Gemini: is the cryptocurrency exchange in crisis?

A few days ago, news was published that caused some to fear that the crypto exchange Gemini may be in trouble. 

The news is that one of the two founders, Cameron Winklevoss, has resigned as director of Gemini Europe. 

Gemini Europe, however, is not the U.S. parent company based in New York but is only its subsidiary operating in Europe. Moreover, Europe is not the exchange’s main market. 

In fact, Cameron Winklevoss’ own comment to this news was sarcastic: 

“We must really be in the crypto winter if this is ‘news.’ I participate on numerous boards within the Gemini universe and sometimes join or leave depending on the needs of local entities.”

This is laughable. We must really be in winter if this is "news." I sit on numerous boards within the Gemini universe and sometimes I step on or off depending on the needs of a local entity.https://t.co/yrT6t2wwjW

— Cameron Winklevoss (@cameron) October 17, 2022

In itself, the fact that one of the two founders joins or leaves the board of one of Gemini Trust Company’s subsidiaries is more of a technical matter than actual news that might have anything to do with the company’s health. 

In the past who knows how many times this has happened before without anyone caring except the people directly involved. 

The Winklevoss twins and the journey into crypto with Gemini

Gemini is one of the most important U.S. cryptocurrency exchanges. It was created in 2015 by the Winklevoss twins, after whom it is named (Gemini in Latin means twins). 

The Winklevoss twins are best known because of the famous 2010 film The Social Network, about the founding of Facebook. 

In 2004 the Winklevosses sued Facebook, and in 2008 they reached a settlement by which they were to receive $20 million in cash and $45 million in company stock. 

However, in 2010 they again accused Facebook of misrepresenting the value of the shares, and the settlement was concluded in 2011. 

The following year the twins founded Winklevoss Capital Management, probably with the money they got from the lawsuit they won against Facebook. That was an investment company, particularly vis-à-vis early-stage startups. 

Two years later, they founded Gemini, probably not coincidentally in the year of Mt.Gox‘s bankruptcy, and in 2015 they launched the exchange. 

The early years of Gemini, the cryptocurrency exchange born in 2015

When it failed in February 2014, Mt.Gox was by far the most important cryptocurrency exchange in the world, so its failure opened up huge spaces in this sector. 

Coinbase, or the most important U.S. cryptocurrency exchange, already existed in the U.S., but it was not yet used as much as Mt.Gox. 

So in 2014, Coinbase was already fully active, while the Gemini exchange was still under construction. So it was mainly the first to pick up many U.S. investors and speculators orphaned by Mt.Gox. 

Gemini, however, was aiming for a high-quality user base, so much so that as early as 2015, it obtained an initial license from the New York Department of Financial Services. 

Being based in New York was probably Gemini’s main competitive advantage because New York State is by far one of those with the strictest regulations in the U.S. regarding companies offering financial services. 

That forced Gemini to be one of the first U.S. cryptocurrency exchanges to fully comply with all regulations. 

In the following years, Coinbase also followed this trend, but there were several years during which Gemini was much more suitable for investors with greater regulatory compliance needs. 

For example, in 2016, even the Governor of New York State himself, Andrew Cuomo, announced the approval of Gemini as the first authorized U.S.-based Ethereum exchange. 

For these reasons, when in December 2017, the Chicago Board Options Exchange (CBOE) launched the first Bitcoin futures contracts exchangeable in the U.S. on a traditional exchange, it chose Gemini specifically to settle these contracts. 

Competition 

While Gemini focused on regulatory compliance, Coinbase instead focused primarily on ease of use. 

This different approach led Coinbase to collect huge amounts of retail users over time, while Gemini preferred a smaller amount of professional or institutional customers. 

However, during the bear market of 2018-2019, Coinbase, no longer able to attract multitudes of retail clients, decided to approach the world of institutional clients as well, eventually competing with Gemini as well. 

To date, for example, the trading volume on Coinbase is about $1.5 billion per day, while on Gemini, it is less than $50 million. 

Because of the strong competition, some believe Gemini may be in crisis. 

Not least because now, in addition to Coinbase, the U.S. cryptocurrency market is dominated by another giant, FTX, which travels on about $700 million in daily exchange volumes. 

Indeed, Coinbase and FTX are between the top four crypto exchanges in the world by exchange volume, while Gemini is over 40th, surpassed even by other U.S. exchanges such as Kraken. 

The downward parabola

In this long bear market, Gemini’s daily trading volumes have fallen from about $200 million at the beginning of the year to the current $35 million, while in November 2021, at the peak, they came close to $500 million several times. 

So since the peak, they have shrunk by more than ten times, perhaps not only because of the bear market. 

For example, Coinbase’s volumes have dropped from about $10 billion in November 2021 to the current $1.3 billion through $4 billion in January 2022. 

So Gemini, from this point of view, made a -60% at the end of 2021, followed by a -82% in 2022. In contrast, Coinbase made a -60% at the end of 2021, followed, however, “only” by a -67% in 2022.

FTX, on the other hand, did a little worse than -50% at the end of 2021, and 2022 did the same. 

So 2022 for Gemini was a year of severe downsizing, while Coinbase and especially FTX held up better.

It should be pointed out, however, that both Coinbase and FTX are also widely used outside the U.S., while Gemini is mostly used in the U.S. due precisely to restrictions due to the very stringent regulations in New York State. 

The future of the Gemini cryptocurrency exchange

In such a scenario, it is more than obvious to cultivate doubts about Gemini’s staying power. 

It has happened before that cryptocurrency exchanges would go under during the bear market. 

To be fair, however, they often survived unless they suffered colossal hacks with thefts, like Mt.Gox in 2014.

Perhaps this will be a downsizing year for Gemini, but in reality, it is a bit of a downsizing year for all cryptocurrency exchanges. It is likely, however, that the downsizing may be greater for Gemini than for others in this industry, but it seems unlikely that it will go so far as to cause problems that would shut it down. 

Moreover, it seems to be one of the most secure exchanges, so unless they give up security to cut costs, it is hard to imagine that it could implode, for example, like Mt.Gox, due to theft of significant amounts.