Famed Trader Joe Lewis Backs Bitcoin

http://online.wsj.com/article/SB10001424127887323997004578644491403250124.html

by cgi_man • 13 years ago

30 14 13 years ago

online.wsj.com

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bornabox• 13 years ago

By HARRIET AGNEW Joe Lewis, a billionaire foreign-exchange trader who teamed up with hedge-fund manager George Soros in 1992 to bet against the Bank of England, is the latest high-profile financier to throw his weight behind the virtual currency called bitcoin.

Mr. Lewis leads the Phoenix Fund, a Zurich-based private-equity fund that on Tuesday plans to invest $200 million in Avalon, a company that makes computer servers aimed at creating bitcoins, according to people familiar with the situation.

Bitcoin is a virtual currency that exists online and isn't backed by any government or central bank. Bitcoins were invented in 2008 by a computer programmer who goes by the pseudonym Satoshi Nakamoto, who describes it as a peer-to-peer electronic cash system.

The Phoenix Fund's investment in Avalon reflects the growing popularity of virtual currencies, which are also coming under scrutiny from regulators. Other bitcoin enthusiasts include Cameron and Tyler Winklevoss, who are best known for their role in the creation of Facebook Inc. FB +1.50% They have proposed an exchange-traded fund that is tied to bitcoins.

Bitcoins are created through a process called mining, in which computers solve complex mathematical algorithms to earn the bitcoins. The total number of bitcoins that can be mined is limited to 21 million. There are now about 11.5 million bitcoins in circulation, according to Blockchain, a website that monitors bitcoin transactions.

The Phoenix deal will also involve Taiwanese microchip maker Taiwan Semiconductor Manufacturing Co., 2330.TW 0.00% which is set to supply the state-of-the-art microchips that will power the hardware.

The Phoenix Fund was set up this year to invest in bitcoin mining-hardware companies. It looked at several of Avalon's rivals in the sector, including Butterfly Labs and KnCMiner but decided against investing, according to a person familiar with the private-equity firm's strategy.

Investors in the Phoenix Fund, which includes a small number of individuals who made their fortunes in currency trading, believe that the currency will become more stable and popular if more parties are involved in the mining process, this person said.

Mr. Lewis moved into currency trading in the 1980s and 1990s. In September 1992, Mr. Lewis teamed up with Mr. Soros to bet on sterling crashing out of the European Exchange Rate Mechanism, an event that was later named "Black Wednesday." Mr. Lewis didn't respond to a request for comment.

Mr. Lewis had big losses investing in U.S. brokerage firm Bear Stearns Cos, in which he began amassing a stake during 2007, The Wall Street Journal reported at the time.

Mr. Lewis is the main investor in an unlisted company called Tavistock Group, which has investments in more than 200 companies across the globe.

Tavistock Group includes ENIC Group, which has a Bahamas-registered subsidiary called ENIC International Ltd., through which Mr. Lewis owns 85% of the shares in U.K. soccer club Tottenham Hotspur.

The Phoenix Fund is independent of Tavistock.

The bitcoin deal was put together by Andrew Laurus, a former government-bonds salesman at Lehman Brothers who is also an investor in the fund. Avalon was set up by Yifu Guo, a pioneer in the bitcoin-mining industry. He was part of the team that developed the first ASIC bitcoin mining hardware. ASIC stands for application-specific integrated circuit, a type of custom-designed microchip. Mr. Guo couldn't be reached for comment.

Separately, Coinflash, a company that planned to set up kiosks for bitcoin enthusiasts to buy the virtual currency, is shutting down before it even opened its doors. "Due to an unforeseen change in our personal circumstances, we've made the difficult decision to suspend Coinflash's services indefinitely," the San Diego-based company said in an email statement.

Coinflash was established earlier this year and had planned to open the bitcoin kiosks in California and New York this summer.

As part of the deal, Avalon will gain access to TSMC microchips based on 20-nanometer processes, which are much faster than other chips. TSMC recently won a contract to supply chips to Apple. The increased processing power should give Avalon an edge in solving the algorithms that control the supply of bitcoins.

ruethewhirled• 13 years ago

Not to be a wet blanket, but isn't posting that copyright infringement?

diziet• 13 years ago

You can bypass the paywall by searching for the article name on google and clicking through (or modifying your referrer)

mrb2• 13 years ago

Click: https://www.google.com/search?q=famed+trader+joe+lewis+backs...

(This is a google "I am feeling lucky" search - no subscription is required when the referrer is Google.)

TheBiv• 13 years ago

Speculation: Guys like Joe Lewis typically have multiple angles to a deal which ultimately have some quid pro quo, and it appears that Taiwan Semiconductor Manufacturing Co. (A multi-billion dollar semiconductor company) stands to gain a lot of this investment. It would be interesting to know whether or not Mr. Lewis's investment is a bet more for bitcoin, or for TSM's stock to increase (with their newly gained cash infusion and distribution channel)

trotsky• 13 years ago

Holy Jesus that's a lot of money. Has anyone credible ever done any market sizing of the btc services or hardware markets? At first blush it is hard for me not to estimate the btc specific hardware market as being less than 200MM even when you add up everyone's revenue since the dawn of time. It looks like avalon's total sales so far has been less than $10MM.

I assume this has to be about inventory - some kind of line of credit that allows them to offer customer financing, shift away from their pre-order system, or some kind of upfront cost associated with a process upgrade.

It's hard to believe there is much money to be spent on R&D for asic hashing, or that they would gain much via some big marketing campaign.

jeremi23• 13 years ago

Asic is used to basically print money in the bitcoin world. So they might want to run the miners themself.

mrb2• 13 years ago

A lot more details about Joe Lewis' investment fund in the Bitcoin company Bitsyncom: http://bitcoinexaminer.org/avalon-might-be-getting-a-200-mil...

yuvadam• 13 years ago

Speculation that some part of this story is fishy -

http://www.feld.com/wp/archives/2011/01/avalon-ventures-rais... (2011)

mathattack• 13 years ago

I can buy that the story sounds fishy, but why does this link suggest it? Just that the fund was really created 2 years ago?

axefrog• 13 years ago

Fake. https://twitter.com/ScottWapnerCNBC/statuses/364370798892421...

Famed Trader Joe Lewis Backs Bitcoin

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