Gemini Trust Co. Chief Executive Officer and Co-Founder Tyler Winklevoss (left) and Gemini Trust Co. President and Co-Founder Cameron Winklevoss on Friday, June 6 in Miami, Florida, USA. Speaking at the Bitcoin 2021 conference held. April 4, 2021.
Eva Marie Uscategui | Bloomberg | Bloomberg | Getty Images
Both Cameron Winklevoss and Barry Silbert were early believers Bitcoin They made a lot of money on their investments and built big companies in the process.for almost two yearsthey enjoyed a mutually beneficial partnership and brought a lot of money to their customers.
Bitcoin heavyweights now hurt words battle This shows the depth of the cryptocurrency crisis and highlights the risks ultimately taken by ordinary investors caught in a massively unregulated market. As it stands, hundreds of millions of dollars in customer cash is out of reach as two crypto entrepreneurs battle for who is in charge.
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Silbert is the founder of Digital Currency Group (DCG), a cryptocurrency conglomerate that includes Grayscale Bitcoin Trust. trading platform GenesisWinklevoss co-founded the popular company Gemini with his brother Tyler. Unlike many of its peers, subject New York banking regulations.
Winklevoss and Silbert were brought together through a product called Earn. Up to 8% return on customer deposits. Using Earn, Gemini has lent client funds to Genesis and placed them on various cryptocurrency trading desks and borrowers.
As the digital coin market surged in 2020 and 2021, that capital provided Genesis with high returns and easily benefited users. This was very attractive at a time when the Federal Reserve’s benchmark rate was effectively zero. Other risky (and now defunct) cryptocurrency platforms such as Celsius and Voyager Digital offered yields as high as 20%.
Barry Silbert, Founder and CEO of Digital Currency Group
David A. Grogan | CNBC
It was a booming business. Genesis has her 260 employees and a strong sales desk, Gemini is one of the largest lending partners he has transferred $900 million worth of customer crypto to the company. Gemini considered Genesis, which is regulated by the state of New York and the Securities and Exchange Commission, to be the most trusted name in cryptocurrency lending, according to a person with direct knowledge of the matter. Diversification has been a challenge because other players have looser risk standards, said the people, who asked not to be identified due to confidentiality requirements.
friends turned enemies
In 2022, the cryptocurrency market has collapsed and the acquisition model has collapsed.
Cryptocurrencies languished, borrowers stopped paying their debts, hedge funds and lenders went bankrupt, and activity shrieked to a halt.
The locks opened even wider in November. FTX It was forced into bankruptcy, leaving crypto exchange customers without access to billions of dollars in deposits. FTX founder Sam Bankman-Fried will soon arrested for fraudwas accused of trading, lending, venture investing and using client funds for his purposes Bahamian luxury lifestyle.
An industry-wide crisis ensued as crypto investors across the board tried to withdraw their assets.Five days after FTX collapsed, Genesis was forced to freeze new lending, suspend redemptionIn a tweet, the company said, “FTX has caused unprecedented market turmoil, resulting in unusual withdrawal requests that exceed current liquidity.”
All Earn withdrawals have been suspended since November. Gemini’s 340,000 retail customers are angry, some collective action Against Genesis and Gemini. Winklevoss has put the blame on his Silbert shoulders and has publicized a fight to recover his $900 million deposit that his customers have deposited with his Genesis.
so letter Winklevoss told Silbert on Jan. 2 that the funds belonged to customers such as school teachers, police officers and “single mothers who lent you money for their son’s education.”
Winklevoss said Gemini had been trying to deal with Silbert “in good faith” for six weeks, only to encounter “malicious stalling tactics.” Gemini’s lawyers tried to work with the Genesis team over the Thanksgiving holidays, but it turns out their efforts were effectively rebuffed.
Another person, who requested anonymity, told CNBC that advisors to Genesis, DCG and Gemini’s creditors’ committees met multiple times during the six weeks Winklevoss mentioned.
Gemini’s creditors are represented by attorneys for both Kirkland & Ellis and Proskauer Rose and financial advisors for Houlihan Lokey.
Advisors to DCG and Genesis include law firm Cleary Gottlieb Steen & Hamilton and investment bank Moelis and Company.
The latest meeting between the three sets of lawyers and bankers was Monday, according to the individual.
on tuesday, Winklevoss is open letter DCG’s board of directors asked to replace Silbert.
One of Winklevoss’s main grievances stems from the loan Silbert made to Genesis after the collapse of crypto hedge fund Three Arrows Capital (3AC) last year.Genesis is owe more than $1 billion by 3AC when the company defaulted. Silbert stepped in, effectively boosting his trading house exposure with his $1.1 billion intercompany loan to Genesis.
At the time, Genesis sought to assure Gemini that the DCG division remained healthy, strong and supported by its parent company. Silbert justified the decision in a message to investors this week, writing that “Genesis had unparalleled expertise and the best institutional investor base in the world.” Genesis assured Gemini on July 6 that liquidity was not an issue, according to court filings, and the two agreed to continue working together.
Gemini alleges Genesis provided misleading information regarding Silbert’s loan. Winklevoss said the loan was a “10-year guaranteed note” rather than strengthening Genesis’ operating position, and would “improve Genesis’ near-term liquidity position or make its balance sheet solvent. It’s a complete gimmick that doesn’t do anything useful.”
Silbert has avoided responding directly to Winklevoss’ latest accusations, but the company has begun defending him. “We are maintaining all legal remedies in response to these malicious, bogus and defamatory attacks,” it added.
“DCG will continue a productive dialogue with Genesis and its creditors with the goal of reaching a solution that works for all parties,” the company said.
A DCG spokesperson told CNBC that the company denies Winklevoss’ allegations of financial impropriety.
High-profile altercations are nothing new for the 41-year-old Winklevoss twins. They are best known for their role in the birth of Facebook. meta, Founded by Harvard classmates Mark ZuckerbergThey sued Zuckerberg and eventually settled in 2011. $65 million payout Cash and Facebook stock.
The brothers quickly pivoted to crypto, by 2013 He said it controls 1% of all bitcoins in circulation. When Bitcoin peaks in 2021, stakes skyrocketed from $11 million at the time to over $4.5 billion.
Silbert and Winklevoss brothers were Bitcoin bulls long before exchanges and trading apps made it easy to buy digital currencies. Now that the deal has been reversed, they are deeply involved in the struggle.
Faced with mounting pressure from creditors and a looming threat of bankruptcy, Genesis recently cut headcount by 30%. second layoffGemini will cut 10% of its staff in June 2022, in another round Layoffs after 7 weeks.
Winklevoss says that thousands of Gemini customers are “looking for answers.” On Tuesday, Gemini told his Earn client that he was terminating a customer loan deal with Genesis and exiting the program.
Gemini and Genesis claim they are negotiating in good faith. But the harsh reality is that the bursting of last year’s cryptocurrency bubble left both companies with nowhere to hide. Their clients are now struggling to be perfect.
— CNBC’s Kate Rooney contributed to this report.