Close Menu
TechCentralTechCentral

    Subscribe to the newsletter

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    Facebook X (Twitter) YouTube LinkedIn
    WhatsApp Facebook X (Twitter) LinkedIn YouTube
    TechCentralTechCentral
    • News

      Blue Label Telecoms to change its name as restructuring gathers pace

      11 July 2025

      Get your ID delivered like pizza – home affairs’ latest digital shake-up

      11 July 2025

      EFF vows to stop Starlink from launching in South Africa

      11 July 2025

      Apple plans product blitz to reignite growth

      11 July 2025

      Nissan doubles down on South Africa despite plant uncertainty

      11 July 2025
    • World

      Grok 4 arrives with bold claims and fresh controversy

      10 July 2025

      Bitcoin pushes higher into record territory

      10 July 2025

      Cupertino vs Brussels: Apple challenges Big Tech crackdown

      7 July 2025

      Grammarly acquires e-mail start-up Superhuman

      1 July 2025

      Apple considers ditching its own AI in Siri overhaul

      1 July 2025
    • In-depth

      Siemens is battling Big Tech for AI supremacy in factories

      24 June 2025

      The algorithm will sing now: why musicians should be worried about AI

      20 June 2025

      Meta bets $72-billion on AI – and investors love it

      17 June 2025

      MultiChoice may unbundle SuperSport from DStv

      12 June 2025

      Grok promised bias-free chat. Then came the edits

      2 June 2025
    • TCS

      TCS+ | MVNX on the opportunities in South Africa’s booming MVNO market

      11 July 2025

      TCS | Connecting Saffas – Renier Lombard on The Lekker Network

      7 July 2025

      TechCentral Nexus S0E4: Takealot’s big Post Office jobs plan

      4 July 2025

      TCS | Tech, townships and tenacity: Spar’s plan to win with Spar2U

      3 July 2025

      TCS+ | First Distribution on the latest and greatest cloud technologies

      27 June 2025
    • Opinion

      In defence of equity alternatives for BEE

      30 June 2025

      E-commerce in ICT distribution: enabler or disruptor?

      30 June 2025

      South Africa pioneered drone laws a decade ago – now it must catch up

      17 June 2025

      AI and the future of ICT distribution

      16 June 2025

      Singapore soared – why can’t we? Lessons South Africa refuses to learn

      13 June 2025
    • Company Hubs
      • Africa Data Centres
      • AfriGIS
      • Altron Digital Business
      • Altron Document Solutions
      • Altron Group
      • Arctic Wolf
      • AvertITD
      • Braintree
      • CallMiner
      • CambriLearn
      • CYBER1 Solutions
      • Digicloud Africa
      • Digimune
      • Domains.co.za
      • ESET
      • Euphoria Telecom
      • Incredible Business
      • iONLINE
      • Iris Network Systems
      • LSD Open
      • NEC XON
      • Network Platforms
      • Next DLP
      • Ovations
      • Paracon
      • Paratus
      • Q-KON
      • SevenC
      • SkyWire
      • Solid8 Technologies
      • Telit Cinterion
      • Tenable
      • Vertiv
      • Videri Digital
      • Wipro
      • Workday
    • Sections
      • AI and machine learning
      • Banking
      • Broadcasting and Media
      • Cloud services
      • Contact centres and CX
      • Cryptocurrencies
      • Education and skills
      • Electronics and hardware
      • Energy and sustainability
      • Enterprise software
      • Fintech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Lifestyle
      • Motoring
      • Public sector
      • Retail and e-commerce
      • Science
      • SMEs and start-ups
      • Social media
      • Talent and leadership
      • Telecoms
    • Events
    • Advertise
    TechCentralTechCentral
    Home » Cryptocurrencies » Crypto’s Hotel California traps the Winklevoss twins

    Crypto’s Hotel California traps the Winklevoss twins

    You can get into crypto any time you like, but can you ever leave?
    By Lionel Laurent11 January 2023
    Twitter LinkedIn Facebook WhatsApp Email Telegram Copy Link
    News Alerts
    WhatsApp
    The Winkelvoss twins. Image: DonkeyHotey, CC BY-SA 2.0

    You can get into crypto any time you like, but can you ever leave? A fierce, US$900-million bitcoin feud between the billionaire Winklevoss twins and Barry Silbert suggests the virtual currency bubble’s main legacy is a version of Hotel California, with clients desperately hoping for fresh money to pick up the tab — or a change in management that will let them check out.

    At the heart of the dispute is a crypto lending business that blew up in spectacular fashion last year after bringing Cameron and Tyler Winklevoss and Silbert together. As relatively early bitcoin adopters, the moguls no doubt recognised one big challenge in crypto: how to earn money from a pile of virtual tokens with no intrinsic value.

    The result was a cottage industry of platforms, including the Winklevii’s Gemini Earn. Gemini took crypto from depositors and lent it to Silbert’s crypto brokerage Genesis, which in turn entrusted it to investors including Three Arrows Capital (3AC) looking to juice returns. In the frothy times of everything going up, everyone checked in: eye-popping interest rates of 7%, the promise of instant withdrawals and the names involved meant few really read the fine print.

    At the heart of the dispute is a crypto lending business that blew up in spectacular fashion last year

    But when markets went south, the new structure became yet another gilded cage: everyone wanted to leave but nobody could settle the bill. When 3AC went bankrupt in July, Silbert’s Digital Currency Group had to cover some of Genesis’s debts with a $1.1-billion promissory note, while FTX’s downfall in November meant platforms everywhere froze withdrawals — including Gemini and Genesis. More than 340 000 Gemini Earn customers are trapped in limbo, owed $900-million by Genesis.

    Ordinarily, absent a white knight or magic bundle of outside cash, one might reasonably expect the cascade of defaults to trigger a bankruptcy procedure or meeting to hash out a settlement, which is what the Winklevoss twins had hoped to do with Silbert by 8 January. But, this being crypto, one annex of the hotel always seems to lead to another rather than an exit. Silbert may be biding his time or reshuffling his assets because there is a golden egg-laying goose in his empire: Grayscale Bitcoin Trust, the biggest digital currency fund in the world. And this fund has a California-like layout of its own: it charges 2% annual management fees based on the net asset value of its holdings, bringing in $615.4-million in 2021 alone.

    Little choice

    Holders have little choice beyond selling their shares on the open market in the crypto winter — there’s no redemption mechanism to get at the fund’s underlying bitcoin holdings. And this may be why the Winklevoss twins are resorting to public accusations of self-dealing and accounting fraud against Silbert and asking for him to step down. Besides painting Gemini as a victim of Genesis rather than an enabler, Cameron’s Winklevoss’s latest letter pressures Silbert to shed more light on his opaque empire with regulators circling and hedge funds agitating.

    The $1.1-billion promissory note in particular is described as a “gimmick” and inadequate funding. The result is that DCG may reluctantly find itself forced to give up control of its most precious entity — Grayscale — or trigger a bankruptcy of Genesis, which for Gemini might unlock funds to repay customers. (DCG on Tuesday called Winklevoss’s letter “malicious, false and defamatory” and said it would engage in “productive dialogue with Genesis”.)

    This mess has plenty of possible outcomes, none of them objectively great for the retail customers taken on the crypto joyride. Even if somehow a direct connection is forged between Grayscale’s cash flow and the claims of Gemini’s disgruntled depositors, it will be the hedge funds looking for an angle on Silbert’s trust or the legal advisors handling claims that will probably come out best.

    This mess has plenty of possible outcomes, none of them objectively great for the retail customers taken on the crypto joyride

    In the meantime, the twins do have a point in trying to shine a light on DCG, where US authorities are already scrutinising internal transfers. We’ve seen from FTX the dangers of opaque, sprawling entities that aren’t held to a high standard by counterparties or regulators. DCG has a portfolio of over 200 companies and funds, and more transparency is needed — not least where Grayscale Bitcoin Trust is concerned, given how costly and poor a trade it has been. The trust’s price fell 76% last year, and trades at a 39% discount to its net asset value.

    Yet there’s also plenty of blame to go around in the broader picture of how we got here. Jonathan Bier’s book on crypto lending, Reckless, makes clear that the latest bursting of this bubble has all the hallmarks of a generalised financial crisis: greed, bad risk management, conflicts of interest, insufficient regulation and unsustainable trading strategies. Genesis’s balance sheet expanded too fast, while the Winklevoss twins’ search for new revenues saw them adopt laser-eyed hype all the way. “The individual feels like doge is money? Then it is,” Gemini chief operating officer Noah Perlman said in 2021, referring to the dog-linked cryptocurrency that its founders established as a joke.

    Whatever happens, crypto’s Hotel California problem is likely to stay. You can’t use bitcoin to pay your bills or live off the income without cashing out. The lending business will likely survive, but in much smaller size, while crypto fans try to bring more buyers in to prop up the price. Which means regulators need to be vigilant. Nobody’s out yet.  — (c) 2023 Bloomberg LP

    Get TechCentral’s daily newsletter



    Barry Silbert Bitcoin Cameron Winklevoss DCG Digital Currency Group Gemini Three Arrows Capital Tyler Winklevoss
    Subscribe to TechCentral Subscribe to TechCentral
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email Copy Link
    Previous ArticleMeta parts ways with its main content moderator in Africa
    Next Article Introducing Fujitsu’s next-gen Primergy M7 servers

    Related Posts

    Bitcoin pushes higher into record territory

    10 July 2025

    Burning millions on the blockchain: how hackers used bitcoin to send a message

    30 June 2025

    Crypto shakeout: bitcoin soars, altcoins crater

    30 June 2025
    Company News

    $125-trillion traded: Binance redefines global finance in just eight years

    11 July 2025

    NEC XON welcomes HPE acquisition of Juniper Networks

    11 July 2025

    LTE Cat 1 vs Cat 1 bis – what’s the difference?

    11 July 2025
    Opinion

    In defence of equity alternatives for BEE

    30 June 2025

    E-commerce in ICT distribution: enabler or disruptor?

    30 June 2025

    South Africa pioneered drone laws a decade ago – now it must catch up

    17 June 2025

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    © 2009 - 2025 NewsCentral Media

    Type above and press Enter to search. Press Esc to cancel.