In this edition of Digital Asset Friday, we will review information on Gemini Exchange and affiliates to ease concerns about digital asset companies and exchanges going bankrupt (See Voyager Files for Bankruptcy, Celsius Insolvency). We will also re-iterate our investment strategy, and finally, we will review exciting things coming to Arbor Digital.
Digital Asset Strategic Partner Focus: Gemini
To deliver our SMA service we are consistently monitoring the health, as much as we can, specifically of Gemini. Gemini takes compliance, safety, and security first approach in building their company. While not regulated by the SEC, Gemini is regulated by the New York Department of Financial Services (See “Is Gemini licensed or regulated?”). Tyler and Cameron Winklevoss have been actively engaged in becoming regulated since the genesis of Gemini, even in 2019 prior to the most recent bull run asking to be regulated. In January of this year, Gemini Galactic Markets, an affiliate of the Gemini Exchange, became a member of FINRA and received approval to operate as an SEC-registered broker-dealer. This stemmed from an application Gemini Exchange sent to FINRA back in 2019.
Arbor Digital conducted extreme due diligence before committing to a partnership. That continues to this day and will remain as this industry continues to evolve. Companies like Voyager who made claims of FDIC insurance to gain the trust of clients were a red flag. These are things we look for.
That doesn’t mean Gemini doesn’t have any blemishes. In June of this year, the CFTC sued Gemini for “making false or misleading statements of material facts or omitting to state material facts to the CFTC in connection with the self-certification of a bitcoin futures product” back in 2017. The complaint puts particular focus on Gemini’s Bitcoin Futures Contract, one of the first financial instruments allowing investors to trade on expectations of a cryptocurrency’s future value.
Gemini is disputing the claims and plans to contest the charges in court. “We have an eight-year track record of asking for permission, not forgiveness, and always doing the right thing,” a Gemini spokesperson told Coindesk. “We look forward to definitively proving this in court.”
While it’s easy to say things like “This proves crypto’s demise.” Let’s not forget this happens all the time in traditional finance with a recent case against Charles Schwab settling with the SEC that it misled robo-advisor clients on fees. Given the landscape, it is clear Gemini’s mission and intentions are to remain at the forefront of being a regulated digital asset entity that will thrive in the future financial services landscape.
Given the recent headlines of digital asset investment companies going bankrupt due to mismanaging risk and poorly managing for long-term success (like Three Arrows Capital) which happened as well back in 2018 after the 2017 bull run, we felt it important to reiterate the comments we have made in prior newsletters about how we approach digital asset investing.
- Arbor Digital purposefully created an SMA product: Our vision was to serve financial advisors and their client needs beyond just a simple gathering of assets via a fund structure. We knew education, operations support, and compliance consulting were of high importance.
- We are not traders, we are investors
- We do not invest in crypto hedge funds as a core strategy
- We do not use the leverage
- We have never participated in staking, yield management, or other new and unproven strategies, and we believe that no one should until counterparty risk is well understood
- The core of the current crypto crisis is that traders took significantly more risks without understanding the counterparty risks
There is no reason to change our investment thesis. We continue to focus our portfolio strategies in the following ways:
- Flagship: This is our “Beta Portfolio” providing market exposure via an actively managed balance between the two largest assets, BTC and ETH, which account for roughly 60% of digital asset markets.
- Compass: This is our “Early and Mid Stage” decentralized blockchain opportunities portfolio. We have a disciplined approach to taking best practices from venture-style investing to diversifying across Gemini’s investible universe of digital assets.
We will be releasing our Q2 Market Update via VOD (video-on-demand) and written article. With this comes an updated fact sheet for both the Flagship and Compass portfolios.
You can also look forward to the release of Arbor Digital Library, a place storing all relevant Arbor Digital documents and education pieces.
Lastly, we will be scheduling some upcoming webinars to tackle the most top-of-mind digital asset pieces.
Please reach out to us if you have any questions.
Webinar: Stablecoin Banking: The Next Wave of Finance?, 12:00pm ET, Thursday, July 14th, 2022
Presented by Blockworks: Corporations are in an arms race to provide immediate 24/7 global settlements, and stablecoins are at the center of it. This webinar will discuss the macro and institutional benefits of stablecoins and their potential to overcome regulatory obstacles and improve banking services.
Reading: Analyzing Ethereum’s Current User Activity, from Intotheblock.com
Investors’ and users’ interest in the crypto ecosystem goes both ways. During upward market cycles clear growth trends are noticed. While in market downturns the opposite happens, investors and users lose interest in the ecosystem. In both scenarios, users’ interest change takes the ecosystem into different states. This article analyzes Ethereum’s current environment and user interest trends.