Investopedia/Shobhit Seth: All about Gemini, the Winklevoss Bitcoin Exchange

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All about Gemini, the Winklevoss Bitcoin Exchange By Shobhit Seth  March 5, 2018 — 3:22 PM EST
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With cryptocurrencies being hailed by some as the global financial system of the future, several initiatives have been launched by established entrepreneurs aimed to connect the various islands constituted by a variety of digital assets. This article explores Gemini, a digital currency marketplace, its working, the services it offers, its journey, and its potential for the future.

Gemini is a private, licensed digital asset exchange that also offers custodian services for digital holdings. It was launched in 2015 in the United States by the Winklevoss twins, Cameron and Tyler, and has now expanded its operations to Europe and Asia. (For more, see Winklevoss Interview: Bitcoin Payment System Worth $400 Billion.)
What Is Gemini?

Competing directly against other leading cryptocurrency exchanges like Kraken and Coinbase, Gemini allows its users to buy, sell, and store primary cryptocurrencies, like bitcoin and ether, and exchange them against one another and for fiat currencies. (See also, What Is Kraken?)

The Latin word "Gemini" stands for twins, and indicates duality. The Gemini platform is conceptualized to marry both forms of money – new-age cryptocurrencies and the old, existing fiat currencies – which are expected to be used interchangeably in the future with the growing adoption of virtual currencies.

Crypto bulls the Winklevoss twins have thus far not received SEC approval for their bitcoin ETF, but they have managed to carve a niche for themselves in the cryptocurrency transactions space. (For more, see SEC Blocks Bitcoin ETFs Again; Rejected Winklevoss Bid In 2017.)

Working on the core principles of security, liquidity, and trust, Gemini offers its retail and institutional customers a platform to buy, sell, and store two of the most popular digital currencies, bitcoin and ether, in a regulated and secure environment.

As of January 2018, the Gemini marketplace offers trading between BTC/USD, ETC/USD, and ETF/BTC. Barring the advanced notified short-term maintenance windows, the exchange operates on a 24/7 basis.
No Margin or Short Trading Allowed

All orders sent on Gemini have to be fully funded, as the exchange currently does not offer margin trading like that offered by competitor like Kraken. It also does not allow short trading.

Along with the standard market order that gets immediately filled at the best available market price at that particular instant, Gemini offers a variety of limit orders where a trader can choose to get his trade executed in a way that's best matched to his needs. They include the standard limit order, Immediate-or-Cancel (IOC), Maker-or-Cancel (MOC), and Auction-Only (AO) limit orders.

At present, purchases using a credit card, debit card, cash, or check are not available. A customer needs to link a bank account and initiate a wire transfer or an ACH deposit from a local U.S. or an international bank for trading requirements.

One can transfer bitcoin and ether tokens from his respective cryptocurrency wallet to his/her Gemini account, and vice-versa. To deposit the cryptocoins into their Gemini account, a customer needs to generate exclusive deposit addresses on the Gemini platform and then initiate the transfer from their wallet to the generated address.
First-of-a-kind Custodian Service

Along with being a standard virtual currency exchange, Gemini also offers custodian services to its clients.

It was licensed by the New York State Department of Financial Services (NYDFS) to hold a customer’s digital assets in trust on behalf of the customer. That is, your digital currency holdings are held to specified capital reserve requirements and banking compliance standards. Gemini is also obligated to maintain and fulfill required cybersecurity measures.

Gemini has a banking relationship with a New York State-chartered bank, where all customer funds are retained. Adherence to such requirements acts like a insurance of one’s funds and cryptocurrency holdings, and ensures that they are backed by adequate monetary reserves.

While individual customers are given the default, zero-fee, depository account type, large institutional customers can opt for a segregated custody account type which offers an offline, secure, and auditable storage called Gemini’s proprietary Cold Storage system. The latter service is chargeable, and is ideal for institutional customers like mutual funds, exchange-traded funds, and hedge funds.
The Road So Far

Launched in January 2015, the exchange went live for customers in the United States in October 2015.

By June 2016, it started operations in Canada, enabling ETH/BTC trading for Canadian customers. Two weeks later, it opened its doors for U.K. customers, marking its entry in Europe.

In September 2016, Gemini introduced the first-ever daily bitcoin auction, a method popularly followed in all modern stock exchanges but was the first for a cryptocurrency exchange. Daily ether auctions were launched in July 2017.

Between October and November of 2016, Gemini further expanded to Hong Kong, Singapore, South Korea, and Japan to cater to the skyrocketing population of Asian cryptocurrency enthusiasts.

In December 2017, Gemini partnered with the CBOE which launched the first-ever cash-settled bitcoin futures contract whose prices are based on Gemini’s auction price for bitcoin, denominated in U.S. dollars.
Recent Challenges

As with any standard marketplace or security exchange, Gemini has had its fair share of challenges along its two-year journey. Some were due to developments in the cryptocurrency world like hard forks and high price volatility, while others were due to Gemini’s infrastructure and platform performance.

Following the Ethereum hard fork in July 2016, the exchange ran into issues and had to temporarily disable all ether deposits and withdrawals. (See also: An Introduction to Ethereum Classic.)

Preventive measures were taken, but similar issues occurred during the bitcoin hard fork of bitcoin cash in August 2017. During the same month, Gemini’s production environment, which was set on Amazon Web Services (AWS), exceeded the allotted resource quota, and hit trading snags for many hours over a couple of days. The problem was resolved after Gemini opted for more web resources to address such issues.

In November 2017, due to an unprecedented increase in traffic amid surging bitcoin prices, customers lost access to Gemini’s Web and API interfaces for a number of hours.

Another issue erupted in December 2017, when Gemini had to extend its earlier announced maintenance window by several hours amid high volatility in bitcoin prices that shed $1,500 during the downtime, drawing customer ire.
The Bottom Line

With the recent successful settlement of the first-ever Bitcoin Futures (January series) at a price of $10,900.00 as determined by Gemini’s 4 p.m. Eastern Time BTC/USD auction, Gemini continues to surge ahead in the cryptocurrency transaction marketplace.

Gemini’s current offerings allow only among bitcoin, ether and USD pairs, and with limited trading options without any short selling or margin trading. However, customers can look forward to a secure and regulated trading environment as the firm's operations and holdings adhere to necessary regulatory standards.

Going forward, Gemini may need to expand its product offerings and look for expansion options around the world as it competes against established players like Kraken and Coinbase. (For more, see Tyler Winklevoss: Bitcoin Is Gold, Ether Is Oil, Litecoin Is a Testnet.)

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.
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