Crypto Crash expands the distinction between rich and amateur traders

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

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

The Winklevosses were moonlighted 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 employees. Since the beginning of May, more than $ 700 billion has been wiped out in a devastating cryptocurrency crash that has plunged investors into financial ruin and forced companies like Gemini to cut costs.

“Limitations are the mother of innovation and difficult times are a compelling feature of focus,” Winklevossene, 40, said in a note this month about the layoffs.

Cryptocurrencies have long been held up as a tool for economic strengthening. Enthusiasts market the digital coins – which are exchanged using networks of computers that confirm transactions, rather than through a centralized entity such as a bank – as a means for people of all backgrounds to achieve transformational wealth outside the traditional financial system.

But for all these supposedly egalitarian principles, the collapse of crypto has revealed a yawning distinction: As employees of crypto companies lose their jobs and ordinary investors suffer huge losses, top executives have emerged relatively unharmed.

No crypto investor has completely escaped the downturn. But a small group of industrial titans accumulated enormous wealth as prices rose 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 in their winnings early, and sold parts of the crypto stock. Others run listed crypto companies and paid out shares or invested in real estate.

On the other hand, many amateur traders flooded the crypto market during the pandemic, when prices had already started to skyrocket. Someone pushed in their savings, making them vulnerable to a crash. Thousands also flocked to work for crypto companies, thinking it was a ticket to new wealth. Now many of them have seen their savings disappear or have lost their jobs.

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

“Either way, those with money will end up having a good time,” he said.

The total wealth of the 16 richest crypto billionaires exceeded $ 135 billion in March, Forbes estimated. As of this week, the total was around $ 76 billion, but most of the loss was inflicted by a single billionaire, Changpeng Zhao, CEO of the crypto exchange Binance, whose fortune of $ 65 billion shrank to $ 17.4 billion.

Cameron and Tyler Winklevoss, whose fortunes were $ 4 billion apiece 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 about $ 45,000 – half of his savings – in the crash. He had been running a crypto since 2018 and planned to use the money to open a brewery.

“A lot of people who seemed quite reputable had a lot of confidence,” Mr. Thompson said. “The smaller people are being exploited.”

The uneven effects of the crash are evident even within crypto companies. Coinbase, the largest crypto exchange in the United States, was listed on the stock exchange in April 2021 when interest in digital currencies increased. As part of the company’s IPO, CEO Brian Armstrong sold nearly $ 300 million in shares. In December, he is said to have bought a $ 133 million property in the Los Angeles area of ​​Bel-Air.

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. Operations Manager Emilie Choi has raised around $ 235 million, while product manager Surojit Chatterjee has sold $ 110 million in shares. Coinbase’s stock, which peaked at around $ 357 in November, is now trading at $ 51.

This month, as Coinbase struggled with falling prices and falling consumer interest in crypto, it laid off 18 percent of employees, or around 1,100 workers. Mr Armstrong said the company had “over-employed”.

Coinbase also withdrew hundreds of job offers. Some of the new employees had already quit their previous jobs, or were dependent on Coinbase to maintain their work visa.

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

“I have to relax all this,” said Mr. Doss, 33. “This is what I saw as a career move.”

A Coinbase spokeswoman declined to comment on the redundancies and the canceled offers. She said many of the share sales were part of the direct listing process and that executives “maintain large positions in the company that reflect their commitment.”

Cryptocracy started in May when an experimental coin called TerraUSD lost almost all value virtually overnight, taking down a digital sister currency, Luna, as well. The collapse destroyed some retailers who had used their savings on TerraUSD through Anchor Protocol, a lending program that allowed investors to deposit the coin and receive interest rates as high as 19.5 percent.

TerraUSD was launched by Terraform Labs, a startup that raised funding from venture capital firms including Galaxy Digital and Lightspeed Venture Partners. Some of these investors made a profit before the project collapsed. Galaxy Digital said in an archive before the crash that the sale of the Luna holding was “the largest contributor” to $ 355 million in gains 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 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 each paycheck in one of these currencies, hoping to build a nest egg. Of his $ 10,000 investment, about $ 3,000 remains.

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

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

Nevertheless, unlike Coinbase, the vast majority of these crypto companies are privately owned, which means that their value is less linked to daily price fluctuations. This has given managers in some companies some protection.

“My personal net worth has probably not been affected too much,” said Ivan Soto-Wright, CEO of MoonPay, a $ 3.4 billion start-up of cryptocurrencies. “We have a significant cash reserve.”

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

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

Winklevosses began storing Bitcoin in 2012 when the price stayed below $ 10. Even after the crash, it is still a hugely profitable investment for them: Bitcoin peaked at almost $ 70,000 in November and is now closer to $ 20,000. In 2014, Winklevosses founded Gemini and has 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 the tour with a show in Asbury Park, NJ

“The contract I signed 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, around 50 spectators saw them perform at the Gothic Theater in Englewood. Two women appeared in Harvard sweaters they had bought on eBay, a tribute to the campus where the Winklevosses fought with Mark Zuckerberg for control of Facebook. A concession stand sold brands, including hats, T-shirts and bags; some will go to MusiCares, a charity that helps musicians recover from addiction, according to Tyler’s blog post.

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

“Beat me,” Tyler shouted into the microphone. “You can not hurt me.”