Bitcoin Backers Now Have to Worry About ‘Key Man’ Risk

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One of Bitcoin’s biggest advantages has been the mysterious story of its founding.
Satoshi Nakamoto,
the pseudonym for the person or people who created the digital currency in 2008, disappeared in 2011 and hasn’t been heard from since.

Normally, when the founder of a piece of technology suddenly disappears, it’s a problem for the technology. But in the case of Bitcoin, the lack of a central creator has almost certainly helped. Bitcoin’s central premise is that control of money should be decentralized, so that people don’t have to rely on banks or the Federal Reserve to transact. The lack of a central figure in cryptocurrency helps that argument. It also insulates Bitcoin from the public relations problems caused by founders spending the money they have made in showy ways. If Bitcoin is meant to help the unbanked, no one wants to see a CEO taking a private jet to a private island.

In addition, the lack of a high-profile founder is likely one reason that the Securities and Exchange Commission declared in 2018 that Bitcoin isn’t a security — it’s not controlled by one particular entity or person.

But
Elon Musk’s
emergence as a major backer of Bitcoin has complicated the picture. The market cheered when Musk announced that Tesla would accept Bitcoin as payment. But in the past week, he has said that the company has stopped accepting Bitcoin because of its negative impact on climate change, and raised questions about whether Tesla will sell more of the Bitcoin stake it bought earlier this year. Bitcoin is down 20% over the past week to a recent $43,000, and off more than 30% from the highs it hit last month. Musk has also tweeted positively about Dogecoin, a cryptocurrency created as a joke that some big crypto players think distracts from the industry.

“I think it’s a big problem that one person has so much influence over Bitcoin and the broader crypto market,” Webull CEO Anthony Denier told Barron’s in an email. Webull is an online broker with a young user base that offers crypto trading to customers.

“When fundamentals cease to matter, and the market makes big moves on the comments and whims of just one mercurial individual, we are entering dangerous territory,” Denier added. “Especially a person who is not careful or disciplined with his public comments. It’s hard to make serious investment decisions when the key question is, ‘What kind of mood will Musk be in next week?’”

Now, some Bitcoiners who had cheered Musk’s embrace of crypto are upset at him, and questioning the hero-worship in some corners of the meme-investing universe.

In a note titled “There are No Gods Among Us,” crypto investor Anthony Pompliano called Musk’s change of heart “the perfect reminder to all of us in the Bitcoin community. The celebrities, the athletes, the musicians, the billionaires, and the entrepreneurs don’t matter nearly as much as we all like to think.”

“Elon Musk was quickly accepted into the Bitcoin community with open arms weeks ago,” he added. “He will be encouraged to leave just as quickly if he keeps acting foolish.”

Based on the price action, however, crypto celebrities do seem to matter more than ever.
Dave Portnoy,
the founder of Barstool Sports and a well-known internet celebrity, has been promoting a coin called Safemoon that he derided using a profane pejorative used to make fun of coins with no particular purpose. He said in a video sent to his 2.5 million Twitter followers that he picked Safemoon to back because “I like the word moon,” and warned people that it could be a Ponzi scheme.

“If it is a Ponzi, get in on the ground floor,” he said.

Safemoon, worth nearly $5 billion, went up 14% in the 20 minutes after Portnoy posted the video of his decision on Twitter.

The prominence of certain high-profile individuals also plays into another negative argument about Bitcoin. Because it’s possible to hide one’s identity when accumulating Bitcoin, it is difficult to know how much of it is controlled by just a few people. Analysts at Bank of America have estimated that 95% of Bitcoin is owned by just 2.4% of accounts, a level of concentration that seems to undermine the argument that Bitcoin is decentralized. Bitcoin’s concentration raises concerns that a whale could destabilize the market by suddenly selling a large piece of their stake.

Bitcoin fans at least have this going for them — Portnoy claims he will “never sell my Bitcoin” even as he embraces Safemoon too.

“I will never waver in Bitcoin,” he said. “I don’t care what Elon Musk does, I’m sticking with Bitcoin.”

Write to avi.salzman@barrons.com