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Winklevoss twins on crypto’s allure for the ETF world

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Via Financial Times

Before entering Gemini’s Manhattan offices, visitors are required to sign a non-disclosure agreement. Such heavy-handed security is rare outside Silicon Valley, but paranoia over leaked corporate secrets is perhaps understandable given the experiences of the two men I have come to meet.

Cameron and Tyler Winklevoss have competed in the Olympics and feature in numerous business books, but are best known for their lawsuit against Mark Zuckerberg for allegedly taking their idea for a social network that would become Facebook. They settled in 2008 for $65m — half of which they took as Facebook stock.

The identical twins ploughed their proceeds into the cryptocurrency market and aspire to create the world’s first bitcoin exchange traded fund, undaunted by knock-backs from the Securities and Exchange Commission.

The 6ft 5in former rowers are physically imposing, even in the company’s airy boardroom where we meet. Unlike their preppy image in the Oscar-winning film The Social Network — which introduced the brothers to a global audience — they are dressed more like tech entrepreneurs than Harvard scholars. Helpfully Cameron is wearing a grey T-shirt and Tyler a white one, otherwise they would be impossible to tell apart.

The brothers remember relaxing on sun loungers in Ibiza when they were first introduced to bitcoin. Over drinks at the celebrity hotspot Blue Marlin beach bar in 2012, David Azar, a Brooklyn-based businessman, told them about the digital currency, which at that point was little known beyond a small group of online obsessives.

“We were super fascinated with it,” says Tyler. “It was the first money that was built for the internet by the same type of people who built the internet; very different than banker money trying to fit and work on the internet — which is very much a square peg, round hole exercise and it has been since the dawn of the internet.

“That was the big, big moment for us. When we talked to bitcoiners and asked them why it was not a Ponzi scheme, why it was different than PayPal, the answers were really interesting and we just kept digging deeper. The passion was electrifying. The people who were in it, they put their whole life savings there.”

They invested $1m in BitInstant, a bitcoin currency exchange. But their real interest was in the currency itself. They bought up millions of dollars’ worth of bitcoin, eventually owning 1 per cent of the currency. As its value rose sharply in 2017, the brothers became the first bitcoin billionaires.

But it was not all plain sailing. BitInstant, which at one point processed nearly a third of all bitcoin transactions, folded in 2014 and its chief executive, Charlie Shrem, was imprisoned after pleading guilty to helping people buy drugs on the Silk Road online black market.

There was also the hack and subsequent collapse of Japan-based Mt Gox, the biggest cryptocurrency exchange, in 2014, which caused the value of bitcoin to crash and rocked confidence in the market.

Tyler calls this period the Wild West for cryptocurrencies. “We wanted to change that because of our own experience. We wanted to solve our problem,” he says. “The way to do it is build something in America that’s regulated, that feels like other financial institutions, speaks that language, has a bank account in the US, so your dollars stay here.”

New York’s Flatiron district where Gemini is based is often referred to as Silicon Alley due to its high concentration of tech start-ups. But Cameron calls it Crypto Alley, owing to the number of cryptocurrency focused businesses. He adds that the proximity to traditional Wall Street financial institutions that are clients and service providers, as well as having a willing local regulator, New York’s Department of Financial Services (DFS), have ensured the city is a haven for crypto start-ups.

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Gemini was launched in 2015. The name alludes to the Latin word for twins, but its close association with space — referring to the constellation and the 1960s Nasa’s space mission — has influenced the design of the company’s offices. An astronaut’s suit hangs precariously over the staircase, while giant images of satellites cover the walls.

The twins believe cryptocurrencies’ next frontier is the ETF market — which they hope will provide a layer of credibility to an often-derided asset. “ETFs, historically, have been a huge boon for industries like the gold market,” says Cameron. “It’s something that people understand. ETFs have been around for at least 25 years, so it’s not reinventing the wheel, it’s creating GLD [the biggest gold ETF] with bitcoin. The investor public understands that product.”

They filed an application with the SEC to launch the first bitcoin ETF, but it was rejected for a second time in 2018, with the regulator expressing concern about fraud and manipulation of bitcoin markets. However, they still hope to bring such a product to the market and are in discussions with the regulator’s staff.

Gemini is also working with other crypto exchanges to improve information sharing in the industry to confront the SEC’s worry that there is not enough transparency in the market.

Gemini Trust Company

Established 2014

Assets n/a

Employees 230+

Headquarters New York City

Ownership Winklevoss Capital

In November, the SEC said it would review its decision to reject an application for a bitcoin ETF from Bitwise Asset Management, another business trying to get the products off the ground. Meanwhile, Fidelity Investments was granted a trust licence to offer trading and custody of bitcoin by the DFS.

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Gemini launched its own cryptocurrency custody business in September and announced a push into Europe, recruiting Julian Sawyer, a co-founder of digital bank Starling, to lead the London office.

The presence at the SEC of Hester Peirce, dubbed “crypto mom” for her enthusiasm for the asset, gives the brothers confidence for future applications. “She seems to support crypto and I think it’s good to have a diverse viewpoint in the commission,” says Cameron.

“We definitely respect how thoughtful [chair] Jay Clayton and the commission is being. Even if that means we have to wait, we respect their thoughtfulness. They really understand the subject matter and they’re trying to get it right.”

The entrance of Facebook to the cryptocurrency market with the planned launch of Libra this year has set up the intriguing possibility of the Winklevoss twins working alongside their old nemesis Mr Zuckerberg. They have already held talks with Facebook executives exploring potential collaborations.

So would the pair ever go into business with Facebook, despite their acrimonious history with its chief executive? “Yes, that was a different chapter and that chapter is closed,” replies Cameron. “We have entered a very different one and at least one or two more since then.”

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