The Wall Street Journal had Bitcoin investors all excited Monday morning after it reported legendary currency trader turned investor Joe Lewis was spending a whopping $200 million on a Bitcoin miner company. Except it took only a few hours for CNBC reporter Scott Wapner to call his friends at Joe’s investing firm, Tavistock Group, and confirm the story was completely unfounded. The WSJ had major egg on its face and the story reported by Harriet Agnew and Robin Sidel was pulled down from their online publication. So how did a story like this get past a seasoned reporter like Sidel and the layer of editors that are ultimately responsible for hitting the print button?
The news of a Bitcoin miner, Avalon, getting any VC or Angel money started Sunday at a Bitcoin blog called Bitcoinexaminer.org . I spoke with Danny Ashton who runs the site and he said they had the tip from an unnamed source that had pieced together a series of details that looked like the investment could be coming from something called the Phoenix Fund which is supposed to be Swiss-based.
Bitcoin Examiner writes:
There might be a major deal being made in the Bitcoin ecosystem in the next few days: a deal that mixes the names of BitSynCom LLC’s founder, Yifu Guo, and a Swiss private equity fund, which is allegedly about to invest $200 million to make sure the brand Avalon emerges as the leader in the mining technology race.
Then they go on to tell readers this is a rumor and their source is anonymous. They are setting up the story as speculative. Not the best method of journalism but perfectly ok if they state this is what ‘we are hearing’ but we don’t know if this is fact yet – which they did. Speculation can at times force a story into the light…it’s a method I’ve used. Their headline even said the word ‘might’ be getting a $200mn investment.
The Bitcoin blog then goes on to tie in a man named Andrew Laurus who is allegedly setting up this huge investment. Laurus is sourced as being related to Bitcoins based on his twitter profile which says: ‘taking time off for Bitcoin mining project’. Danny Ashton, of Bitcoin Examiner, said he didn’t know if Laurus was the source for the story.
Here is where a game of Telegraph starts. This unnamed source throws out Laurus is working with ‘the Travistock bunch’ — a firm Joe Lewis does actually own. Then all of a sudden there is this unexplained jump that Lewis owns The Phoenix Fund.
A bunch of other names are thrown into this deal; a Taiwan microchip manufacturer TSMC, Bitsyncom, and the unknown private equity guys at The Phoenix Fund.
The team at Bitcoin Examiner closes out the story reminding readers once again this is all rumor, their source is anonymous, and they have to actually confirm all this. Then BOOM – the Wall Street Journal has taken this mess of maybes and printed it as FACT with a big bold photo of Mr. Lewis and a promotion of the story above the fold in their Money and Investing – C Section.
WSJ: Bitcoin's New Champion by Teri Buhl
The Journal didn’t only get the fact that Joe Lewis was putting that much money into a Bitcoin miner deal wrong but they also printed Mr. Lewis “leads the Phoenix Fund, a Zurich-based private equity fund that on Tuesday plans to invest $200 million in Avalon, a company that makes computer servers aimed at creating Bitcoins, according to people familiar with the situation.”
There is so much wrong about that sentence that could have been fact checked it’s scary. 1) Mr. Lewis public relations person Lauren Morgan told me today the WSJ NEVER even called for comment. If they had they would have learned what CNBC got on the record, which was Mr. Lewis has nothing to do with the Phoenix fund. 2)If you regularly report on Bitcoins like I’ve had the chance to for a year now, you know computer servers do not make Bitcoins. They might help distribute the digital formula that moves the Bitcoin volume and pricing but no one or no machine makes a Bitcoin- that’s why it’s called a digital currency. 3)I have not found a real private equity fund called The Phoenix Fund that has $200 million to invest in Bitcoins.
The simple lack of fact checking that appears to have gone on with the Sunday night editors at the WSJ is amateur beyond belief.
I’ve reached out to the lead byline reporter on the story, Harriet Agnew, who appears new/young and recently been covering UK hedge funds, but she refuses to answer who her editor was. The only answer I got from her was this:
Fyi we have just published a correction:
Correction
05 Aug 2013
Investor Joe Lewis isn’t investing in a bitcoin venture called Avalon and doesn’t lead a Zurich-based private-equity fund called the Phoenix Fund. An article on the supposed investment was inaccurately published and has been removed.
Harriet
Neither Harriet or the other experienced reporter on the story, Robin Sidel, have admitted who came up with the lede in this report – meaning whose idea was it to link Joe Lewis to this apparent non-deal? Lauren Morgan at Joe Lewis’s firm also told me the WSJ won’t tell them who the editor is. It’s a massive duck and cover by what is supposed to be a pillar of business journalism.
Here is where the story gets even more troublesome. It’s clear that Harriet, Robin and their editors are not really well sourced or well versed in the Bitcoin investing space. A quick email to VC’s I’ve sourced and reported as investing in real Bitcoin companies like Bitpay or CoinLab said, “The BTC market is only worth around $1 billion now so why would someone make a single investment of 20% of the market ($200 million) into one company?” Then we have the fact that the highest round of investment in a BTC company at one time has been what Coinbase got with around $5 million. We have yet to see any BTC company get a double-digit million investment so how does it makes sense that triple digit millions are getting put into a deal. The WSJ also could have called around to VC’s and asked if any Bitcoin miner deal will get funded and how much is likely to be spent… like I did. The answer I got was ‘high single digit millions is all the Bitcoin miner space is worth right now.’
This is basic high-finance gut-instinct reporting skills that most journalist trying to report on a subject like Bitcoin investing would ask BEFORE you hit the print button.
And even if the WSJ editors didn’t figure out the math on this deal doesn’t it make sense to do a quick google search to see what active Bitcoin players are talking about over at chatroom bitcointalk.org. It would have shown as early as Sunday they were challenging the notion that you barely need $20 million to build out a better mining technology and were making fun of the idea that Avalon would use the rest of the money to hold a long position in Bitcoins.
These chatroom users also point out that the only link to $200 million and the word Avalon comes from a press release in Jan 2011 when San Diego-based VC firm Avalon Ventures closed a fund with $200 million. I called the VC firm to see if this fund was designed to invest in Bitcoins or if they have ever invested in Bitcoins and the answer was NO.
That leaves us with what is the motive of this anonymous source. It’s possible this person was writing Bitcoin Examiner and the WSJ reporters trying to get something printed but knowing how the WSJ likes to lift other original reporting and source it as their own I’m going with they just lifted a rumor story from Bitcoin Examiner and really screwed up by trying to turn it into deal-making news reported as FACT.
Joe Lewis firm made this statement yesterday, “”Unfortunately, many immature investments and investors would like the association of private investors like Joe Lewis. They bring instant credibility,” said Douglas McMahon, senior managing director of Tavistock Group, a private investment organization founded by Lewis.”‘Our’ Joe Lewis has nothing do with Bitcoin, Phoenix Funds or Andrew Laurus,” said McMahon.
A few motives come to mind here: Someone with a sizeable long position in Bitcoin coins (lets say $500k – $1 million) wanted the daily trading value of Bitcoins to go up so they could cash out. This sucks because there is already so much miss-reported on how the value of Bitcoins can be manipulated and as journalist we shouldn’t be enabling traders to move a market on false info not vetted. There wasn’t much of a movement in BTC price yesterday so thank goodness it didn’t work.
Or
A Bitcoin miner company needed to get word out that they could get big investment money so whoever might really be considering to give them a few million would do it. Butterflylabs has the equipment Bitcoin miner pros use now. There has also been talk heard at the London Bitcoin conference in July that there is a better ASIC rig being worked on by some ex Silicon Valley hotshots. This of course is my SPECULATION based on reporting on this sector for a bit.
We might never get the answer to the motive of the story source but I strongly believe the Wall Street Journal editorial board owes the reader an investigation into what happen in this major failure of reporting check and balances. They need to admit who the editors were and explain how the story got to print. And honestly someone needs to get fired.
Now if hundreds of millions of dollars ever do get invested in a Bitcoin company I’m going to recommend checking www.bitcoinmagzine.com who is so dialed into what is happening in this market they’ll at least give you a fact checked, vetted, insightful report. The folks over at American Banker have also done some quality reporting on Bitcoins under the editorial leadership of Marc Hochstein and RT’s top Biz TV host Max Keiser often has excellent guest talking about the digital currency.
Here is the story the WSJ had to take down:
Who is Harriet Agnew’s Editor?
Really good analysis Teri. Thank you for putting this together. I just donated BTC. Do you think the WSJ will fire anyone over this? I will never trust their reporting on Bitcoins again.
Just FYI bitcoins actually are “created” through a mining process, but the amount of work a computer needs to in order to create a ‘block’ of bitcoins is adjusted by the algorithm.
Originally, you could just use a regular computer or a GPU to mine bitcoin, and you still can (very slowly)
These days most mining is done by specialized integrated circuits, and Avalon is a brand (the company is actually called bitsyncom)
Butterfly labs (BFL) is another brand, which everyone should avoid, as their products are nearly a year late and they continue to ship very slowly.
KnC however is the leading brand by a country mile for service and integrity. Their chip fingers crossed is available next month and should make these other two poor excuses, Avalon and BFL obsolete.
Great job Teri!
I do think that you are giving WSJ too much credit though. If “Sidel and the layer of editors” were really functional, this would never have happened. It’s really shameful that reporters aren’t even capable of basic due diligence these days… and WJS is supposed to be a “mainstream” publication. The incompetence and spin isn’t exclusive to financial media either, it goes all across the spectrum of mainstream news. Fiascos like this are the reason that the mainstream media is losing their audience.
One of my thoughtful relatives bought me a subscription to WSJ last Christmas. I use it to clean the cat boxes and line the bird cages. Then again, I do that with all of the print publications that end up in my driveway.