Digital Currency Group Wants to Be the Standard Oil of Crypto

by Paul Vigna | Update November 01, 2021 07:00am EDT

Owners of Grayscale and CoinDesk sell $700 million of shares at a valuation of $10 billion in a funding round led by two SoftBank funds

Digital Currency Group Inc., a cryptocurrency conglomerate that counts asset-management firm Grayscale and media company CoinDesk among its holdings, raised $700 million in an investment round, the second largest in the crypto sector.

The funding round valued the company at $10 billion and was led by SoftBank Group Corp.’s Vision Fund 2 and Latin America Fund, and included GIC Capital, Ribbit Capital and Alphabet Inc.’s Capital G.

SoftBank started investing in this area about three months ago. “We didn’t make any investments in crypto because we didn’t think it was ready,” said Marcelo Clare, chief executive of SoftBank Group International.

Now, the firm expects blockchain technology to be the next phase of Internet- and artificial-intelligence-related technologies. The firm liked the combination of DCG’s investment portfolio and its operating companies.

“It is basically the single-best asset that gives us the diversity of exposure to Crypto, AZ,” Mr. Clare said.

Barry Silbert, founder and chief executive of DCG, said in an interview that the investment round was not about raising capital for the company. The company, which also owns brokerage Genesis, expects to generate about $1 billion in revenue from its wholly owned businesses this year and has been profitable every year since its inception, he said.

He said the transaction was an opportunity for some early investors to exit and take profits. The DCG said all the money raised went to the selling shareholders and no one sold their entire stake. DCG said Mr Silbert, who owns a little less than 40% of the company, did not sell any stock in the offering.

Chief Operating Officer Mark Murphy, with his technical and operational capability and geographic reach, had a secondary goal of bringing in new investors to help grow the company.

Mr. Silbert founded DCG in 2015, after previously starting the private stock trading platform SecondMarket, now owned by Nasdaq. In addition to Grayscale, CoinDesk and Genesis, DCG’s operating units include data firm TradeBlocks and mining firm Foundry. It has invested in over 200 other companies, including payments-network Abra, brokerage eToro and crypto exchange FTX.

This is a unique business model in Mr. Silbert’s view: a profitable, private company with divisions in every aspect of the market. It does not need to dilute its ownership to raise capital, and has no plans to go public, he said. “It’s not only in the works, it’s not even being discussed,” he said. The company has enough liquidity to buy shares from shareholders and employees who want to sell, and it pays dividends to the rest.

“The model I use as inspiration is Standard Oil,” he said, referring to the 19th-century oil conglomerate founded by John D. Rockefeller.

CapitalG general partner David Lowery said he was an investor during the dot-com boom, and while he sees similarities in the overly heated dynamics of that era with crypto today, it also indicates that crypto has power. . He noted the increase in users and the emergence of new use cases such as decentralized finance.

The DCG investment—which totaled about $100 million—is CapitalG’s first investment in this area, Mr. Lowy said. “It is finally getting to the point where crypto is a broader thing than just bitcoin,” he said.

Crypto companies have raised a record amount of capital this year, as the price of bitcoin is more than nine times from its 2020 lows. Companies in the sector raised $7.5 billion in the third quarter, including a $900 million round from FTX, the largest on record, according to data from research firm PitchBook. This exceeded the previous record of $7 billion set in the first quarter and raised over $5.3 billion throughout 2020.

The latest results are partly a result of the financial environment. The Federal Reserve and other central banks injected trillions of dollars into capital markets in response to the Covid-19 pandemic, while in some cases lowering interest rates to zero or even lower. With returns on safe assets below the rate of inflation and an ocean of liquidity on tap, investors are more willing to venture into riskier investments.

Even for Mr. Silbert, he didn’t anticipate a viable future for a fully digital asset until this year. He added that bitcoin’s rally from the 2020 lows, increasing acceptance among investors and expanding services gave him enough confidence to start planning for the long term.

“Before, I still wasn’t sure if bitcoin was going to be around the next day,” he said.