Barry Silbert is one of the most important people in crypto. He’s the head of Digital Currency Group, a Web 3.0 conglomerate containing subsidiaries such as Grayscale, Genesis, and CoinDesk.
Silbert got into crypto after roughly a decade and a half in traditional finance (TradFi) and has not looked back. Despite his immense success in traditional finance, Silbert dropped everything in 2011 and decided to start over with crypto. And he’s found immense success there too. But with immense success also comes immense scrutiny.
If you’ve ever wondered about Barry Silbert and want to know about his past, this is the article you need to read. We’ll be chronicling his life and following his journey from Emory University to his current drama with Cameron Winklevoss and potentially the SEC.
Barry Silbert Before Crypto
Before getting involved in the crypto world, Barry Silbert was an investment banker and entrepreneur. He’d graduated from Emory University in 1998 and immediately went into banking.
However, Silbert realized that banking wasn’t making him happy. He wanted to leave the sector and try something else. Although he argues that he was financially fulfilled as a banker, he soon realized that wasn’t enough. He needed more.
So after five and half years of banking, he left the sector to explore the world. His first adventure outside the bank’s hallowed walls was SecondMarket. SecondMarket was a venture that allowed investment funds and private companies to raise capital for stakeholders. But despite not being a regular banker’s job, SecondMarket was still a traditional finance outfit.
Silbert was quite successful with SecondMarket. The company was extraordinarily successful and facilitated billions of dollars in private equity transactions. They had also accrued over 75,000 registered customers.
As SecondMarket became more successful, so did Silbert. In 2009, he was named one of Ernst & Young’s Entrepreneurs of the Year and Crain’s Entrepreneur of the Year. During that period, Silbert was named in Fortune’s “40 under 40” list, and he also had the chance to provide testimony to the US senate on financial regulations. Silbert worked at SecondMarket for seven years, but he also got tired of that.
In 2011, Silbert announced that he would be stepping down as CEO of SecondMarket to focus on digital currencies. His rationale for making this decision was simple; he had the entrepreneurship bug and wanted to try everything. And digital currencies were the next big thing for him to try.
Just four years after stepping down as CEO, Nasdaq bought SecondMarket for an undisclosed amount. But by then, Silbert was already playing in the big leagues of crypto.
Rise to Crypto Fame
In 2012, Silbert bought his first Bitcoin. The coin was on the up during that market, and Silbert quickly became quite rich off his crypto holdings.
In 2015, just three years after getting into crypto, Silbert launched Digital Currency Group. Silbert said the company would be an old-school holding company but adapted for Web3 firms. Before long, DCG got to work.
In time the company founded and acquired assets like the news site CoinDesk, Bitcoin mining company Foundry, and Grayscale. Aside from that, the company acquired multiple other firms and projects.
With its massive portfolio of companies and projects, DCG was a behemoth in the world of crypto capital.
Like every crypto company, DCG was walking on clouds in 2021. The company was growing at an astonishing rate, and business was booming. In November 2021, the company raised about $700 million at a $10 billion valuation.
At the time, Silbert told the world that DCG was the best proxy for investing in crypto and that he was comparable to John D. Rockefeller of Standard Oil.
However, those boasts soon turned hollow as the crypto market was about to enter uniquely challenging times.
Riding the Bull Market
In November 2021, Barry Silbert was at the top of his game. He was the CEO of a unicorn and had just raised $700 million.
Grayscale, a trust that held Bitcoin for investors, soon became DCG’s most valuable asset. It was valuable because institutions and high-worth individuals could get exposure to Bitcoin through it. Grayscale was a publicly traded company, so institutions could buy Grayscale’s stocks instead of Bitcoin itself.
Grayscale knew it was the new business on the block and cashed in on its value by charging a flat 2% fee which was higher than the average fee that most ETFs charge. At the bull market’s peak, Grayscale’s Bitcoin assets were worth around $43 billion. In 2021 alone, Grayscale generated over $450 million in revenue.
11/10/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.— Grayscale (@Grayscale) November 10, 2021
Total AUM: $60.8 billion$BTC $BAT $BCH $LINK $MANA $ETH $ETC $FIL $ZEN $LTC $LPT $XLM $ZEC $UNI $AAVE $COMP $CRV $MKR $SUSHI $SNX $YFI $UMA $BNT $ADA $SOL pic.twitter.com/9n4GgntN8H
But as Grayscale grew in popularity, a “GBTC premium” asset emerged. This meant that Grayscale’s shares were trading at a higher value than the underlying Bitcoin asset that propped the company up. This provided an exciting opportunity for creative accounting for companies like Three Arrows Capital and other hedge fund investors.
DCG, through a subsidiary called Genesis Capital, started lending Three Arrows Capital money and 3AC used this cash to prop up the price of GBTC premium. This grew Grayscale’s earnings tenfold and ensured that DCG had created a cash cow to mint money for it whenever it wanted.
Riding the Bear Market
In time the market caught up with Grayscale, and its shares started trading for lower than its underlying Bitcoin. This was the opposite of what had grown Grayscale’s profits.
Through all this, Genesis continued lending DCG and other hedge funds money. The goal was to prop up Grayscale shares artificially since the market wasn’t as enthusiastic about purchasing the shares.
But then 3AC blew up in the midst of 2022, and Genesis suddenly had a billion-dollar hole in its balance sheet. Since Genesis was a part of DCG, DCG also had a billion-dollar hole in its balance sheet. DCG covered the hole with even more creative accounting and continued to exist despite its huge losses in Genesis. It did this while also guaranteeing Genesis’s existence as well.
However, the bear market wasn’t over yet. Gemini, an exchange owned by the Winklevoss brothers, relied on Genesis for its Earn program.
The Gemini Earn program is a product launched by the Gemini exchange. The program is an interest-earning project where users can earn a $7.4 annual percentage yield, which is higher than the average US annual percentage yield. It was a partnership between Gemini, an exchange, and Genesis, a fund. Genesis would provide the yield, and Gemini would facilitate the branding and investment of user funds.
After 3AC blew up, Genesis continued to provide the yield for the Gemini Earn program. However, even Genesis, with the backing of DCG, couldn’t withstand the FTX blowup, and the fund soon became insolvent. This meant that it couldn’t provide yield for Gemini customers, and it couldn’t facilitate withdrawals as well.
Cameron Winklevoss’s Public Letter
Gemini made its position known in a public letter published to Twitter on the 2nd of January, 2023. In the letter, Gemini gave Genesis and DCG a January 8th deadline to process customer withdrawals, or it would end the Master Loan Agreement between its customers and Genesis.
Earn Update: An Open Letter to @BarrySilbert pic.twitter.com/kouAviTho4— Cameron Winklevoss (@cameron) January 2, 2023
According to the letter, Genesis owed Gemini around $900 million in funds that Gemini had lent it. Gemini claimed that it had tried negotiating with Genesis since the company claimed insolvency in November 2022, but those efforts were unsuccessful.
In the letter, Cameron Winklevoss, writing on behalf of Gemini, claimed that DCG owed Genesis money that hadn’t been repaid. This, Cameron alleged, was the reason Genesis couldn’t repay Gemini.
Silbert immediately replied to the letter with a tweet asserting that Cameron was wrong. He claimed that DCG didn’t borrow a billion dollars from Genesis. He also suggested that DCG had never missed an interest payment to Genesis. After all that, Silbert said that DCG had made a proposal concerning the $900 million debt, and Gemini was yet to respond.
DCG did not borrow $1.675 billion from Genesis— Barry Silbert (@BarrySilbert) January 2, 2023
DCG has never missed an interest payment to Genesis and is current on all loans outstanding; next loan maturity is May 2023
DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response
Cameron replied to the tweet and called Silbert a liar.
There you go again. Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess. It's completely disingenuous.— Cameron Winklevoss (@cameron) January 2, 2023
So how does DCG owe Genesis $1.675 billion if it didn't borrow the money? Oh right, that promissory note...
The January 8th deadline came and went, and Cameron wrote another public letter. This time he claimed that Genesis had defrauded over 300,000 customers of Gemini Earn. He named Barry Silbert in the letter and claimed that Silbert had intentionally misled the public about the financial health of Genesis.
Cameron claimed that DCG had only pretended to absorb the losses of Genesis when Three Arrows Capital went belly up. In reality, Cameron claimed, Silbert had only provided Genesis with a promissory note due to maturity in 2032. That did nothing to improve Genesis’s liquidity and left the fund right where it was.
At the end of the letter, Cameron Winklevoss alleged that the entire DCG enterprise was driven by fraud. Cameron argued that the loans to 3AC that had put Gemini in this position were part of a fraudulent scheme. This scheme was designed to prop up Grayscale’s shares, and Genesis would never have lent 3AC that much money otherwise.
Cameron rounded up by asking Barry Silbert to step down and for new management to take over DCG. Cameron also said he believes that both parties could reach an out-of-court settlement that would be a win-win for both DCG and Gemini.
On the Flipside
- Reports from Forbes note that Silbert is a master “hype man,” and his actual skill lies in misrepresenting what his companies do.
Why You Should Care
The showdown between Gemini and Genesis/DCG is the latest battle between crypto institutions in the wake of FTX’s fall. It provides rare insight into how careless and greedy crypto institutions were during the 2021 bull run. That is something everyone should care about.