Crypto's new rules: What Gemini's launch tells us

Australia is moving to bring crypto under the same rules as traditional finance.

Gemini, the US exchange founded by Facebook-famous Winklevoss twins, is betting that regulation, once seen as crypto's Achilles heel, could become its competitive edge.

At a glitzy launch event, under the dome of The Calyx at Sydney's Botanic Gardens, Saad Ahmed, the exchange's head of APAC, preached to the converted.

"Who bought Bitcoin under $500?" he questioned. Dozens of hands sprung up. One investor got in at $38 in 2011 only to had sold it for $400 to fund booze for a party.

That Bitcoin is now worth over $185,000.

Ahmed described the old days of crypto (the 2010s) as the wild west.

"Exchanges were popping up overnight. Many of the players were focused on cashing in quickly on the hype and there was very little regard for security. Corners were cut, rules were ignored, and customer safety was an afterthought," he said.

But Ahmed spoke of a new future, where digital currency forms the foundation of a new financial system.

"The potential is there to give people choice, independence, and putting them in control of their money. One that could extend financial access to billions around the world that are unbanked or underbanked."

To most on the invite-only guest list, full of crypto innovators and tech-heads, the promise seems obvious - if not already here. But can it convince the rest of us mortals who don't know our KYCs, DEXs and DAOs from a bowl of alphabet soup?

Even among those who still think PoS is a slur, Gemini, and the crypto industry at large, hopes it can.

How will new crypto rules protect Aussie investors?

The pageantry comes ahead of legislation that will bring digital asset platforms under the same rules as traditional finance.

Pending public consultation that is open until late October, the legislation is expected to enter Federal Parliament by early 2026.

Crypto platforms will need an Australian Financial Services Licence (AFSL) and will fall under the oversight of the Australian Securities and Investments Commission (ASIC), the corporate regulator.

Importantly, the policy targets the companies that hold and manage crypto for customers, not the currencies themselves.

It also ensures any business holding crypto on behalf of clients will face clear licensing, disclosure, and conduct rules.

These include minimum standards for custody (how assets are kept safe) and plain-English risk warnings so investors know exactly what they're signing up for.

The aim is to stop unregulated firms from shifting large amounts of crypto without proper safeguards.

Gemini Earn fiasco: A cautionary tale

Gemini learned the hard way what happens when crypto runs without guardrails.

Its Earn program was caught in the fallout from the infamous FTX scandal in 2022.

FTX, then the world's second-largest exchange, imploded after revelations it misused more than $8 billion in customer funds.

The fallout triggered a wave of withdrawals across the industry, draining billions as investors panicked.

Earn, launched just a year earlier, let users deposit crypto like Bitcoin and Ethereum, which Gemini lent to big borrowers through partners such as Genesis.

In return, users earned interest, often far higher than a savings account because borrowers paid steep fees for liquidity.

But Genesis had exposure to FTX. When FTX went under, Genesis froze withdrawals, locking up millions in customer funds and triggering lawsuits and regulatory scrutiny.

By June 2024, Gemini repaid Earn users in full, returning assets in kind (the same crypto they lent, not its cash value). If you lent one Bitcoin, you got one Bitcoin back.

Because crypto prices surged during the freeze, the recovery was worth 237% more, about $1 billion extra compared to when withdrawals were halted.

Why Gemini wants local rules

That experience explains Gemini's push for tighter oversight. It's not just about protecting consumers; it shields exchanges too.

Gemini has registered its local arm, Gemini Intergalactic Australia, with AUSTRAC, the country's anti-money laundering and counter terrorism authority, as a digital currency exchange (DCE).

There are currently 427 registered DCEs in Australia but the regulator is concerned that many are inactive, leaving them ripe for criminal takeover.

"Cryptocurrency can be exploited by criminals for money laundering, scams and money mule activities, and we're seeing far too many people falling victim to scams involving digital currency," said AUSTRAC CEO Brendan Thomas.

In August, the regulator ordered Binance Australia - the world's largest crypto exchange - to appoint an external auditor after "serious concerns".

Considering their size, Thomas said he expects tighter controls from major global operators.

"The potential for money laundering via scams and cybercrime and terrorism financing is much higher for global exchanges."

While Gemini only cracks the top 20 crypto exchanges, it still operates in more than 60 countries.

It's why James Logan was appointed as head of Australia, to grow a "local team that's locally regulated with local products."

For Logan, regulation is the ticket to mainstream credibility.

"Some people are nervous about exchanges in Australia because there hasn't been a licensing regime," he says. "That's driven them to other asset classes they think are safer."

But hopes the new legislation will give investors the same confidence as investing in equities or ETFs.

"It will create a level playing field for the first time, putting crypto exchanges on par with those markets in terms of trust and regulatory safety."

The balancing act

Gemini's focus in Australia starts with its spot exchange for buying and selling digital assets. It plans to add local payment rails such as PayID for deposits and, down the track, expand into products like a crypto card and derivatives trading.

The self-managed super fund market is also on its radar as investors look for new ways to diversify.

This kind of innovation still appeals to early adopters. After all, what made crypto exciting in the first place was its disruption. But it was also the danger.

As Ahmed reminded the crowd, the early days were "risky, chaotic and untrustworthy."

"Most people dismissed crypto as a fad, or at best, a speculative gamble."

That high risk once meant high reward. But today, most consumers sit somewhere in the middle of the technology-adoption curve and have different risk appetites.

The everyday investor doesn't want their money tied up for years.

The question now is whether crypto can walk the line between regulatory safety and futuristic disruptive allure, attracting new investors without alienating its crypto natives.

On launch night, Cameron and Tyler Winklevoss videoed in, issuing in a "new era". Corks popped, champagne flowed, and tech-blue cocktails dotted the tables.

Robotic dancers in neon blue lit up the night like a Daft Punk gig. A DJ-saxophonist duo performed against lush backdrops and psychedelic projections. Sommeliers floated through the crowd as a Gemini-branded Tesla Model Y glowed in orange hues.

But the main act is yet to come: A crypto exchange on the high wire, precariously balancing regulation and risk in front of a nation. Let's hope there's a safety net.

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