What I Got Wrong About Coinbase

and what Garry Tan got right

Coinbase is perhaps the first ultra-successful startup that I’ve seen grow up before my eyes. Brian Armstrong and Fred Ehrsam founded the company in June 2012. I moved to San Francisco a year later to work for what would become The Information. I remember attending an early panel on Bitcoin at Stanford where Ehrsam spoke. I’ve emailed with the two founders over the years, asking for input on stories. I ate lunch with Armstrong at Coinbase’s offices. I talked to early Coinbase investor Micky Malka regularly back in those early days and sat down with him in his Palo Alto office. I had access to the foremost experts in the space. I called them up trying to understand if Bitcoin was a store of value or a new internet currency. I met the creator of Dogecoin at a cryptocurrency event at the Battery.

Yet I’ve been skeptical of crypto the whole time — in part because I never got past the question of what exactly Bitcoin is for. But certainly, my disposition as a reporter played a big role in maintaining a skeptical posture.

I chronicled the first real Bitcoin hype cycle — not the late 2017 spike — but when Bitcoin first breached $1,000 at the end of 2013. I worried that investors were investing in Bitcoin companies like Coinbase to get around rules that barred their firms from buying Bitcoin directly. A few months later, I wrote a story headlined “Emerging Bitcoin Industry Gets Crowded Fast.” Andreessen Horowitz had led a $25 million funding round in Coinbase. The cryptocurrency’s price had dipped to $575 and yet venture capitalists were pouring into the new Bitcoin space. The story laid out all the companies raising money in the space, but, personally, I thought it was overheated.

I didn’t buy a single Bitcoin (and still haven’t). If I’d spent $1,000 on Bitcoin back then and held onto it, that position would be worth more than $80,000 today.

I try not to think about it.

Ethically, I could have probably bought a few Bitcoin — though at some point buying Bitcoin would have become a conflict of interest. From my early days as a reporter, I’ve had a pretty strong stance as to what objectivity required. I didn’t vote in Harvard’s student government elections because that was my beat on The Crimson. As an intern at the Tampa Bay Times, I declined to participate in the new age therapy reiki while writing a story about the practice. I didn’t want to draw a conclusion about reiki based on my own personal experience. That would introduce bias!

So, the idea that I should invest every penny I had in Bitcoin never really crossed my mind. In retrospect, it would have been a more remunerative career path.

There’s a logic to the insanity that allowed me to miss out on a fortune. Investors and reporters are similar in that we’re both defined by the bubbles and the crises — the manias and the panics — that we’ve lived through. For me, my idols poked holes in Enron or saw the housing crisis looming. They held onto their wits as the rest of the world lost their minds.

For investors, it’s rational to play the game and invest even at times when you think the world is off kilter. Some of the best returns are made before bubbles burst. Go talk to Mark Cuban. Experts in particular domains don’t need to have macroeconomic expertise. So, it makes sense just to play the game, win deals, and let the broader market sort itself out over time. Investors can whisper to reporters that they’re worried about the market while diving in headfirst with other people’s money. Leave it to Michael Burry and Jim Chanos to try to time the end times.

For reporters, the opposite can be true. Many startups fail — so even though the best ones change the world, there’s a certain logic to treating them all with some suspicion. Yes, a handful are truly onto something great, but many more are deluding themselves. The companies and their investors are going to try to sell readers on why the company is wonderful, so reporters see themselves as providing a more cautious voice. Of course, that posture can make reporters look silly in retrospect: many journalists worried that Facebook didn’t make money or that the company couldn’t pivot to mobile. Then we made similar mistakes with Snap. We worried about Netflix’s debt load. I’ve made a career out of reporting how much money Uber burns.

And that skeptical posture has served me at times. Bitcoin’s price did collapse over the next few years. Two years later, when reporters worried about unicorn valuations, a temporary reset followed. ICOs were insane the whole time. And many Bitcoin companies failed (though I’m sure many of the people involved got rich anyway). At Bloomberg, I did my best to simply avoid Bitcoin and self-driving car stories, thinking both were overhyped. I was right that self-driving cars would take longer than many people thought at the time. But obviously in the arc of history, tech — Bitcoin included — is doing fantastically.

I caught up with Garry Tan — who invested in Coinbase before the company even presented at Y Combinator’s Demo Day — to find out what he saw back then. What had I missed?

There was a lot that he got right: Armstrong had been running fraud prevention at Airbnb. “This is someone who was entrusted with this billion-dollar marketplace,” Tan remembers. On top of that, Tan had tried to buy Bitcoin from Dwolla and Mt. Gox and concluded that “it was not legit.” Tan had also worked on software for Peter Thiel’s hedge fund as an early Palantir employee. During that time, Tan was told to read the book The Dollar Crisis. So, he understood how the dollar’s decoupling from the gold standard had changed the world. And, of course, by then he’d bought into Marc Andreessen’s assertion that software was eating the world.

And Tan was convinced that Bitcoin would be an amazing medium of exchange — not a store of value. “I didn’t want to believe in store of value back then because I was worried about investing in something that was digital gold,” he said.

“As a software engineer, I’m just not interested in pump-and-dumps. I’m interested in can this be useful to humans by taking away the fees from predatory financial orgs and Wall Street?”

“But I was wrong,” he says. Most of the value from Bitcoin today is as an investment or as a hedge against the financial system.

Next time around, I’ll buy a Bitcoin or two to go along for the ride. And maybe I’ll be a little more optimistic that Silicon Valley’s collective delusions can permanently alter reality. Thankfully, I’m in a picks-and-shovels business. I missed out on buying Bitcoin, but I gave other people the information they needed to consider scooping some up for themselves. You can subscribe to this newsletter to read about the next tech trend that I’m going to watch from the sidelines.

And Tan, well, he may have been wrong about why Bitcoin mattered, but he’s going to make a fortune anyway.