On-chain data from Cryptoquant shows a sharp drop in the volume of Bitcoin exchange Gemini, backed by Tyler Winklevoss. A potential bankruptcy case will be the second act of the FTX crisis in 2023.
Gemini’s Bitcoin flow drops to bottom
Data from on-chain data analytics platform Cryptoquant shows a sharp decline in exchange activity on Gemini. According to a new tweet, all the major indices researched gave negative signals. Cryptoquant’s latest report shows that Gemini’s cryptocurrency reserves are currently at a multi-year low. BTC deposits from other exchanges to Gemini are also declining. This reflects declining confidence among users about the stability of the crypto exchange.
Another important index that had a negative impact on Gemini was the trading volume. As of December 2022, trading volume on Gemini decreased by 52% compared to the previous year. It shows a growing lack of trust among users, most of whom are concerned about the safety of their funds.
The Bitcoin exchange has been in the limelight since the collapse of FTX. According to reports, its main lender partner, Genesis, was closely associated with the now-bankrupt FTX. Shortly after FTX went bankrupt, users of Gemini’s Earn program began having difficulties withdrawing funds.
Gemini expects partner Genesis to pay off debts
Up to $900 million in investor funds are trapped under the Genesis-backed Earn program, which promises interest payments on crypto deposits. According to reports, some users with large deposits have already taken Gemini to court. They want their money back. Gemini co-founder Cameron Winklevoss accused Digital Currency Group CEO Barry Silbert of delaying talks to resolve the issue. Winklevoss gave Silbert until January 8, in an open letter published on January 2, 2023.
The Gemini-Genesis crisis is one of the few losses associated with the collapse of FTX. Not long after FTX filed for bankruptcy, reports surfaced that BlockFi intends to do the same. This whole chain of bankruptcies also poses a great threat to Bitcoin and the cryptocurrency market in 2023.
Bitcoin volatility approaches 30-month low
Bitcoin’s current price action is becoming overly weak as volatility retraces to rare lows. The data showed that the 7-day volatility of the leading crypto has dropped to 0.7%, reaching lows not seen in two and a half years. Current figures have only been visited once since February 2019 during the sluggish markets in July 2020.
Meanwhile, 30-day volatility is following a similar trend close to 1.4%. It coincides with levels that were briefly touched before the collapse of FTX in early November. In fact, the figure is only seven times lower since February 2019. Arcane Research has suggested that these periods of low volatility rarely last long. Therefore, periods of volatility compression tend to be followed by sharp movements even in volatile markets.
In addition to decreasing price movements, spot volumes of Bitcoin are also drying up. It was observed that the futures market followed a horizontal course. According to the latest report from Arcane Research:
The entire market is generally stabilizing and is accompanied by unregistered market participation. Closed US markets are probably the main reason for the recent dull price action, but it has also been exaggerated by a general outflow of active individual participation and a few key news catalysts.
Is Gemini-DCG the next FTX?
The year 2023 will be shaped by low volatility and stagnant market trend. But the Gemini-DCG crisis poses a significant threat to the market. For context, Gemini was offering investors 8% earnings in certain cryptocurrencies as part of the interest-earning Earn program it partnered with Genesis. But with the collapse of FTX, it came under serious financial pressure. The cash crunch has forced the platform to cease withdrawals from Gemini for two months. Genesis owes Gemini users a total of $900 million. cryptocoin.comWe have included the details of the current status of the company in this article.
According to Arcane, a “natural and less liquidity-restricted path” to this sale could be to initiate a Reg M, thereby enabling investors to repurchase shares in NAV. This narrows the discounts and the impact is felt in the crypto market. According to the latest report from Arcane Research:
Currently, GBTC is trading at a 45% discount based on its NAV, while ETHE is trading at a 59% discount on its NAV. GBTC owns 3.3% of the circulating BTC supply and 2.5% of the ETH supply. A Reg M results in a massive arbitrage strategy of selling crypto spot against buying Grayscale Trust shares.