Winklevoss' Bitcoin trade is pushing its approach into the banking enterprise with a brand new financial savings product
Cameron (L) and Tyler (R) Winklevoss.
Adam Jeffery | CNBC
Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, is launching an austerity program for its US users.
Starting Tuesday, the Gemini app will add a new service called "Earn", which will allow customers to move their holdings in cryptocurrencies such as Bitcoin, Ether and Litecoin to interest-bearing accounts.
Gemini says it will offer rates of up to 7.4% APY (Annual Percentage Return). For comparison, that's more than 100 times the national average of 0.05% on savings accounts in the US.
"This product is available for all 26 Gemini-supported cryptos," Noah Perlman, COO of Gemini, told CNBC in an interview. "And it's the only cryptocurrency exchange that gives users the ability to earn crypto in every state in the US, including New York."
Gemini is a New York trust company regulated by the New York State Department of Financial Services. The company is able to offer such high interest rates by lending crypto to institutional borrowers through its loan partner Genesis Global Capital in exchange for interest payment. Deposits are not protected by the Federal Deposit Insurance Corporation and interest rates can be adjusted based on supply and demand.
The savings program is only available to US customers, not customers in international markets such as Canada and the UK. Gemini launched its services in the UK last year after the Financial Conduct Authority obtained an electronic money license.
The news signals a bigger entry into banking by Gemini and other crypto companies looking for more ways to attract the uninitiated. BlockFi, a crypto lender backed by tech billionaire Peter Thiel, offers interest rates of up to 8.6% APY on deposits.
However, BlockFi's interest account is not available in New York, which the company says is due to state regulations governing crypto.
"We have security protocols that are the same as those used by top financial institutions," said Perlman of Gemini. "We still believe that crypto empowers individuals in ways that traditional banks don't."
"But at the same time, there's a reason Wall Street and traditional banking have been around for so long," he added. "It has a lot of safeguards and we believe we can get the best of both worlds and offer it to our customers."
The move towards services like lending and crypto savings shows a shift in an industry best known for investing. Last year decentralized financing emerged, a brisk new trend in cryptography that seeks to replicate traditional financial products using blockchain technology.
It also comes at a time when US interest rates have been significantly depressed by the historical easing of monetary policy. Meanwhile, some investors say they responded to Bitcoin during the coronavirus pandemic in response to massive government incentives and the possible devaluation of government currencies.
Last month Gemini announced that it had acquired the fintech start-up Blockrize to help build their own credit card with rewards of up to 3% in Bitcoin or other cryptocurrencies.
Virtual currencies have made a name for themselves for their wild volatility. Bitcoin price more than quadrupled in the past year, rising to a record high of over $ 40,000 in early 2021, before falling to $ 28,845 later in January.
According to data from CoinDesk, Bitcoin was trading 3.7% higher at 6:17 a.m. ET on Thursday at a price of $ 35,233.
"Each customer needs to evaluate their own risk tolerance," said Perlman. "Like tech stocks, cryptocurrency can generally be volatile and subject to price fluctuations."
Gemini said its earn feature would allow customers to save with no minimum balance to start up and no fees to transfer or redeem funds. The company plans to offer interest on its dollar-pegged stablecoin, the Gemini dollar, in the coming months.