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Crypto Crisis Leaves ‘Gemini’ Winklevoss Twins ‘Severely Stained’


(Bloomberg) — Signs of a full-blown crisis are everywhere. Bitcoin is in free fall, the Three Arrows hedge fund explodes, and the fates of several prominent crypto lenders are suddenly in doubt.

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However, as panic spread like wildfire last June, the Winklevoss twins, the founders of the Gemini cryptocurrency exchange, hit the road with their rock band, Mars Junction. With Tyler and Cameron’s vocals on guitar, they’ve performed hits like Don’t Stop Believin’, which doesn’t seem to be a problem when other companies — prop up by making easy money, head first. Chances are rampant and maybe even fraudulent — one firm after another collapses.

And why not? The two brothers, who turned their former Facebook millions into billions of cryptocurrencies, are loyal followers who have survived previous downturns. With Gemini, they set out to prove to the world that they are people investors can trust. Over the summer, they stood behind their own lending product, Gemini Earn — pulling in billions of dollars in deposits at up to 8% interest rates — even as trouble started to hit its Earning partner. their only, Genesis Global.

However, two months after Genesis abruptly stopped withdrawals and forced the twins to pause redemption on their Monetize account, it’s hard to believe their customers will get back the $900 million still being lost. stuck in limbo.

“The Winklevoss brand is seriously tarnished,” said Aaron Brown, a crypto investor for Bloomberg Opinion.

On Tuesday, Cameron Winklevoss accused Barry Silbert, which owns Genesis, of defrauding Gemini Earn customers and urged the company’s board to remove him, deepening the relationship between the partners. business for a while. In a separate notice to Monetize customers, Gemini said it has terminated its loan agreement with Genesis, a move that officially ends the Monetization program and requires Genesis to return all outstanding assets. right away.

In an interview on Tuesday, Cameron Winklevoss said he and his twin are “working around the clock to find a solution for all Earn users”. He added that “we believe in this space. This is a painful period, but people are looking ahead.”

‘Public stunt’

Digital Currency Group, the parent company that owns Genesis, responded to the letter Tuesday by calling it “another desperate and unconstructive public stunt from Cameron Winklevoss to deflect blame” and that it “maintains all legal means to respond to malicious conduct, misconduct, and defamation attacks.”

A Genesis spokesperson said the company is disappointed that Gemini is “running a mass media campaign,” but it remains focused on finding a solution to a “very complex process” that will take a long time. more time.

Silbert himself could not be immediately reached for comment. Last week, he denied allegations of any mismanagement in response to an earlier letter from Winklevoss.

The predicament is a humbling humour for 41-year-old crypto entrepreneurs, whose fortunes and fame are based on the suggestion that they are the adults who can tame the crypto frontier. for the wider world. The episode raised questions about whether their seemingly unwavering faith in cryptocurrencies left Gemini and their customers unprepared for the worst.

Gemini launched its Make Money product in February 2021, giving investors a way to earn interest far beyond the interest rates on traditional bank accounts. It did this by allowing Genesis depositors to borrow their cryptocurrencies, thereby lending those coins to Genesis at an even higher rate for major crypto traders to bet on. by leverage.

Limited

Importantly, Gemini does not lend money on its own, but acts as an agent between Earn and Genesis customers. In August 2021, Gemini announced that Monetization accounts surpassed $3 billion.

While troubles with Gemini Earn flared in November, inside the company, questions about risk management arose much earlier.

Since early 2021, employees have been urging the twins to find more partners to help protect Gemini and their customers should Genesis run into trouble, according to a person familiar with the matter. That never happened, in part because it was difficult to find other partners that met Gemini’s regulatory and risk requirements, said the person, who is not authorized to speak publicly. Gemini declined to comment on its diversification plans for Monetization partners.

Prior to removing the Earn product from its website, Gemini said that Borrowers accredited in Earn (i.e. Genesis) were “reviewed through our risk management framework to review the regulatory process.” collateral of our partners”. The company also said it reviewed the cash flows, balance sheets and financial statements of its partners “on a periodic basis”.

Winklevoss Faithful has a big problem in Genesis Halt

By September, two major crypto companies, Celsius and Voyager Digital, had gone bankrupt; BlockFi, a lending company that Winklevosses invested in, is preparing for bankruptcy; and the once-booming industry seems dead.

According to a report last week by The Information, the twins decided to officially end the Monetization product that month, but that meant negotiating with Genesis and figuring out a time-consuming plan to solve the problem. open the account and pay it back. customer. Gemini declined to discuss the report when asked by Bloomberg.

in Limbo

Publicly, Gemini still markets Earn and stands behind the product. Then, in November, Sam Bankman-Fried’s FTX empire shocked the crypto world by filing for bankruptcy.

Since then, Gemini Earn customers have been left in limbo.

From the start, the Winklevoss twins advised Earn’s customers to be patient and committed to working with Genesis to get their money back. Now, the situation had turned into an ugly quarrel.

In his latest letter dated January 10, Cameron Winklevoss accused Silbert, his company Digital Currency Group, and its Genesis unit of repeatedly misrepresenting Genesis’ financial position. On January 2, Winklevoss criticized Silbert in a separate open letter for “unfavorable delay tactics” and money mixing in DCG.

In response to the previous letter, Silbert said in a tweet that DCG sent a dispute resolution proposal to Winklevoss advisors on December 29, but received no reply.

What happens next is anyone’s guess. But amid all the criticism and accusations, this is clear: There is a lot to blame.

The twins, by suggesting through Gemini marketing that the Earn account is similar to an FDIC-insured savings account but at a much higher rate. Genesis, by over-expanding itself into lending risky (such as the now bankrupt Three Arrows) with other people’s money. And of course, Monetize the users themselves by ignoring the very real possibility that they could lose all their money.

Gemini users are fed up. One is facing the Winklevoss twins

Gemini customers are likely to face years of uncertainty. Unlike bank depositors, Earn users will be treated as unsecured creditors in the event of Genesis bankruptcy. Last week, a bankruptcy judge ruled that Celsius owns the coins that customers deposit into a crypto lender’s interest-bearing account. Meanwhile, investors with money stuck on Mt. Gox when this crypto exchange went bankrupt in 2014 has yet to see the money.

Currently, Earn customers can address their grievances on Reddit, Telegram, and other online platforms. Some have filed class action lawsuits against Gemini, while many others have sought arbitration.

As for the Winklevoss twins, it looks like they have plenty of resources if they choose to support Gemini.

Backed by their initial Bitcoin investments, they are now worth nearly $6 billion, according to Bloomberg. They own a 70% stake in Gemini, which is still expected to make several hundred million in revenue this year, said a person familiar with the matter, who requested anonymity because the information is private. . Gemini declined to comment on the twins’ finances or shares.

They founded New York-based Gemini in 2014, with a focus on strict regulation and compliance — a stance that may have protected them from the worst abuses of cryptocurrencies. , even if it could stifle growth as overseas exchanges flourish.

“They’re playing the long game,” said Campbell Harvey, a finance professor at Duke University. “Usually with new innovation, there is a shedding. Faulty models have been eliminated, risk management practices improved, and a number of clear winners have emerged.”

Despite that, the Monetization crisis has made Gemini a much-dipped player in a dramatically shrinking global market.

Great expectations

Back in 2020, Tyler Winklevoss said Bitcoin would hit $500,000, while wallet the dollar with toilet paper. The price of Bitcoin has plummeted since then, dropping more than 60% to around $16,800, while the total value of the crypto market has dropped even more.

While global rival Binance has consolidated power in recent months, Gemini has lost customers. Never one of the largest exchanges, its global cryptocurrency exchange market share has dropped to 0.16% from 0.45% a year ago, according to data compiled by researcher CryptoCompare.

Gemini announced it will lay off 10% of its staff in June to reduce costs. This month, Bloomberg reported that Noah Perlman, CEO of Gemini, has left the company. That stands in stark contrast to the early days, when the twins raised $400 million by the end of 2021, valuing Gemini at more than $7 billion.

“The Winkle brothers will need to weigh the trade-off between how much they care about their future reputation versus their financial liabilities,” said John Griffin, a professor of finance at the University of Texas at Austin. surname. “Much of it probably depends on how rich their pockets are outside of crypto.”

For Terminal Subscribers: Find the latest crypto market prices at CRYP and the biggest crypto news at TOP CRYPTO.

–With support from Vildana Hajric and Kenneth Hughes.

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