Cameron and Tyler Winklevoss have poured their Facebook fortune into Bitcoins.
Reports have surfaced that Cameron and Tyler Winklevoss, better known as the Winklevoss Twins or simply as the ‘Winklevii’ (thanks to Homer Simpson) have come to own a whopping 1% of all the Bitcoins on the market, worth in the neighborhood of $15 million. The Winklevoss twins earned fame for their role in the creation of Facebook, and the acrimonious lawsuit and reported $65 million settlement with the company which was captured in the 2010 movie The Social Network.
As we reported last week, the Bitcoin market bubble has burst following an amazing runup in the value of Bitcoin from just $7 in August to top $266, before settling back in the $75-$100 range by the end of last week. (As of the time of this writing, Bitcoins were being traded at about $90).
What happens if Bitcoins don’t recover, or fall back further? It appears that the Winklevii’s cost basis in their Bitcoin stake is well below current market prices, but that can change in a hurry.
Let us recall an interesting case. In the late 1970s, two brothers named Nelson and Herbert Hunt began to corner the world market in Silver. By 1979, the two brothers had accumulated a profit between $2 to $4 billion dollars in Silver contracts and had accumulated 100 million ounces of Silver.
In January of 1980, silver fever hit a high of over $48 an ounce (above where it even sits today). Keep in mind, the brothers had been buying from $6 an ounce, seeing their investment grow over 700%. Two months later the bubble burst and Silver was trading just below $11 an ounce. The Hunts were unable to make a margin call of $100 million and with losses exceeding $1.7 billion, certain US banks gave them a $1.1 billion credit line to help prevent financial institutions from failing. In the end, the brothers were found guilty of trying to manipulate the Silver market, paid a fine and were forced to declare a $134 million bankruptcy.
While that may be an extreme example to compare to the Winklevoss twins’ adventure with Bitcoin (as far as we know they are not using leverage to accumulate their virtual Bitcoin hoard, nor is there any reason to believe that they have manipulated Bitcoin prices in any way), we do see some similarities here. Will having one large group / family taking such a large stake help or hinder Bitcoin’s pursuit of respectability as a ubiquitous and acceptable currency? Will the Winklevii get back into the startup business and back interesting Bitcoin-related companies which seem to be popping up all over? Is this a PR stunt by the Winklevoss twins or are they really trying to become major players in what many believe to be the next generation’s currency?
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