Crypto Crash widens the divide between wealthy and amateur traders

ENGLEWOOD, Col. — The cryptocurrency market was in ruins. But Tyler and Cameron Winklevoss were getting into each other.

The billionaire twins, best known for their supporting roles in the creation of Facebook, spun and shined on stage with their new cover group, Mars Junction, at a concert hall outside of Denver last week. type. Killers’ “Mr. Brightside” and “Don’t Stop Believin’” by Journey. Tickets are $25.

The Winklevos were standing out as rockers just weeks after their $7 billion company Gemini, which offers a platform for buying and selling digital currencies, laid off 10 percent of its employees. Since the beginning of May, more than $700 billion has been destroyed in a devastating crypto crash, plunging investors into financial ruin and forcing companies like Gemini to cut costs.

“Constraint is the mother of innovation, and tough times are a function that forces focus,” Winklevosses, 40, said in a note this month about layoffs.

Cryptocurrencies have long been used as a tool for economic empowerment. Enthusiasts are promoting digital currencies, which are exchanged using computer networks that validate transactions, rather than a centralized entity like a bank, as a means for people of all backgrounds outside of the traditional financial system to achieve transformative wealth.

But for all the so-called egalitarian principles, the collapse of crypto revealed a stretching divide: senior executives were relatively unscathed, while employees of crypto companies lost their jobs and ordinary investors suffered huge losses.

No crypto investor has fully recovered from the crisis. But a small group of industry giants has amassed enormous wealth and provided them with an enviable cushion as prices have skyrocketed over the past two years. Many bought Bitcoin, Ether, and other virtual currencies years ago when prices were a small fraction of their current value. Some have locked in gains early by selling some of their crypto holdings. Others run publicly traded crypto companies and monetize stocks or invest in real estate.

In turn, many amateur traders flocked to the crypto market during the pandemic, when prices were already starting to rise. Some spilled their life savings, leaving them vulnerable to an accident. Thousands flocked to work for crypto companies, thinking it was a ticket to new wealth. Now many have seen their savings disappear or have lost their jobs.

Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, a liberal think tank, said the fallout from the crypto crash followed the pattern of other financial downturns.

“Whatever happens, those with money will be fine,” he said.

Forbes estimated the combined wealth of the 16 richest crypto billionaires to exceed $135 billion in March. As of this week, the total was about $76 billion, but most of the loss was made by a single billionaire, by Changpeng Zhao, CEO of crypto exchange Binance, whose fortune from $65 billion fell to $17.4 billion.

Cameron and Tyler Winklevoss were each worth $3.3 billion this week, according to Forbes, whose fortunes were $4 billion before the crash. They declined to comment.

For retail investors like 33-year-old Ben Thompson, the reality is different. Mr Thompson, who lives in Sydney, Australia, lost about $45,000 – half of his savings – in the accident. He has been involved in crypto since 2018 and plans to use the money to open a brewery.

“A lot of people who seemed pretty decent were very confident,” said Mr Thompson. “Smaller people benefit.”

The erratic effects of the crash are evident even in crypto companies. Coinbase, the largest crypto exchange in the United States, went public in April 2021, when interest in digital currencies increased. As part of the company’s IPO, CEO Brian Armstrong sold shares for approximately $300 million. In December, it was reported that he bought a $133 million property in Los Angeles’ Bel-Air neighborhood.

Six of Coinbase’s top executives have sold more than $850 million in shares since April 2021, according to Equilar, which tracks executive compensation. Chief operating officer Emilie Choi harvested approximately $235 million, while chief operating officer Surojit Chatterjee sold shares for $110 million. Coinbase stock, which peaked at around $357 in November, is now trading at $51.

This month, Coinbase laid off 18 percent of its staff, or about 1,100 workers, as Coinbase grappled with falling prices and waning consumer interest in crypto. Mr Armstrong said the company was “overhired”.

Coinbase has also canceled hundreds of job offers. Some of these new hires had already left their previous jobs or were relying on Coinbase to maintain their existence. work visas.

Product manager Michael Doss accepted a job at Coinbase in May after months of negotiations. When Coinbase retracted the offer, it canceled its lease and made arrangements to relocate to the UK and join the company’s London operation.

“I have to figure all this out,” said Mr. Doss, 33. “This is what I see as a career-building move.”

A Coinbase spokesperson declined to comment on the layoffs and canceled offers. He said most of the stock sales were part of the direct listing process, and that executives “retained large positions in the company that reflected their commitments.”

The crypto crash began in May when an experimental coin called TerraUSD lost almost all of its value almost overnight and overthrew its sister digital currency Luna. Its collapse devastated some retail traders who spent their life savings on TerraUSD through Anchor Protocol, a loan program that allows investors to deposit the coin and receive up to 19.5 percent interest.

TerraUSD was started by Terraform Labs, a startup that raises funds from venture capital firms including Galaxy Digital and Lightspeed Venture Partners. Some of these investors made money before the project collapsed. Galaxy Digital, in a filing prior to the crash, said sales of its Luna holdings were its “biggest contributor” to its $355 million earnings in the first quarter. (The company declined to comment for this article.)

The impact of the Luna-Terra crash spread and hit the prices of the two most valuable digital currencies, Bitcoin and Ether. Last year, Elliot Liebman, a 30-year-old musician living in Austin, Texas, began investing a portion of each paycheck in some of these currencies, hoping to build a nest egg. He has about $3,000 left on his $10,000 investment.

“People say this technology will level the playing field,” said Mr. Liebman. “It is clear that a lot of people are on the wrong side of the trade.”

It got worse this month when Celsius Network, a crypto bank, announced that it was stopping withdrawals. As prices fell, Gemini became the first major crypto company to announce layoffs, followed by BlockFi, Crypto.com, and Coinbase.

Yet, unlike Coinbase, the vast majority of these crypto companies are privately held, meaning their value is less dependent on daily price fluctuations. This provided a measure of protection to executives at some companies.

“My personal net worth has probably not been affected too much,” said Ivan Soto-Wright, CEO of MoonPay, a $3.4 billion crypto payments startup. “We are sitting on a substantial cash reserve.”

According to Zillow, Mr. Soto-Wright recently purchased a $38 million, seven-bedroom, spa and open-kitchen mansion in Miami. He said he is trying to set up a studio where artists working with MoonPay can come and produce music.

“It’s almost like a hacker house,” he said. “It was a good investment.”

Winklevosses started storing Bitcoin in 2012 when its price dropped below $10. Even after the crash, it remains a highly profitable investment for them: Bitcoin peaked at around $70,000 in November and is now close to $20,000. In 2014, Winklevosses founded Gemini and has since raised $400 million from investors.

The brothers started their group, Mars Junction, as a pandemic project. As the crypto market crashed this month, they started their tour with a show in Asbury Park, NJ.

“My contract with myself was that it was going to be about FUN,” the band’s lead singer Tyler Winklevoss said in a blog post about the band.

Last week, nearly 50 spectators watched their performance at the Gothic Theater in Englewood. Two women showed up in Harvard sweatshirts they bought on eBay, a tribute to the campus where the Winklevoss fought Mark Zuckerberg over control of Facebook. Branded merchandise including hats, t-shirts and tote bags were sold at a concession stand; According to Tyler’s blog post, some of it will go to MusiCares, a charity that helps musicians recover from addiction.

On the 90-minute set, the Winklevosses went through a series of rock classics with Cameron on guitar. A small group danced in front of the stage while they covered the Red Hot Chili Peppers song.

“Hit me,” Tyler howled into the microphone. “You can’t hurt me.”

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