As crypto companies falter, more retail money is getting trapped.
In the wake of FTX’s collapse, contagion is spreading across the industry. Crypto lender BlockFi, which has suspended customer withdrawals, is reportedly preparing to file for bankruptcy. Genesis announced Wednesday it was suspending redemptions and new loan originations at its lending business. That led Gemini Trust Co. — founded by the Winklevoss twins — to freeze withdrawals in its yield product, known as Gemini Earn, since Genesis was its partner in that program.
The flood of investors who poured money into crypto as prices soared last year are facing an existential crisis, as the implosion of FTX and its founder Sam Bankman-Fried reverberates through the industry. Recovering money from troubled crypto companies is a long and complicated process, with insolvency proceedings taking months or even years to resolve. And customers are becoming increasingly worried about when — if ever — they’ll be able to access their money.
Steve Boucicault, a 40-year-old crypto trader and Youtuber in Georgia, had about $4,000 on his Gemini Earn account, a program that allows customers to put their “crypto to work” for yields of 8% or higher. He received an email from Gemini a couple days after the FTX fiasco reassuring users that their funds were safe. So he thought his coins — including Bitcoin, Ether and the Gemini dollar (GUSD) — would be fine. So far, he hasn’t been able to get access.
“This is money I can't afford to lose,” he said. “I've been a big supporter for crypto, but I think until there's a secure regulation, if I do invest in crypto again, it will be through cold wallets.”
Latest Lockup
For Ryan Rozbiani, a full-time trader in New York, the Gemini news came as a surprise because he viewed it as safer than even FTX. He has about $6,000 in the Earn program that he’s currently trying to redeem. The rest of his crypto is in cold storage — where he plans to exclusively keep it from now on, since he’s lost faith in online platforms.
“I thought there was an extra level of security there,” the 27-year-old said. “But even the big boys are getting hit.”
AJ Joness, a 25-year-old trader in Dubai, started trying to withdraw $4,800 from Gemini last Thursday as FTX spiraled downward. After he failed to see the funds hit his bank account in 24 hours, the time he said it usually takes for withdrawals to transfer, he contacted Gemini’s support team. He was told he would get the funds on Monday, but hadn’t seem them as of Wednesday afternoon.
“It is shocking because Gemini is one of the safer, more regulated exchanges,” he said. “They’re not just any exchange that popped up out of nowhere."
Gemini said in a tweet Wednesday that its exchange was fully back online after an outage and customer funds held there were available for withdrawal. However, the company said that because Genesis -- the lending partner for its Earn program -- had paused withdrawals, it would not be able to meet customer redemptions within the “service-level agreement” of five business days.
“This does not impact any other Gemini products and services,” the company said in a statement.
Close Call
Some customers did manage to withdraw their money from Gemini just in time. Zach Waske, who works for a defense company and lives in St. Louis, heard about the collapse of Bankman-Fried’s empire while on a work trip in India last week and raced to withdraw the funds from Gemini Earn as soon as he got home.
He put in the request on Saturday and got an email this morning that his $17,000 was sitting in his traditional bank account. That was about half an hour before the company sent out an email that it was pausing withdrawals.
“It’s an immense relief,” the 38-year-old said. “I thought Gemini was safe, but right now I don’t think you can trust anyone.”
This article was provided by Bloomberg News.