Winklevoss Exchange Gemini Is Trying to Attract Bitcoin Traders

     Gemini, the long-awaited bitcoin exchange founded by Cameron and Tyler Winklevoss and billed as the “Nasdaq of Bitcoin,” finally opened its doors on October 8.

     Gemini has successfully attracted the attention of mainstream media by publishing articles in the Financial Times, TechCrunch (an American technology blog), and Wired magazine, and promoting it through a TV program on Fox News.

    Despite its success in outreach, Gemini is now struggling to attract bitcoin’s active trading community. While representatives of the exchange say they are seeking to attract more institutional clients rather than competitors, avid bitcoin traders told CoinDesk they believe the strategy will be difficult to execute.

     They point to Gemini’s pricing model, which charges buyers and sellers on every trade, as a problem that could drive away retail investors, who argue that market research is crucial to building liquidity.

    Arthur Hayes, CEO of bitcoin derivatives platform BitMEX, told CoinDesk:

    “Gemini’s ability to recruit retailers to the platform will determine its short-term success. Gemini definitely has the star power of the Winklevoss twins, but I don’t know how far they can go against the head-to-head competition that’s coming.”

    Currently, the top Bitcoin exchanges around the world have more liquidity than Gemini, which effectively means that traders on the exchanges can cash out and exit the scene more quickly, and active market participants believe that profits are certain.

     Gemini is currently struggling to attract trading volume. As of press time, 384 bitcoins (about $100,000) have been traded on October 14, which is nearly double its total daily trading volume in the first week.

   In summary, representatives of institutional trading firms such as Crypto Foundation and Binary Financial said they are reviewing the performance of exchanges to decide if and when they will enter the market, while others said they are waiting for liquidity to increase.

     Notably, some members of the Bitcoin exchange ecosystem have expressed frustration with the strength of Gemini’s product, but have been reluctant to speak publicly because it has been viewed as negative or detrimental to the ecosystem.

Charges to manufacturers

     As bitcoin exchanges have been working to make prices more attractive to liquidity providers in an effort to gain a larger market share, the founder of a major cryptocurrency derivatives trading platform called the decision “strange.”

     This maker-taker model is used by exchanges such as Coinbase, Coinfloor, Kraken and itBit, and business-to-business exchange Coinsetter even offers a 0.1% rebate on trades, meaning that the exchange’s revenue goes to paying liquidity providers for support.

     Tim Enneking, manager of bitcoin hedge fund Cryptocurrency Foundation, believes the pricing goes against the industry-wide trend of falling fees. He believes active traders “cannot survive” under Gemini’s current pricing model, noting that these individuals rely on small price fluctuations to make profits.

Enneking said:

     “They’re going to have to rely on product to attract smaller players, and I’m not sure they’ve succeeded yet.”

He said features like enhanced security were unlikely to appeal to these merchants, who are used to trading with a certain amount of risk, but he believed there was a "huge argument" for institutions.

     Rob Borden, CEO of bitcoin trading tool platform Coinigy, strongly agrees that excluding market maker fees, the fees are comparable to those of other exchanges.

    “Coinbase only offers taker fees, but other exchanges offer free trades and only charge fees on withdrawals,” Borden explained. “So far, adoption has been very positive from what I’ve seen, but concerns still linger about early liquidity and the verification process.”

Building influence

     Most respondents were enthusiastic about the product, praising the exchange’s launch as positive for the ecosystem and noting that building trust and patronage in the Bitcoin trading community is something that only takes time.

    “The most important thing is how they will differentiate themselves from Coinbase and itBit,” Hayes said.

“The value proposition of these three U.S. exchanges is that they are regulated for Americans. Other than that, they all offer the same functionality.”

     Some respondents said that, in part, Gemini’s lackluster trading volume has been a perception issue that has contributed to the strong marketing efforts put out by the exchange. Following news of the launch, bitcoin’s price hit a record high since August, driven by Gemini, which is likely to bring new liquidity to the ecosystem.

     “A lot of people were expecting something new and wonderful from Gemini, and what they didn’t expect was people buying bitcoin because they watched Fox News,” one source said.

Enneking went on to say that Gemin may need to shift its strategy to capture the active Bitcoin trading community and secure itself in a competitive field in order to attract institutions, concluding:

     “Differences in functionality may be beneficial for specific purposes, but for the general community, unless someone offers something revolutionary new, it’s not going to be a factor in driving real legitimate transaction volume.”