Is your investment protected by FDIC deposit insurance? The New York State Department of Financial Services is reportedly investigating Gemini.

According to a report by Axios, the New York State Department of Financial Services (NYDFS) is investigating the cryptocurrency exchange Gemini because customers complained that Gemini customer service misled them by emphasizing that their deposits were protected by the Federal Deposit Insurance Corporation (FDIC) in the United States. What are the conditions for coverage under the FDIC? Let's find out once and for all!

FDIC Insurance Coverage

The Federal Deposit Insurance Corporation (FDIC) is a government agency established during the Great Depression by the United States federal government to provide insurance for deposits held by insured banks and savings associations in the event of a bank failure. The coverage only applies to deposits held when the bank fails, with a maximum insurance amount of $250,000 per depositor per bank.

There are two main requirements to be included in the FDIC insurance coverage:

• The bank where the deposit is held must be a member of the FDIC, which does not include cryptocurrency exchanges.
• Only deposit products are covered, such as regular deposit accounts and money market deposit accounts. Stocks, bonds, and cryptocurrencies are not covered under the insurance.

Gemini Case Study

Gemini Earn is a product similar to a savings account where investors can deposit cryptocurrencies or Gemini's stablecoin GUSD to earn higher than market annual percentage yields. However, due to issues with the solvency of their trading partner, the cryptocurrency lending institution Genesis, Gemini Earn had to halt redemptions. Genesis filed for bankruptcy restructuring on 1/20, leaving the redemption of Gemini Earn funds uncertain. According to Axios, many customers inquired with Gemini customer service when the issue first arose and were told that Gemini deposits are FDIC insured, but is this true?

Firstly, Gemini is a limited purpose trust company registered with the New York State Department of Financial Services (NYDFS) and is authorized to conduct virtual currency business, but it is not a member of the FDIC. Gemini claims that only USD deposits held in FDIC-member banks like Silvergate Bank, State Street Bank and Trust Company, JPMorgan Chase Bank, and Signature Bank are covered by the FDIC, excluding cryptocurrencies.

Secondly, Gemini's stablecoin GUSD, as indicated on the Gemini website, is issued against corresponding USD assets such as "bank deposits insured by the FDIC," money market funds, and U.S. treasuries. However, the insurance only covers USD held in banks, not the stablecoin GUSD itself.

Furthermore, FDIC insurance covers deposits held by insured banks and savings associations, and the coverage only applies to deposits held when the bank fails. Therefore, in the event of Gemini's failure, there would be no compensation unless the bank where Gemini holds deposits, such as Silvergate Bank, fails.

Last July, the cryptocurrency broker Voyager received a joint cease and desist letter from the FDIC and the Federal Reserve Board, refuting Voyager's claims that users' USD deposits were FDIC insured and would be compensated even in the event of the company's bankruptcy.