Crypto Crash widens the gap between wealthy and amateur traders

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ENGLEWOOD, Colorado — 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 sparkled on stage with their new cover band, Mars Junction, at a concert venue outside Denver last week, the latest step from coast to coast. round. They sang hits like “Mr. Brightside” and Journey’s “Don’t Stop Believin'”. 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% of its staff. Since early May, more than $700 billion has been wiped out 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 hard times are a function forcing focus,” the Winklevosses, 40, said in a memo this month about the layoffs.

Cryptocurrencies have long been seen 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 like a bank – as a way for people from all walks of life to gain transformational wealth outside of the traditional financial system.

But despite all these supposedly egalitarian principles, the crypto crash has exposed a yawning chasm: As crypto company employees lose their jobs and ordinary investors suffer huge losses, top executives have come out relatively unscathed.

No crypto investor has completely escaped the downturn. 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 only a small fraction of their current value. Some locked in their gains early, selling some of their crypto holdings. Others run publicly traded crypto companies and have cashed in their stocks or invested in real estate.

In contrast, many amateur traders flooded the crypto market during the pandemic when prices had already started to soar. Some have poured out their savings, leaving them vulnerable to an accident. Thousands of people have also flocked to work for crypto companies, believing it to be a ticket to new riches. Today, many of them have seen their savings vanish or have lost their jobs.

The fallout from the crypto 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.

“No matter what, those who have the money will eventually get by,” he said.

The combined fortunes of the 16 richest crypto billionaires topped $135 billion in March, Forbes estimated. This week the total was around $76 billion, but most of the loss was suffered by a single billionaire, Changpeng Zhao, the chief executive of crypto exchange Binance, whose $65 billion fortune. dollars fell to $17.4 billion.

Cameron and Tyler Winklevoss, whose wealth stood at $4 billion each before the crash, were each worth $3.3 billion 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 crash. He had dabbled in crypto since 2018 and planned to use the money to open a brewery.

“A lot of people who seemed pretty reputable had a lot of confidence,” Mr. Thompson said. “The little ones are exploited.”

The uneven effects of the crash 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 increased. As part of the company’s IPO, Brian Armstrong, the chief executive, sold nearly $300 million worth of stock. In December, he reportedly purchased a $133 million estate in the Bel-Air neighborhood of Los Angeles.

In total, six of Coinbase’s top executives have sold shares worth more than $850 million since April 2021, according to Equilar, which tracks executive compensation. Emilie Choi, the chief operating officer, raised about $235 million, while Surojit Chatterjee, the chief product officer, sold $110 million worth of shares. 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% of its staff, or about 1,100 workers. Mr Armstrong said the company had “over-hired”.

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

Product Manager Michael Doss accepted a position at Coinbase in May after months of interviews. He had canceled his lease and made arrangements to move to Britain and join the company’s London operations when Coinbase took over the offer.

“I have to decompress all of this,” said Mr. Doss, 33. “That’s what I considered a career change.”

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

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

TerraUSD was launched by Terraform Labs, a startup that raised funds from venture capitalists such as Galaxy Digital and Lightspeed Venture Partners. Some of these investors cashed in before the project collapsed. Galaxy Digital said in a pre-crash filing that sales of its Luna holdings were “the biggest contributor” to $355 million in first-quarter earnings. (The company declined to comment for this article.)

The impact of the Luna-Terra crash has spread, hitting 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 these currencies, hoping to build a nest egg. Of his $10,000 investment, there is about $3,000 left.

“People are saying this technology is going to level the playing field,” Liebman said. “It’s clear that a lot of people are getting into the wrong side of the business.”

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

Yet, unlike Coinbase, the vast majority of these crypto companies are private, which means their value is less tied to daily price fluctuations. This has provided some company executives with some protection.

“My personal net worth probably hasn’t been affected too much,” said Ivan Soto-Wright, chief executive of MoonPay, a $3.4 billion crypto startup. “We are sitting on a large 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 he was trying to build a studio, where 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 hoarding Bitcoin in 2012 when its price hovered below $10. Even after the crash, it remains an extremely profitable investment for them: Bitcoin peaked at nearly $70,000 in November and is now approaching $20,000. In 2014, the Winklevosses founded Gemini and have since raised $400 million from investors.

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

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

Last week, around 50 people saw them perform at Engelwood’s Gothic Theatre. Two women showed up in Harvard sweatshirts they bought on eBay, a tribute to the campus where the Winklevosses battled Mark Zuckerberg for control of Facebook. A concession stand sold branded items including hats, t-shirts and tote bags; a portion will go to MusiCares, a charity that helps musicians recover from addiction, according to Tyler’s blog.

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 performed a song by the Red Hot Chili Peppers.

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



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