Speaker 1: This is Bloomberg Crypto, a daily Bloomberg Ihad podcast, and
Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.
Speaker 1: It's Monday, February. If you've heard the name Winklevoss, it's
Speaker 1: likely that you've watched the movie The Social Network. That
Speaker 1: film featured a memorable depiction of the Harvard Twins and
Speaker 1: Olympic rowers who sued Mark Zuckerberg for allegedly stealing their
Speaker 1: idea for a social network. Or you might know that
Speaker 1: Cameron and Tyler Winklevoss set up a crypto exchange called Gemini,
Speaker 1: which is currently involved in a very ugly and very
Speaker 1: public dispute with the folks over a Genesis. Both Genesis
Speaker 1: and Gemini we know so many gennames are facing serious
Speaker 1: allegations from US regulators about their products and services. Or
Speaker 1: perhaps you're familiar with their cover band, Mars Junction, Tyler's
Speaker 1: the lead singer, Cameron jams on guitar. The twins certainly
Speaker 1: lead a very interesting life, one enabled by their billions
Speaker 1: of dollars. That wealth comes in part from their early
Speaker 1: adoption of digital assets like bitcoin. When they settled out
Speaker 1: of court with Mark Zuckerberg all those years ago for
Speaker 1: around sixty five million dollars. They put some of those
Speaker 1: assets into crypto. Here to break down what's up with
Speaker 1: the Winklevoss twins and their presence and digital assets is
Speaker 1: Bloomberg reporta Olga karif Olga, welcome back to the show.
Speaker 1: Great to be back. Thank you. Let's talk about some twins,
Speaker 1: specifically the winkle Voss twins or as many of us
Speaker 1: like to call them, the winkle v What's going on
Speaker 1: with them? Why are we talking about them today? So
Speaker 1: we are talking about them to day because there are
Speaker 1: about three hundred forty thousand people who are very unhappy
Speaker 1: with them. So these are people who used the Brothers
Speaker 1: Gemini Exchange for their crypto and then they decided to
Speaker 1: also use the so called earned program that Gemini offered. Basically,
Speaker 1: the way this program worked was, you know, if you
Speaker 1: have crypto and you want to earn yield on it,
Speaker 1: you put it into Earn and your crypto has been
Speaker 1: being lent out through Genesis, which is a partner of Gemini,
Speaker 1: and you can earn up to you know, around eight
Speaker 1: percent yield, which is high, which is like what was
Speaker 1: attractive about this product? Yeah, way higher than you could
Speaker 1: earn at a bank, except of course the bank your
Speaker 1: deposits are ensured. And as all of the Gemini Earned
Speaker 1: customers know. Now you know all this, you're whatever you
Speaker 1: put into earn is not ensured um And of course
Speaker 1: Gemini has said this upfront, but many people don't read
Speaker 1: terms of service. Well, okay, so Gemini was offering this
Speaker 1: interesting product it was it was providing you know, yields
Speaker 1: or returns that were unavailable to other folks. How did
Speaker 1: they get into trouble though? How did they end up
Speaker 1: with having hundreds of thousands of people being mad at them?
Speaker 1: So the trouble really started with um Genesis their partner.
Speaker 1: So over the summer, Genesis basically couldn't collect alone. It
Speaker 1: gave to another crypto firm that went under called Three Arrows.
Speaker 1: It was a hedge fund, and you know, essentially genesis
Speaker 1: Is financial trouble started right there. And in November, Genesis
Speaker 1: halted withdrawals and that meant that if you're in their
Speaker 1: earned program, you cannot withdraw your money. And essentially the
Speaker 1: Winkless Brothers have been working with Genesis on some sort
Speaker 1: of a resolution. Now, remember the Winkle Boss brothers have
Speaker 1: been waging a public fight against Genesis, even calling for
Speaker 1: Barry Silber, the founder of the digital currency group Empire,
Speaker 1: to step down as it's CEO. As Genesis is lending.
Speaker 1: So we've got this situation, and we've talked about on
Speaker 1: the show a couple of times, where even if one
Speaker 1: entity is quote unquote fine, the real risk for a
Speaker 1: lot of consumers is what's called a counter party, right,
Speaker 1: It's like who that entity is also doing business with
Speaker 1: and what kinds of stresses and risks they're exposed to.
Speaker 1: A lot of Gemini's arguments, including in the UK, were
Speaker 1: that they were better than other folks at you know,
Speaker 1: managing their risk, at making sure that even if they
Speaker 1: had those exposures, they were at relatively shall we say,
Speaker 1: not stressful levels. As Genesis is lending business bankruptcy, Gemini
Speaker 1: has been listed as its largest outside creditor with the
Speaker 1: most money owed by a landslide. What went wrong And
Speaker 1: it's a great point that people thought about Gemini differently
Speaker 1: than about a lot of other companies. So Ever since
Speaker 1: the brothers started the exchange in fourteen, they've been all about,
Speaker 1: you know, following regulation and being super conservative, you know,
Speaker 1: most other exchanges would list tons of you know, tokens.
Speaker 1: Uh in this exchange wouldn't list a ton, just because
Speaker 1: they wanted to be super conservative and super compliant, and
Speaker 1: so people kind of thought about them in this way
Speaker 1: even after Gemini launched turn in early and at the
Speaker 1: time the brothers said that, you know, essentially they're checking
Speaker 1: up on their partner, They're checking up genesiss financials from
Speaker 1: time to time. So people had a lot more faith
Speaker 1: in in what gem and I was doing with EARN
Speaker 1: even as a lot of other yield programs collapsed last year. Now,
Speaker 1: one of the bits of reporting that you had in
Speaker 1: the profile that you wrote of you know, the Winklevoss
Speaker 1: Twins and what they've been dealing with is that they
Speaker 1: have a cover band. Absolutely it's called Mars Junction and essentially,
Speaker 1: uh they actually went on tour last summer as a
Speaker 1: lot of this troubles and Crypto just first started appearing
Speaker 1: and boiling to the surface. Why are people not about this?
Speaker 1: Do they hit music? So? No? I think um, I
Speaker 1: think it just a lot of people are wondering why
Speaker 1: they went on tour when things were going south and Crypto,
Speaker 1: you know, at the time when they went on tour
Speaker 1: h three arrows the hedge fund that ultimately um led
Speaker 1: to troubles. That Genesis was collapsing and uh Celsius was
Speaker 1: in the brink of bankruptcy, and you know, this domino
Speaker 1: started following and we uh, you know, only months later
Speaker 1: can see just how interconnected all the different parts of
Speaker 1: the crypto ecosystem are. All these companies you know, lent
Speaker 1: and borrowed from each other and did business with each other,
Speaker 1: and you know, um, there's hardly anybody in the crypto
Speaker 1: industry that hasn't been impacted in some way by what happened. Now.
Speaker 1: I feel like over the past couple of weeks of episodes,
Speaker 1: I have to talk about the Securities and Exchange Commission
Speaker 1: like every single time because they're like, Hi, we're here too,
Speaker 1: So what is the sec of two as it relates
Speaker 1: to this Genesis Gemini situation? Why are they also involved? Sure? So,
Speaker 1: the sec essentially filed a lawsuit against Genesis and gem
Speaker 1: and I, accusing them of basically running this earned program
Speaker 1: even though in their opinion, it's equivalent to offering unregistered securities.
Speaker 1: So you have regulators as part of the mix as well,
Speaker 1: which I'm sure complicates any sort of settlement and discussions
Speaker 1: that are happening. Why over the past several months do
Speaker 1: you think we have seen so much more of this
Speaker 1: kind of SEC litigation, because you know, if we go
Speaker 1: back to let's say two thousand twenty early one, the
Speaker 1: rhetoric was much different. You know, there was this kind
Speaker 1: of excitement and enthusiasm because folks were like, oh, Gary Gensler,
Speaker 1: he taught a blockchain class, like he's down for the cause.
Speaker 1: And now they're like, Gary Ginsler, why is he coming
Speaker 1: for us? Like what what happened to? You know, have
Speaker 1: this shift of the SEC from like we're keeping an
Speaker 1: eye on things too, and now we're coming after you.
Speaker 1: You know, Gary Ginsler is under a lot of pressure
Speaker 1: as well. He is facing a lot of criticism because
Speaker 1: he was pursuing Kim Kardashi and with his enforcement actions
Speaker 1: while you know, a lot of this bad stuff that
Speaker 1: is affecting thousands or hundreds of thousands of people has
Speaker 1: been happening and the SEC has done nothing until sort
Speaker 1: of everybody was already uh, you know, in bankruptcy if
Speaker 1: you will, right, or nearing bankruptcy. And so Gary Ginsler
Speaker 1: is facing a lot of criticistem off, like where were
Speaker 1: you and why didn't you go after this guy's earlier
Speaker 1: while uh, you know, they weren't in such trouble and
Speaker 1: maybe the users could have gotten some of some more
Speaker 1: of their money back up next, more from Bloomberg Reports
Speaker 1: to Olga Karif on what's happening with the Winkle Lost Wins.
Speaker 1: We'll be right back in the Gloomberg ecosystem, you know,
Speaker 1: our colleague. On Bloomberg Opinion, Aaron Brown made the argument
Speaker 1: that the Winklevoss twins reputation has been severely tarnished. This
Speaker 1: idea that they were like the literal golden Boys of
Speaker 1: crypto seems to be fading a little bit. Do you
Speaker 1: think that the Winklevosses have a tarnished reputation? Quote unquote.
Speaker 1: So so I'm of two minds here. On the one hand,
Speaker 1: um Gemini says it worked with regulators, It ran it's
Speaker 1: earned product by them and they didn't say anything against it.
Speaker 1: And of course we know that coin Base tried to
Speaker 1: launch a similar product and was directly told by regulators
Speaker 1: that if you launch, it will sue, and so they
Speaker 1: put it back off the clear. So, on the one hand,
Speaker 1: you would think that once Gemini saw the coin based action,
Speaker 1: maybe it should have reconsidered or done something. On the
Speaker 1: other hand, if they what what they say is true,
Speaker 1: and they initially got a green light from from their regulators,
Speaker 1: then they could also feel like, we we haven't done
Speaker 1: anything wrong, you know. I think part of what needs
Speaker 1: to happen is re examination of regulators role and actions
Speaker 1: and whether they were asleep at the wheel, whether they
Speaker 1: did all they were supposed to, and overall, I think
Speaker 1: Gemini still continues to have, you know, a much better
Speaker 1: reputation than a lot of other overseas exchanges, and the
Speaker 1: wink of US twins are obviously accomplished and known people
Speaker 1: who are trying to comply with the US law, as
Speaker 1: they have repeatedly said, so, you know, but I also
Speaker 1: at the same time, um, there are a lot of
Speaker 1: posts on Reddit and other social networks essentially saying, you know,
Speaker 1: I used to be a loyal Gemini customer and I've left.
Speaker 1: I am fed up with this. I lost money on
Speaker 1: earn not coming back, and in fact, if we look
Speaker 1: at statistics, Gemini lost quite a bit of market share
Speaker 1: over the last year. So I think there's definitely been
Speaker 1: damaged done. You know, at the same time, this is
Speaker 1: part of a problem that has impacted the entire industry.
Speaker 1: The Winkle Vye have had to play this very delicately,
Speaker 1: these two different things where we're like, we wear polo shirts,
Speaker 1: but we also shred I mean guitar and you know,
Speaker 1: it seems like kind of emblematic of what they were
Speaker 1: trying to do with Gemini, right, like offer these attractive,
Speaker 1: slightly risky yields but also benefit from the perception that
Speaker 1: they were one of the safer places to be. How
Speaker 1: possible is is going to be in the future in
Speaker 1: this regulatory environment. I think with regulators really kind of
Speaker 1: tightening their grip on the sector, like you said, it
Speaker 1: all goes to this trade off between risk and yield,
Speaker 1: and I think what we might see is that as
Speaker 1: regulations tighten, the ability to sort of speculate and earn
Speaker 1: crazy double or triple digit yields here might decline. I'm
Speaker 1: not sure it will go away completely, but it might decline.
Speaker 1: But maybe it's a good thing from the point of send,
Speaker 1: point of investor protection and so forth. But in terms
Speaker 1: of where Gemini and the Winkless Brothers go from here,
Speaker 1: I think it still remains to be seen. They they
Speaker 1: both sort of insist that they're not going anywhere. They're
Speaker 1: very strong believers in the sector. A couple of years ago,
Speaker 1: Tyler winkle Loss wrote The Big Essays, saying, according to
Speaker 1: his estimates, he believes that bitcoin will will reach you know,
Speaker 1: five thousands. We think at attend trillion dollar market cap.
Speaker 1: We think one bitcoin well worth five dollars, and we
Speaker 1: think that could happen inside this decade, definitely the next
Speaker 1: five years. So we're hardlers at least until they're not
Speaker 1: just saying that they completely believe that this will be achieved.
Speaker 1: And I sort of tend to be of the mind
Speaker 1: that he has. People's memories are short and and if
Speaker 1: we enter another bullmarket, you know, their business will recover.
Speaker 1: And just as a last question on that points about
Speaker 1: them sticking around, you know, one of the things that
Speaker 1: you've mentioned is the fact that the brothers have a
Speaker 1: lot of their own personal wealth right partly from investing
Speaker 1: in bitcoin. Very very early. Have they made any suggestions
Speaker 1: too towards saying that they would personally make any of
Speaker 1: the investors in the urned products whole, or the kind
Speaker 1: of separating them as individuals from Geminio's entity. So there
Speaker 1: has been no suggestion that they would use their personal
Speaker 1: wealth to bail anybody out. So each brother has about
Speaker 1: three point two billion and personal wealth at this point. Uh.
Speaker 1: And I think a lot of investors, even investors in
Speaker 1: Gemini who you know, the latest round uh Gemini raised
Speaker 1: was in late they raised four hundred million at valuation
Speaker 1: of seven billion for the Gemini exchange. Uh. You know,
Speaker 1: a lot of investors in Gemini even believe that, you know,
Speaker 1: if something goes wrong, the brothers will backstop the exchange
Speaker 1: because they own about seventy of it. But whether they
Speaker 1: would backstop earn users, I don't think that's clear at all.
Speaker 1: They haven't said anything like this, and I think it's
Speaker 1: very unlikely because they're not out right required to bail
Speaker 1: anybody out. And while I think there might be some
Speaker 1: legal arguments saying they have to make their users whole,
Speaker 1: you know, this would have to go through a legal
Speaker 1: process most likely before we know whether that's the case
Speaker 1: or not. Well, as we say, it's never a dull moment.
Speaker 1: Thank you so much for bring on the show today.
Speaker 1: It was my pleasure. Thank you. That was Bloomberg reporter
Speaker 1: Olga Carife. You can find more of her reporting on
Speaker 1: the Bloomberg Terminal and on Bloomberg dot com, and be
Speaker 1: sure to check out our twice weekly newsletter, Bloomberg Crypto.
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Speaker 1: Moses on Them. Desta wonder At is our engineer. Original
Speaker 1: music by Leo Sidrn. I'm Stacy Marie Shmaal. We'll be
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