The Quick Rise and Abrupt Fall of a Bitcoin Champion

A few weeks before his arrest at Kennedy Airport, Charles Shrem was standing behind the Manhattan bar he invested in with some of his Bitcoin fortune, buzzing about his big plans for the virtual currency and himself.

With the frenetic pace of a sports announcer, Mr. Shrem, the co-founder of a popular website where Bitcoins could be bought using dollars, jumped between his idea for a Bitcoin debit card; his recent conversations with the owners of a private jet company who wanted to take payment in Bitcoin; his goal of unifying the country’s money transfer laws; and his travel plans to just about every corner of the world, including the trip to Amsterdam he was returning from when he was arrested last week.

“Bitcoin really allows you to have such a global life â€" it allows you to be able to move anywhere within days if you want to,” the scruffily bearded Mr. Shrem said, standing in front of the sign announcing that the bar, EVR, would accept Bitcoin.

These days, though, Mr. Shrem’s exploits in Bitcoin have him restricted to his parents’ home in Brooklyn, where he awaits trial on federal charges that he smoothed the way for drug transactions online. Mr. Shrem was also accused of purchasing marijuana himself. He has pleaded not guilty.

The 24-year-old Mr. Shrem, who went through millions of dollars’ worth of Bitcoin over the years, is not the first person in the virtual currency world to end up in handcuffs, but he is the most central player to face charges. His recent reversal of fortune â€" and the meteoric ascent that led up to it â€" makes him a living symbol of the peaks and valleys that have so far defined the Bitcoin experience as the value of all the outstanding coins has shot above $10 billion.

The virtual currency â€" digital money that can be traded between online wallets using virtual keys â€" has given rise to world-changing ambitions, new-money fortunes and global jet-setting. But all the high living has often seemed just a hairbreadth away from a police raid or government crackdown.

In an interview on Thursday, Mr. Shrem said that, particularly during the early days of Bitcoin, it often wasn’t clear what was right and wrong.

“You had so many bad things going on, and so little good, that you had to dive down into it to bring it up,” he said. For his own part, he admitted, “back then I wasn’t as educated on what was legal and what was not legal.”

The uncertainty stems, in no small part, from the lack of clarity about what laws apply to Bitcoin transactions â€" and the relative lack of interest from law enforcement. But in addition to that uncertainty, Bitcoin’s troubles have arisen from its tendency to attract maverick characters who want to test the established order. Before his arrest, Mr. Shrem talked about his difficulties with traditional banks.

“I don’t actually have a bank account,” he said with an impish grin that he has flashed during many speaking engagements. “No real bank would bank me.”
Jerry Brito, a senior fellow at the Mercatus Center at George Mason University, said that Mr. Shrem was “quite a compelling story â€" a sort of rags-to-riches story, made possible through Bitcoin.”

But, Mr. Brito said, many of the early entrepreneurs may not have had the proper tools for the world they were entering.

“These people were not ready for what they found themselves in the middle of,” Mr. Brito said.

Since Mr. Shrem’s arrest, some of the top figures in the Bitcoin world have distanced themselves from his activities. The Bitcoin Foundation, where Mr. Shrem was vice chairman, said in a statement, after he resigned that it is “worth noting that the indictment itself is not against Bitcoin or the community at large.”

But a few have come to his support. Roger Ver, an early investor in Mr. Shrem’s company, said that Mr. Shrem is a “trustworthy person, who would never commit a crime in which there is a victim.”

Nearly everyone who knows Mr. Shrem agrees that he was a charismatic salesman for Bitcoin from almost the first moment he encountered the digital money.
Mr. Shrem has said that he began dabbling in Bitcoin during his final year at Brooklyn College in 2011. He had grown up in the Brooklyn, graduated from Yeshiva of Flatbush, a private Jewish school, and founded a start-up during his first years in college.

But Bitcoin quickly became his passion.

“I became obsessed,” he told the website MeetInnovators last year.

His quickly realized how hard it was to exchange dollars into Bitcoin, and so he helped found his company, BitInstant, with another early adopter he met online. To raise money for BitInstant, Mr. Shrem turned on all his salesman charms, even with his mother.

“I said, ‘Mom, I love this idea and I put all my money into it, and we’re growing so quickly,’” he said during an interview last year with the Russian-owned television station RT. “She wrote me a check that day.”

He used similar powers of persuasion with Mr. Ver and the Winklevoss brothers, of Facebook fame, who helped lead a $1.5 million fund-raising round. The brothers have said since Mr. Shrem’s arrest that “We were passive investors in BitInstant and will do everything we can to help law enforcement officials.”

Mr. Shrem’s charisma quickly took him beyond the bounds of his company. He was a founding member of the Bitcoin Foundation board. He became a regular speaker at Bitcoin events. And he made an investment, in Bitcoin, in EVR, the bar founded by a few friends, which became a regular site for Bitcoin parties. He lived with the other owners in a five-bedroom apartment above the bar and hung out with his girlfriend, who sometimes worked as a bartender downstairs.

A profile of Mr. Shrem last year on the website Vocativ said that in the middle of all this, Mr. Shrem never stopped having fun. According to the article, Mr. Shrem said, “I won’t hire you unless I drink with you or smoke weed with you.”

Mr. Shrem said this week that the comment was taken out of context and was only a joke. But he has never been shy about how widely he ranged in the Bitcoin world. During the recent interview at EVR, he recounted a conversation with a former financial regulator: “She was like, ‘Charlie, you and some of your friends have become such super experts in finance, law and the Patriot Act and all these things.’”

“And I’m like, ‘It’s Bitcoin,’” he said.

In the end, it was his basic business that got him in trouble. The indictment on money-laundering charges, filed on Jan. 27, contended that he helped exchange dollars into Bitcoin for people who wanted to buy drugs on the online bazaar Silk Road despite knowing their intent and being warned by his business partner.

The charges were surprising given that Mr. Shrem often appeared at Bitcoin events talking about how to trade Bitcoin legally. At a Bitcoin conference last year, he boasted that BitInstant was “going to be the shining city on the hill.”

“We’re going to be the company that succeeded in the United States,” he said. “Worked with governments. Worked with banks. Did compliance.”

At the same time, Mr. Shrem acknowledged that he tested the limits of how much information the government required him to collect from his customers.

“You trust us, we trust you,” is how he described his company’s philosophy at the conference last year. “A lot of regulators frowned on that with me. But we said, ‘It’s going to work,’ and it has worked so far.”

A few months after that event, BitInstant’s bank shut down the company’s account suddenly. The company went offline soon after that and faced a lawsuit from customers who said the company had misrepresented its services and sought class-action status.

But that had not put a crimp in his big plans. Last month, his goal was to reopen BitInstant in the first quarter of this year after more fund-raising. After the arrest, he is not supposed to deal in Bitcoin, but his big ambitions for the currency, and himself, have not faded.

“Given the opportunity I will get back on the speaking circuit and be an evangelizer for Bitcoin,” he said on Thursday. “At the same time, the more high profile you are, the more careful you have to be. It’s scary.”