Gemini Launches Full Service Crypto Prime Brokerage
Gemini, the regulated crypto exchange and custodian, is launching a comprehensive prime brokerage service for crypto assets as institutional interest in the sector grows.
In January 2022, Gemini announced the acquisition of Omniex, a trading technology platform that provides order management, execution and portfolio system solutions for institutional crypto trading. Gemini said Omniex’s integration with its existing crypto custody, clearing and OTC trading capabilities will enable the public launch of Gemini Prime in the second quarter of 2022 after supporting select clientele over the course of the year. past year.
1/5 We are delighted to announce the acquisition of @OmniexInc, a trading technology platform that provides order management, execution and portfolio system solutions for institutional crypto trading. https://t.co/LuwkEE6P80
– Gemini Institutional (@GeminiInsti) January 19, 2022
Dave Abner, global business development manager at Gemini, told Markets Media that Omniex stood out because the founders have incredible knowledge of the financial industry.
Abner said, “They built something suitable for crypto markets to help bridge that gap between old world and new world crypto. It really fits Gemini’s mission.
Omniex was founded by Chief Executive Hu Liang and Chief Strategy Officer John Burnett. Hu most recently oversaw State Street’s Emerging Technologies Center, which focuses on crypto and blockchain, as well as the bank’s e-currency platforms and data business in Asia Pacific. Burnett also worked at the Emerging Technologies Center and led global crypto and blockchain efforts for State Street since 2015. The Omniex team will join Gemini in expanding and piloting the platform’s capabilities for the Prime Services division.
“They have a great team,” added Abner. “We’ve bought over 20 people who will really help us add weight in trading technology to our extended team.”
The acquisition will also give Gemini customers access to a wider variety of liquidity platforms, Abner said.
“Often our clients want to trade on Gemini because they like the trade protection and security within the Gemini ecosystem,” Abner added. “Other clients want a consolidated view of multiple markets.”
Gemini is regulated by the New York State Department of Financial Services, a qualified trustee and custodian.
Crypto markets are now large enough to accommodate positions of relevant sizes for institutional investors according to a report by hedge fund Bridgewater, The Evolution of Institutional Investor Exposure to Cryptocurrencies and Blockchain Technologies.
Bridgewater estimated that Bitcoin is around 1.4% as liquid as US stocks, but high volatility means a relatively low dollar allocation would still yield significant exposure on a risk-adjusted basis.
“As a result, our rough estimate would be that an institutional investor could build up a liquid cryptocurrency allocation comparable in terms of risk exposure to gold or inflation-linked bonds,” the report states.
Bridgewater wrote that institutional investors are in the very early stages of exhibit development, but adoption is expected to accelerate in the coming years.
“The pace of adoption so far has been rapid, particularly in smaller institutions (e.g., family offices), so it’s worth watching closely,” the report said.
Prior to joining Gemini, Abner worked in the exchange-traded fund industry at WisdomTree Asset Management, including as Managing Director of WisdomTree Europe, and at BNP Paribas. He compared the build-up of liquidity in digital assets to create cash in ETFs when it was a nascent industry.
“I was intimately involved in creating the liquidity of the ETF industry as it grew between 2000 and 2020 – when I left for Gemini,” he said. “I’ve spent a lot of time building liquidity in illiquid products, and we’re doing the same in the crypto space.”
He believes Gemini can differentiate itself as the leading provider of full-stack native crypto services for institutions by providing a unified solution.
“Through this acquisition, Gemini can bring together all the different pieces – custody clearing, trading via OTC or electronic, algorithms, lending and borrowing,” Abner said. “Institutions that use cryptography assemble the solutions they need.”
Following the rollout in Q2, Gemini Prime aims to provide a single point of access to multiple exchanges and sources of OTC liquidity, tools and algorithms to ensure the best execution and trade transparency, an institutional-grade trading experience with full API connectivity and funding.
Gemini also implements a sophisticated risk management process. Abner said, “People have been lending and borrowing in traditional markets for years, so we’re not really doing anything new. Crypto is a volatile asset class, but volatility is also nothing new and we manage that risk.
Bridgewater pointed out that it is operationally difficult for large institutional investors to access cryptocurrencies.
“We believe that large distributors’ direct crypto exposures are likely to grow over time as institutional-grade investment products and service providers continue to grow at a rapid pace and more and more investors and their stakeholders are continuing their exploration process for the asset class,” the hedge fund added. “The investment by many major Wall Street banks over the past year in building new trading desks and infrastructure for Bitcoin and crypto is another indication of expectations that institutional adoption of crypto will develop in the longer term.”
Abner said customers will be able to access core services as a package or a la carte, although most want a unified solution. For example, many institutions maintain relationships with traditional financial depositories (TradFi). He argued that the guard is one of Gemini’s core products.
“We are one of the largest and most regulated crypto custodians,” Abner said. “We actually look like a custodian in TradFi but with digital assets.
Additionally, Abner explained that traditional custodians might need to partner with native crypto companies such as Gemini. He added that Gemini’s institutional clients range from the biggest banks to hedge funds, asset managers, robo-advisors and family offices.
For example, in November 2021, Commonwealth Bank of Australia said it had made a small minority investment in Gemini in the crypto platform’s first capital raise. Gemini raised $400 million in a round led by Morgan Creek Digital with participation from 10T, ParaFi, Newflow Partners, Marcy Venture Partners and Commonwealth Bank of Australia. The round valued the company at $7.1 billion after being launched in 2015 by Cameron and Tyler Winklevoss.
1/ g. Today marks a new beginning for @Gemini.
We raised $400m at a $7bn valuation.
— Tyler Winklevoss (@tyler) November 18, 2021
Traditional institutions are also expanding their crypto operations, but Abner argued that it is very important that Gemini has native crypto infrastructure. He compared building a crypto operation on a traditional finance company as similar to a house extension.
“You take a century-old house and add a modern kitchen and sometimes you turn the microwave on and the lights in the main house go out,” he said. “It’s really hard to do these integrations, but with Gemini, we’re building on our native crypto infrastructure.”
In addition to providing services to institutions seeking liquidity, Gemini also aims to work more closely with advisors. In January 2022, Gemini also announced the acquisition of BITRIA, formerly Blockchange, a digital asset portfolio management platform. The company said the integration of BITRIA’s technology with Gemini’s custody and exchange capabilities gives advisors access to the entire crypto ecosystem and the ability to manage their clients’ portfolios from from a single interface.
Abner said, “We are legitimately the only ones thinking about providing these services to the wealth management industry.”
1/4 We are delighted to announce our acquisition of @BITRIA_Crypto, a digital asset portfolio management platform designed for wealth and asset managers. https://t.co/ZGaLR00wuD pic.twitter.com/oi8g1lIFhZ
– Gemini Institutional (@GeminiInsti) January 13, 2022
Many advisors currently have limited access to just one or two tokens through closed-end funds and spot crypto ETFs in jurisdictions where they are available. Additionally, the US SEC has not approved a spot crypto ETF.
“A Bitcoin ETF is like the first lick of an ice cream cone when you really want to reach for the cone or the chocolate chips or whatever is in there,” Abner said.
The BITRIA integration will provide access to over 70 cryptocurrencies available on the Gemini exchange and other features including portfolio rebalancing, tax loss collection and account planning.
There is currently a sell-off in the crypto markets, but Abner doesn’t think that will change institutions’ long-term plans to enter the industry.
“Our institutional business has grown several times over the past year,” he said. “Growth is going to continue through this year and quite dramatically in that leg of the stool.”
Back in 2007, Abner said the best thing for the ETF industry at the time would be a crash that put money in motion. Investors would withdraw money from mutual funds and return to the ETF market.
“Money in motion is really good for the crypto industry,” he said. “More money leaving TradFi in search of alpha will enter crypto over the next few years.”