ex­change, kraken, says it hired 100 cus­tomer-ser­vice peo­ple in may and June and has more hir­ing planned. “it’s been re­ally crazy,” says founder Jesse pow­ell. “We’ve had about five times growth in terms of new signups this quar­ter ver­sus last, and last quar­ter was al­ready a pretty sig­nif­i­cant jump over the pre­vi­ous year.”

no won­der. newly minted coins are now be­ing crowd­funded at a rate of about 20 per month, and never be­fore has there been an ini­tial-of­fer­ing mar­ket that has risen so fast, with such volatil­ity.

ethereum, which has the sta­tus of Google or ap­ple in the crypto-world, trades on av­er­age 5% or more of its $30 bil­lion float each day, com­pared to about 0.5% for ap­ple. ethereum is up forty­fold year to date, and it’s not un­usual for it to move more than 10% in a day. there’s good ac­tion even in the less pop­u­lar coins. ruby­coin, for ex­am­ple, was hatched in 2014 and pur­ports to be an un­trace­able sav­ingsac­count coin that pays 5% in­ter­est. like a pink Sheet penny stock, it re­cently traded only $37,000 in a day, but gained 9%.

vir­tu­ally all of the ex­changes of­fer lever­age of up to 5-to-1. So if you bought $10,000 of an ico like su­per­com­puter-net­work coin Golem, which ran up 5,000% in its first seven months, you would have $2.5 mil­lion. not enough? lever­age of up to 100-to-1 can be found.

take the case of alan aronoff, a 47-year-old San fran­cis­can who has dab­bled in the mu­sic busi­ness most of his life, play­ing in bands and, at one point, own­ing a pri­vate night­club. in may 2016, aronoff put $10,000 into bit­coin—$8,000 of which came from a spe­cial 15-month zero-rate cash ad­vance from

his credit card. af­ter the bit­coin ex­change he was us­ing got hacked, aronoff de­fected to kraken with $8,500 in bit­coin and be­gan lever­ag­ing his po­si­tions. he bought ether at $7 per coin in de­cem­ber 2016, as well as Golem and Gno­sis in early 2017. he be­gan watch­ing the btc/usd and eth/usd mar­kets 16 hours a day, sleep­ing as lit­tle as pos­si­ble and barely leav­ing his house so that ev­ery time his gains hit cer­tain thresh­olds, he could trade. “i’m kind of ocd,” he says. Within six months, he turned his $8,500 into $7.5 mil­lion—a re­turn of 88,000%.

an­other new crypto-mil­lion­aire is Sean iron­stag, ad­min­is­tra­tor of the face­book group ad­vanced crypto as­set trad­ing. the 37-year-old for­mer forex trader likes to brag about his ex­ploits: “i used to stand on rooftops and scream rev­o­lu­tion-type shit and travel around the world,” he says, men­tion­ing his vis­its to egypt and Syria dur­ing the arab Spring. iron­stag trades more ac­tively than aronoff, hav­ing scored big wins in coins like au­gur’s rep, Game, lite­coin, rip­ple and do­ge­coin, an al­ter­na­tive cur­rency based on a meme about a Shiba inu dog. iron­stag net­ted 1,500% in do­ge­coin and ul­ti­mately turned $15,000 into $3 mil­lion in less than two years. thanks to a con­nec­tion, he was re­cently in­vited to famed trader michael Stein­hardt’s es­tate in bed­ford, new york, where he took the op­por­tu­nity to ed­u­cate a group of Wall Street ti­tans about the fu­ture of fi­nance. “an en­tire, like, sec­tor of, like, ar­chaic fi­nance knows now they’re be­com­ing ir­rel­e­vant,” iron­stag says. What’s next for iron­stag? he’s launch­ing a hedge fund and a crypto boot camp that he says will be folded into a crypto hold­ing com­pany he plans, mod­eled af­ter berk­shire hath­away.

charged with man­ag­ing cus­tomer ser­vice. Carl­son-wee re­quested that his dol­lar­de­nom­i­nated salary of $50,000 be paid in Bit­coin, likely be­com­ing the first per­son in the world to both earn and spend al­most ex­clu­sively in cryp­tocur­rency.

Cus­tomer ser­vice gave Carl­son-wee a front-row seat to the com­pe­ten­cies of the fast-grow­ing com­pany. Even­tu­ally he helped au­to­mate many of Coin­base’s rou­tine cus­tomer-ser­vice re­sponses and even cre­ated a sort of Bit­coin SAT, which he used to screen ap­pli­cants for posi- tions, even­tu­ally hir­ing eight, all of them paid in Bit­coin. He then got pro­moted to head of risk, low­er­ing Coin­base’s fraud rate by 75% via ar­ti­fi­cial-in­tel­li­gence al­go­rithms.

By last Septem­ber, he had quit and launched his crypto-only Poly­chain Cap­i­tal with $4 mil­lion in fund­ing from in­vestors like Jack Her­rick, founder of Wik­i­how, and Garry Tan, a for­mer Y Com­bi­na­tor part­ner. Since most ven­ture cap­i­tal and hedge funds are pre­cluded from in­vest­ing di­rectly in highly specu- la­tive as­sets like cryp­tocur­ren­cies, Carl­son-wee worked in­stead with the likes of An­dreessen Horowitz, Union Square Ven­tures, Se­quoia Cap­i­tal, Founders Fund and Pan­tera Cap­i­tal, as his three-plus years at Coin­base made him some­thing of a sage in this space.

Ac­cord­ingly, while the crypto-as­set move­ment es­pouses a de­moc­ra­ti­za­tion of nearly ev­ery as­pect of busi­ness, life and wealth ac­cu­mu­la­tion, like the “friend­sand-fam­ily” al­lo­ca­tions of the dot-com bub­ble, most of Carl­son-wee’s 13 in­vest­ments to date have been made be­fore the ICO, at a sig­nif­i­cant dis­count.

His in­vest­ments in­clude emerg­ing in­dus­try-stan­dard Ethereum and the de­cen­tral­ized su­per­com­puter scheme Golem, as well as Au­gur, a pre­dic­tion­mar­ket coin that Carl­son-wee prefers to Gno­sis; 0x, a cryp­tocur­rency ex­change pro­to­col that will al­low for de­cen­tral­ized coin trad­ing; and Te­zos, an Ethereum com­peti­tor. “With Te­zos, you can for­mally ver­ify con­tracts whereby you essen­tially prove that the con­tract does what it’s in­tended to do,” says Carl­son-wee, look­ing out from more than 40 sto­ries over the city, wear­ing a skull-em­bla­zoned black T-shirt, track pants and a flat-brimmed rhine­stone-adorned base­ball cap.

He’s tak­ing a longer-term ven­ture ap­proach rather than wan­tonly trad­ing coins, but in a mar­ket frenzy ad­vanced knowl­edge and pref­er­en­tial treat­ment trans­late into ex­tra­or­di­nary gains.

So where do we go from here? Carl­son-wee is one of the few who can ar­tic­u­late a vi­sion. He be­lieves that base-layer pro­to­cols and in­fra­struc­ture such as data stor­age and computing-power ser vices will be built first. “I could see a fu­ture where com­put­ers, in­stead of hav­ing their own in­ter­nal mem­ory, their own band­width, their own in­ter­net con­nec­tion—and your own home com­puter, the CPU and GPU cy­cles on your de­vice—all of that could be out­sourced on a per-use pay­ment ba­sis us­ing to­kens,” he says. “You could pay for ev­ery packet of in­ter­net you want, ev­ery cy­cle you want and ev­ery piece of stor­age you want in real time, in­stead of those things be­ing on ev­ery­one’s de­vice

and un­used most of the time.” In other words, cloud computing meets the shar­ing econ­omy meets the Fed.

Maybe. But be­fore that hap­pens, a lot of folks get hurt. Tech­ni­cally speak­ing, at least in the U.S. these “equity” coins aren’t se­cu­ri­ties so long as they are partly util­i­tar­ian and are not de­pen­dent on any par­tic­u­lar party to suc­ceed. It’s sort of like taxi medal­lions or golf-club mem­ber­ships. Some to­ken devel­op­ers have at­tempted to side­step the is­sue of whether their coins are ac­tu­ally se­cu­ri­ties by bas­ing op­er­a­tions in places that have low taxes and looser reg­u­la­tions, like Sin­ga­pore, Gi­bral­tar and Zug, Switzer­land.

Un­sur­pris­ingly, in­sider trad­ing and dirty deals are fla­grant. One coin-of­fer­ing cre­ator told Me­tastable Cap­i­tal’s Naval Ravikant, the CEO and co­founder of An­gel­list: “If you agree to buy to­kens at the ICO and sup­port the price, then 30 days later, we’ll se­cretly sell you any left­over to­kens at a lower, pre-agreed price,” re­calls Ravikant. That’s a felony on Wall Street. In the cryp­tocur­rency Wild West? “These are the kinds of deals be­ing cut left and right.”

The SEC has said that it ex­pects this in­dus­try to pro­tect its in­vestors, but given its Key­stone Kop track record be­fore and af­ter the sub­prime melt­down, it’s hard to see it ef­fec­tively reg­u­lat­ing a world of func­tional cur­rency. “The scams are very sub­tle and very so­phis­ti­cated un­less you’re will­ing to read the source code,” Ravikant adds.

And even if reg­u­la­tors did read the code? “If my bank ac­count [in the U.S.] gets shut down, I can’t just open up a Rus­sian bank ac­count and start us­ing my bank credit card to go about my day buy­ing Star­bucks,” Carl­son-wee says. “But if my Bit­coin wal­let provider gets shut down, I can shoot that bit­coin over­seas so fast—lit­er­ally in one minute—it’s like, ‘Okay, now that Bit­coin is in Rus­sia, and now I’m go­ing to par­tic­i­pate in this crowd­sale from the Rus­sian ex­change and store these to­kens on a

Rus­sian wal­let. . . . So on a global scale, try­ing to reg­u­late these things is like Whac-a-mole.” Ditto try­ing to col­lect taxes (see box, p. 68).

So buckle up for more blowups, more Mt. Gox-type fi­as­coes and tens of bil­lions in losses for the peo­ple who are gam­bling in an area where there is pre­cious lit­tle to pro­tect them. The smart money, mean­while, should do fine, vul- ner­a­ble only to its own hubris. “Ev­ery­one’s like, to­ken sales are com­plete mad­ness right now,” Carl­son-wee says. “I don’t think we’ve seen any­thing rel­a­tive to how big this could be.”

Alan Aronoff: From $8,500 to $7.5 mil­lion in six months thanks to dig­i­tal coins and a dose of OCD.

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