SAN FRANCISCO—Olaf Carlson-Wee has crammed the highs and lows of a hedge-fund career into roughly one year—all before his 30th birthday.
He turned $14,502 into a $150 million personal fortune by going all-in on cryptocurrencies right before Bitcoin became a household name. His fund, Polychain Capital, earned investors including Silicon Valley heavyweight Andreessen Horowitz a staggering 2,303% last year, after fees—among the best showings for a billion-dollar investment firm in history—drawing comparisons to Wall Street traders such as John Paulson and George Soros.
Now, Mr. Carlson-Wee must prove he isn’t a one-hit wonder. It isn’t going well.
Polychain has shed around 40% of the $800 million it made for clients last year through a combination of investment losses and withdrawals by some of its earliest investors. Some backers grumble that Mr. Carlson-Wee refuses to change tactics despite a broad pullback from crypto. Mr. Carlson-Wee cashed out a big chunk of his personal haul in the fund months ago.
Prominent venture-capital firm Union Square Ventures has yanked some of its money, while others have fallen out privately with the firm. One investor is suing, suspecting he was underpaid when he moved to redeem his investment. Attorneys for Polychain and Mr. Carlson-Wee deny that.
Crypto fever, meanwhile, has broken. After capturing the attention of the investing world in 2017, Bitcoin, the most well-known of a mushrooming collection of so-called digital assets, is down 55% this year. It recently traded for $6,301, down from its peak of nearly $19,280 in December.
“How much of it is luck, how much of it is skill and how much of it is luck disguised?” asks Fred Ehrsam, one of Polychain’s first investors, who is now starting his own fund.
At the center of the maelstrom is Mr. Carlson-Wee, a Silicon Valley star who wears neon tracksuits, has five earrings and routinely eats only a plate of refried beans, garlic and cheese for dinner. He is treated as an oracle by wannabe cryptocurrency moguls who mob him in public.
In interviews, he compared his relationship with cryptocurrency to romantic love, and likened the current investment opportunity to the early days of the internet.
Through each dip downward, he has continued buying, particularly stakes in businesses tied to Bitcoin rivals such as the cryptocurrency ether. He manages Polychain’s roughly $650 million flagship fund—the world’s biggest in crypto—from an Apple laptop surrounded by vintage boom boxes in undisclosed, secret San Francisco warehouse offices.
“I want to emphasize how long I’ve been doing this,” says Mr. Carlson-Wee, who turned 29 last month. “This is really just like breathing in and out for me.”
This account of the windfall and subsequent struggles of Polychain and Mr. Carlson-Wee is based on multiple interviews with people close to the firm, as well as audits and other investor documents reviewed by the Journal.
Mr. Carlson-Wee’s path to high-stakes investing began in Minnesota, in the suburbs of Fargo, N.D., where his parents were Lutheran pastors. In high school, Mr. Carlson-Wee wrote an SAT tutoring program in his spare time. He said he had few friends; his classmates voted him “most unique.”
At Vassar College, he majored in sociology and against advice from his professors wrote a senior thesis on a virtually unknown digital currency named Bitcoin.
Bitcoin is software that allows people to exchange value directly, without any government intermediary, essentially functioning as a digital form of money. It was created in 2008 by a person or people under the pseudonym Satoshi Nakamoto.
After graduation in 2012, Mr. Carlson-Wee became the first employee at Coinbase, a nascent cryptocurrency exchange. Until the morning of the interview, he owned only one pair of pants: jeans covered in sap from a short stint as a lumberjack. A shoestring acted as the belt. His $50,000 starting salary was paid in Bitcoin.
In July 2016, Mr. Carlson-Wee quit to start one of the first-ever crypto funds out of an apartment he shared with seven roommates in San Francisco’s gritty Mission district.
With a mullet, a wide collection of vintage windbreakers and a tendency to speak extemporaneously on esoteric topics, Mr. Carlson-Wee reminded some investors of the 1980s “Back to the Future” character Marty McFly.
The pitch worked: In December 2016, Union Square Ventures agreed to invest in the fledgling firm at a $5 million valuation, a steep price considering its total assets under management were roughly the same.
Venture capitalist Ramtin Maimi took a stake in Polychain at the same time, and afterward took Mr. Carlson-Wee out to lunch. Over avocado toast, he asked the manager how large Polychain could grow.