Crypto Crash Widens The Divide Between Wealthy And Hobbyist Traders

ENGLEWOOD, Colo. — The cryptocurrency market was in shambles. But Tyler and Cameron Winklevoss were playing.

The billionaire twins, best known for their supporting role in the creation of Facebook, twirled and swayed across the stage with their new cover band, Mars Junction, at a concert outside Denver last week, the latest stop on a travel from coast to coast. route. They sang hits like “Mr. Brightside” and “Don’t Stop Believin’” by Journey. Tickets are $25.

The Winklevosses were moonlighting 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 staff. Since the beginning of May, more than $700 billion has been lost in a devastating crypto crisis, plunging investors into financial ruin and forcing companies like Gemini to cut costs.

“Restriction is the mother of innovation and hard times are a forced function for focus,” the Winklevosses, who are 40, said in a note this month about the layoffs.

Cryptocurrencies have long been presented as a vehicle for economic empowerment. Enthusiasts promote digital currencies, which are exchanged through networks of computers that verify transactions, rather than through a centralized entity like a bank, as a means for people of all backgrounds to achieve transformative wealth outside the financial system. traditional.

But despite all those supposedly egalitarian principles, the cryptocurrency crash has revealed a huge gap: As employees of crypto companies lose their jobs and ordinary investors suffer huge losses, top executives have come out relatively unscathed.

No crypto investor has completely escaped the recession. But a small group of industry titans have amassed immense wealth as prices have soared over the past two years, giving them an enviable cushion. Many of them bought Bitcoin, Ether and other virtual currencies years ago, when prices were a small fraction of their current value. Some locked up their profits early, selling parts of their crypto holdings. Others run publicly traded crypto companies and cashed in their shares or invested in real estate.

On the contrary, many amateur traders flooded the crypto market during the pandemic, when prices had already started to skyrocket. Some invested their life savings, leaving them vulnerable to an accident. Thousands also flocked to work for crypto companies, thinking it was a ticket to new riches. Now many of them have seen their savings disappear or have lost their jobs.

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

“Whatever happens, those with money will end up well,” he said.

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

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

For retail investors like Ben Thompson, 33, the reality is different. Mr. Thompson, who lives in Sydney, Australia, lost around $45,000, half of his savings, in the accident. He had dabbled in crypto since 2018 and planned to use the money to open a brewery.

“A lot of people who seemed pretty respectable were very confident,” Thompson said. “They take advantage of the smallest people.”

The uneven effects of the collapse are evident even within crypto companies. Coinbase, the largest crypto exchange in the United States, went public in April 2021 when interest in digital currencies was rising. As part of the company’s public listing, Brian Armstrong, the CEO, sold almost $300 million worth of stock. In December, he reportedly bought a $133 million property in the Bel-Air neighborhood of Los Angeles.

In total, six of Coinbase’s top executives have sold more than $850 million worth of stock since April 2021, according to Equilar, which tracks executive compensation. Emilie Choi, chief operating officer, has garnered around $235 million, while Surojit Chatterjee, chief product officer, has sold $110 million worth of stock. Coinbase shares, which peaked at around $357 in November, are now trading at $51.

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

Coinbase also rescinded hundreds of job offers. Some of those new hires had already quit their previous jobs or were relying on Coinbase to keep their job. work visas.

Product manager Michael Doss accepted a job at Coinbase in May after months of interviews. He had canceled his lease and arranged to move to Britain and join the company’s London operation when Coinbase accepted the offer.

“I have to get rid of all of that,” Doss, 33, said. “This is what I saw as a career-making move.”

A Coinbase spokeswoman declined to comment on the layoffs and rescinded deals. She said many of the share sales were part of the direct listing process and that executives “hold important positions in the company that reflect their commitment.”

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

TerraUSD was launched by Terraform Labs, a startup that raised funds from venture capital firms including Galaxy Digital and Lightspeed Venture Partners. Some of those investors cashed in before the project collapsed. Galaxy Digital said in a filing before the collapse that sales of its Luna stakes were “the largest contributor” to first-quarter earnings of $355 million. (The company declined to comment for this article.)

The impact of the Luna-Terra crash was widespread, hitting the prices of Bitcoin and Ether, the two most valuable digital currencies. Last year, Elliot Liebman, a 30-year-old musician from Austin, Texas, began investing part of every paycheck in some of those coins, hoping to build savings. Of your $10,000 investment, there is about $3,000 left.

“People say this technology will level the playing field,” Liebman said. “It’s clear that a lot of people are getting on the wrong side of the business.”

The crash worsened this month when Celsius Network, a crypto bank, announced that it would suspend withdrawals. As prices fell, Gemini became the first major crypto firm to announce layoffs, followed by BlockFi, Crypto.com and Coinbase.

Still, unlike Coinbase, the vast majority of these crypto companies are privately owned, meaning their value is less tied to day-to-day price swings. That has provided executives at some companies with a measure of protection.

“My personal net worth probably hasn’t been affected too much,” said Ivan Soto-Wright, CEO of MoonPay, a $3.4 billion crypto payment startup. “We have a significant cash reserve.”

Mr. Soto-Wright recently purchased a $38 million, seven-bedroom mansion in Miami, complete with a spa and outdoor kitchen, according to Zillow. He said that he was trying to build a studio, where artists who work with MoonPay can come to produce music.

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

The Winklevosses began hoarding Bitcoin in 2012 when its price hovered around $10. Even after the crash, it’s still a very profitable investment for them: Bitcoin peaked at almost $70,000 in November and is now closer to $20,000. In 2014, the Winklevosses founded Gemini and have since raised $400 million from investors.

The brothers started Mars Junction, their band, as a pandemic project. When the crypto market crashed this month, they kicked off their tour with a show in Asbury Park, New Jersey.

“The contract I made with myself was that it would be about having FUN,” Tyler Winklevoss, lead singer, wrote in a blog post about the band.

Last week, some 50 spectators saw them perform at the Gothic Theater in Engelwood. Two women showed up wearing Harvard sweatshirts they had bought on eBay, a tribute to the campus where the Winklevosses battled Mark Zuckerberg for control of Facebook. A concession stand sold name-brand merchandise, including hats, T-shirts, and handbags; a portion will go to MusiCares, a charity that helps musicians recover from addiction, according to Tyler’s blog post.

During 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 as the band covered a Red Hot Chili Peppers song.

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

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