Bitcoin

Gemini is Chicago-bound after Coinbase’s exit, but who made the right move?

Quick Take

  • Gemini announced the launch of a Chicago office Thursday to double down on its direct connectivity efforts
  • Rival Coinbase recently shut down its operations in the Windy City 
  • It’s not exactly clear which firm made the right bet

Gemini is hoping to achieve what rival Coinbase couldn’t: successfully building out a presence in Chicago aimed at luring high-speed traders to the incipient cryptocurrency market. 

The New York-based firm, led by twin brothers Tyler and Cameron Winklevoss, announced Thursday the new outpost for Gemini, which will scale its existing colocation data centers. In an interesting twist of fate, the firm says it has brought on a number of engineers who previously worked for Coinbase’s Chicago office, which was shuttered in April. 

Gemini shooting its shot

A person familiar with the situation told The Block Gemini attempted to recruit several employees who previously worked for Coinbase. They have brought on five, according to reporting by CoinDesk. 

A quick check of LinkedIn shows the firm appears to have brought on former CME Group employee Eric Thill as a software engineer. At Coinbase, Thill was a senior software engineer. Gemini also appears to have hired Andrew Page as a product manager. Page previously worked at Connamara Systems, a computer software company, as a business analyst. 

A spokeswoman for Gemini declined to confirm these specific hires. 

From its Chicago location, Gemini plans to build out new capabilities for its trading platform, adding new order types and ways for institutions to “trade these assets.” Indeed, Gemini’s ambitions aren’t that different from the now-defunct Coinbase Markets team. 

Led by Paul Bauerschmidt, the erstwhile Chicago group attempted to make Coinbase’s matching engine more robust to handle larger orders and high-frequency and low-latency trading. The shutdown was part of Coinbase’s broader shift away from Wall Street, following the exits of institutional team members like Adam White, former head of its institutional platform, as well as Christine Sandler, its former co-head of institutional sales. 

At the time, the market was still struggling to break out of the doldrums and bitcoin was trading at around $5,000 a coin. 

Did Coinbase mess up?

Still, the market turn-around over the past couple of weeks has raised questions over whether Coinbase gave up on the initiative too soon. Those questions reached a fever pitch after Coinbase’s site went down for 10 minutes on Wednesday, resulting in people on Twitter wondering if the more robust matching engine could have saved Coinbase from suffering an outage yesterday. 

The exchange told The Block the two issues were completely not connected, saying that the outage was tied to a consumer log-in problem, rather than an issue with its exchange, Coinbase Pro. 

“We experienced a short outage due to a high volume of traffic to Coinbase.com and the Coinbase app,” a company spokesman said. “Coinbase Pro – the underlying pool of liquidity that underpins all of our exchange products – was online and executing trades the entire time.”

Joe McCann, a former cryptocurrency trader at Passport Capital, told The Block that Coinbase’s decision to close the Chicago operation was the right call. 

“Sub micro-second execution speed is not relevant in crypto trading today,” he said. 

“Reliability, availability and security are of the utmost importance and given Coinbase has Tim Wagner as their VP of Engineering, a distinguished technologist from Amazon who invented one the largest paradigm shifts in cloud computing, and serverless compute, I’m more than confident they will succeed,” he added. 

Still, other high-frequency, low-latency platforms in the market have experienced success, such as LMAX Digital. 

The firm, which exclusively services institutions such as hedge funds and banks, saw its highest volumes ever on Wednesday, according to a source. In total, the firm saw $1.1 billion worth of crypto trade hands on its venue, nearly double the previous record of $650 million set on Saturday. 

“These retail offerings must develop systems to manage hundreds of thousands of concurrent users at any one time, performing many different functions, whereas we must manage hundreds of thousands of similar messages per second for a few hundred customers,” LMAX Exchange Group CEO David Mercer said in a statement. 

“Our technology stacks differ substantially.”

What about Gemini?

It’s not clear if Gemini’s plan to double down on its HFT-centric approach will play to its favor. It’s offered so-called colocation services longer than most players on the market. 

Still, it commands a modest share of the market even relative to Coinbase, which has gone through its own trials and tribulations as it attempted to build out its own institutional business. 

Coinbase saw more than $1.5 billion trade over the past 24 hours versus Gemini’s $140 million. But Gemini could be skating to where the puck is going rather than dominating the rink under the current status quo. 

“It’s probably a little early but you want to be there when the shift starts to happen and I mean you can’t have your exchange go down a la Coinbase yesterday when you’re dealing with real institutions,” an industry source said.

Dave Weisberger, CEO of data aggregator CoinRoutes, however, agreed with McCann that doubling down on direct connectivity is the wrong business move at the moment, saying that Gemini is already the fastest. 

“Gemini being super fast already doesn’t help them from a liquidity standpoint,” he said. “High-frequency and moving to Chicago is an over-rated thing,” the former market maker and electronic trading executive said.