Home Tech Updates Crypto Crash Expands The Gap Between Rich And Amateur Traders

Crypto Crash Expands The Gap Between Rich And Amateur Traders

by Margaret N. Bryan

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

Best known for their supporting role in the founding of Facebook, the billionaire twins turned and swung across the stage with their new cover band, Mars Junction, last week at a concert venue outside Denver, the final stop on a coast-to-coast tour. . They released hits like the Killers’ “Mr. Brightside” and Journey’s “Don’t Stop Believin’.” Tickets cost $25.

The Winklevosses were rocking out just weeks after their $7 billion company, Gemini, which provides a platform for buying and selling digital currencies, laid off 10 percent of its workforce. Since early May, over $700 billion has been wiped out in a devastating crypto crash, plunging investors into financial ruin and forcing companies like Gemini to cut costs.

“Constrainment is the mother of innovation, and hard times are a compelling feature of focus,” Winklevosses, 40, said in a note this month about the layoffs.

Crypto Crash Expands The Gap Between Rich And Amateur Traders

Cryptocurrencies have long been held up as a vehicle for economic empowerment. Enthusiasts are promoting digital coins – which are exchanged using networks of computers that verify transactions rather than through a centralized entity such as a bank – as a means for people of all backgrounds to acquire transformational wealth outside the traditional financial system.

But despite all those supposedly egalitarian principles, the collapse of crypto has revealed a yawning chasm: While crypto company employees lose their jobs and ordinary investors suffer huge losses, top executives have emerged relatively unscathed.

No crypto investor has completely escaped the downturn. But a small group of industrial titans amassed enormous wealth as prices soared over the past two years, giving them an enviable cushion. Many bought Bitcoin, Ether, and other virtual currencies years ago when prices were only a fraction of their current value. Some locked in their profits early and sold portions of their crypto holdings. Others run publicly traded crypto companies, cash in their shares, or invest in real estate.

In contrast, many amateur traders poured into the crypto market during the pandemic, when prices had already risen. Some plunged into their savings, leaving them vulnerable to a crash. Thousands also flocked to work for crypto companies, thinking it was a ticket to new riches. Many of them have seen their savings disappear or have lost their jobs.

The fallout from the crypto crash follows the pattern of other financial recessions, 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 be fine,” he said.

Forbes estimated that the combined fortunes of the 16 richest crypto billionaires exceeded $135 billion in March. This week’s total was about $76 billion. Still, the bulk of the loss was suffered by a single billionaire, Changpeng Zhao, the chief executive of crypto exchange Binance, whose fortune shrank from $65 billion to $17.4 billion.

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

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

“A lot of people who seemed to be in good standing were very confident,” said Mr. Thompson. “The smaller people are being taken advantage of.”

The uneven effects of the crash are apparent even within crypto firms. Coinbase, the largest crypto exchange in the United States, went public in April 2021 as interest in digital currencies increased. As part of the company’s public listing, Brian Armstrong, its chief executive, sold nearly $300 million shares. In December, he reportedly bought a $133 million estate in the Bel-Air neighborhood of Los Angeles.

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

This month, as Coinbase struggled with falling prices and declining consumer interest in crypto, it laid off 18 percent of its staff or about 1,100 employees. Mr. Armstrong said the company “hired too much”.

Coinbase has also withdrawn hundreds of job openings. Some new hires had quit their previous jobs or relied on Coinbase to keep their work visas.

Michael Doss, a product manager, accepted a job at Coinbase in May after months of interviews. He had canceled his lease and made arrangements to move to Britain and join the London company when Coinbase withdrew the offer.

“I have to wrap everything up,” said Mr. Doss, 33. “This is what I considered a career move.”

A Coinbase spokeswoman declined to comment on the layoffs and the withdrawn offers. She said many of the stock sales were part of the natural listing process, and executives “maintain major positions in the company as a result of their dedication.”

The crypto crash started in May when an experimental coin called TerraUSD lost almost all of its value overnight, and a sister digital currency, Luna. The collapse devastated some retailers who had spent their savings on TerraUSD through Anchor Protocol. This lending program allowed investors to deposit the coin and receive interest of up to 19.5 percent.

TerraUSD was launched by Terraform Labs, a start-up that has raised funding from venture capital firms, including Galaxy Digital and Lightspeed Venture Partners. Some of those investors made money before the project collapsed. Galaxy Digital said in a filing before the crash that the sale of its Luna holdings was “the largest contributor” to $355 million in profits in the first quarter. (The company declined to comment on this article.)

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

“People are saying this technology will level the playing field,” Liebman said. “, A lot of people get in on the wrong side of the business.”

The crash worsened this month when Celsius Network, a crypto bank, announced it was halting withdrawals. Gemini became the first major crypto company to announce layoffs as prices fell, followed by BlockFi, Crypto.com, and Coinbase.

Still, unlike Coinbase, most crypto companies are privately owned, meaning their value is less tied to daily price fluctuations. That has provided executives at some companies with a measure of protection.

“My wealth probably hasn’t been affected too much,” said Ivan Soto-Wright, the chief executive of MoonPay, a $3.4 billion crypto payments start-up. “We are sitting on a significant cash reserve.”

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

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

The Winklevosses started stockpiling Bitcoin in 2012 when the price hovered below $10. Even after the crash, it remains a hugely profitable investment for them: Bitcoin peaked at nearly $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 collapsed this month, they started their tour with a show in Asbury Park, NJ.

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

Last week about 50 spectators saw them perform at the Gothic Theater in Englewood. Two women showed up wearing Harvard sweatshirts they’d bought on eBay, a tribute to the campus where the Winklevosses had a joust over control of Facebook with Mark Zuckerberg. According to Tyler’s blog post, a concession stand sold branded items, including hats, T-shirts, and tote bags; some will go to MusiCares, a charity that helps musicians recover from addiction.

During the 90-minute set, the Winklevosses cycled through a series of rock classics with Cameron on guitar. A small group danced before the stage as the band covered a Red Hot Chili Peppers song.

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

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