For most crypto firms, 2023 continues right from 2022, following the collapse of former crypto king Sam Bankman-Fried’s empire in November. In the past three months, layoffs in the sector have hit an all-time high as crypto prices drop to record lows.

However, of most concern has been the rate at which major crypto lending firms have been declaring bankruptcy, with most of them tracing back connections to FTX or Alameda research. Gemini, a US-based crypto exchange, is now on the brink of facing a similar situation.

Gemini’s Uncertain Future

In the past week, the exchange has come under the spotlight for its huge crypto holdings trapped in Genesis, which has had liquidity issues since the FTX collapse. 

Gemini users have been unable to withdraw about $900M from the exchanges Earn program after the platform suspended the program due to Genesis halting withdrawals on November 16. Launched in February 2021, Gemini Earn is a service that promises interest payments of up to 7.4% APY compounded daily on cryptocurrencies.

Apart from facing a string of user lawsuits, the Winklevoss twins-helmed crypto exchange has been trying to get Genesis to release the $900M to no avail. On Jan 2, Cameroon Winklevoss penned an open letter to Barry Silbert (CEO of Digital Currency Group, the parent company of Genesis), accusing him of “engaging in bad faith stall tactic” aimed at delaying negotiations to resolve the Genesis-Gemini situation. However, Barry denied the allegations, shifting the blame to Gemini, who failed to respond to a proposal on December 29th.

All Quiet on The Western Front

Despite facing a huge setback regarding the Earn, Gemini seems to have continued procession exchange user withdrawals without trouble. However, crypto analytics platform Cryptoquant has pointed out some glaring disparities suggesting that all may not be well with the New York-based exchange.

In a Jan 6 report, Cryptoquant revealed that Gemini “is experiencing declining exchange activity” on virtually all fronts. According to the firm,  cryptocurrency reserves for BTC, ETH, and stablecoins have dropped significantly. BTC deposits from other exchanges and trading volume have slumped to record lows, a sign that users are trying to avoid the exchange. 

“These trends were exacerbated around the time Genesis paused withdrawals,” wrote Cryptoquant. 

Onchain data, however, depicts Gemini as an institution-oriented exchange which could be the main reason it has been able to hold up. Institutions are generally depicted as long-term investors and hence have the appetite for holding through market storms retail investors. Last June, the exchange cut about 10% of its workforce, citing unfavourable market conditions, which could also help it cut on spending in the current crypto winter.

While it is unclear how long turbulent market conditions are likely to persist, it will be interesting to see how Gemini will come out of its current situation even as other crypto firms continue to fold.