How Commonwealth Bank dodged a crypto bullet when it paused Gemini project
The nation’s biggest bank has had a ‘near miss’ in the crisis-hit crypto market as the US-based Gemini group becomes engulfed in the wider sell-off.
It must have seemed like a good idea at the time.
Just over a year ago at what we now know was the peak of cryptocurrency mania, the nation’s biggest bank – the Commonwealth Bank – announced it would partner with the “world’s largest crypto exchange” Gemini.
This week, Gemini has run into major problems off the back of the collapse of Sam Bankman-Fried’s disgraced FTX platform.
Gemini has had to freeze redemptions on a key product while investors have pulled at least half a billion dollars out of Gemini funds fearing collateral damage from the FTX blow up.
But it turns out the Gemini crypto project should be no more than a near miss for the nation’s biggest bank – and only major bank to make a major play in crypto. A CBA spokesperson for told The Australian on Tuesday that the entire crypto service has never been launched.
The bank did launch what it describes as a “small test and learn pilot” with a select group of customers but the project was then paused. Almost a year later the crypto venture remains on pause as the bank “continues to engage with regulators”.
CBA never had much money on the line on the crypto experiment but it did risk having its reputation at the premium bank stock in Australia jeopardised, not to mention that it is the biggest beneficiary in Australia of the government’s guaranteed deposit scheme.
At the time of the launch financial advisers were openly sceptical about the high profile crypto tie-up, with many suggesting they were neither willing nor allowed to advise on crypto. Indeed, an instant lock out on crypto dealings by professional indemnity insurers has ensured most financial advisers have kept well away from direct advice on cryptocurrencies.
The CBA launch on November 3 last year coincided with the amount of money flowing into crypto reaching extraordinary levels – exchange-traded funds outfit BetaShares launched its Crypto Innovators ETF literally 24 hours after the CBA announcement and broke one day trading records on the ASX.
What a difference a year makes. Gemini is now ensnared in the wider problems of the crypto empire of the Winklevoss twins (Cameron and Tyler). The one-time Facebook litigants are fighting fires on multiple fronts – Gemini Earn, a product that was to pay interest to crypto holders, has had to “pause” redemptions.
At the time of the CBA launch, the head of compliance for Gemini Asia, Andy Meehan, told The Australian that Gemini aimed to offer the Gemini Earn product in the local market.
Meanwhile, management at the lending partner to Gemini, the Genesis group, has spent most of this week denying it needs to file for bankruptcy. In another unit, the Gemini cryptocurrency – Gemini Dollar – is being shorted by crypto day traders.
CBA staff were quick to point out this week that the crypto pilot earlier this year did not include the Gemini Earn product.
Concerns around Gemini were heightened when the Winklevoss group initially said Gemini would not be affected by the FTX debacle, but then backtracked to say that Gemini had to suspend redemptions on Gemini Earn because lending partner Genesis has been directly hit by losses at FTX.
A note from JP Morgan warns that in the aftermath of the FTX collapse Gemini is among the crypto exchanges that have been experiencing a “severe” draining of funds.
Bitcoin, the proxy for the wider crypto market, continues to struggle with selling pressure this week falling through another key level – the leading currency fell below $US16,000 ($24,200) to trade near $US15,800. This time last year bitcoin was worth around $US60,000.
Insiders at CBA refuse to comment on prospects for the Gemini venture ever getting off the ground after this week’s dramas.
Officially, the bank remains “hopeful” it can launch the venture in the future.
Growing old with a tax target on your back
Wealthier, older Australians will rightly contribute more to better aged care, but have self-funded retirees got a bigger tax target on their backs?
Bank interloper that will threaten the dominance of ‘big four’
In Europe, to ‘rev’ money has become as ubiquitous among the under-35s as to ‘google’ information and Revolut, the global neo-bank, is close to getting an Australian bank licence.