by Karim Nurani, Chief Strategy Office, Linqto
In the midst of a global pandemic, the world and its economy are in a seeming moment of flux and ever-constant change. However, one panel from our recent Global Investors Conference, shows that those who are willing to adopt the new and the innovative will weather the storm and emerge with hope for a bright future.
Digital assets are a breed of investment that has gained notable traction over the last ten years. Nonetheless, there have been barriers to its acceptance by both institutions and private investors. While these barriers have been felt by all regions, Asia has made strides in addressing them, proving the region a valuable example for the rest of the globe.
A PANEL OF REGIONAL EXPERTS
Our panel consisted of a group of experts whose companies are based primarily in the APAC region. We were joined by Chris Lee of Farron, Augustine, & Alexander, Joseph Chang of LiquiBit, Michel Lee of HashKey Digital Asset Group, and Matthew Le Merle of Fifth Era.
Chris Lee is a partner at Farron, Augustine, & Alexander, a private investment group focusing on real estate, early stage companies and in-depth research on hedge funds and private equity managers. With decades of experience, some notable experience includes serving as Managing Director at Deutsche Bank and UBS Investment Bank, as well as a VP for Merrill Lynch, where he crossed over with panelist Joseph Chang. With home bases in San Francisco and Hong Kong, Chris and his partners allocate capital globally. He is fluent in English and Chinese.
Joseph Chang, the founder and CEO of LiquiBit, has over 20 years of experience in traditional finance, running various businesses including Asian Equities Derivatives Trading and Prime Brokerage at several banks in Hong Kong. LiquiBit specializes in arbitrage and cryptocurrency trading as well as artificial intelligence. He worked formerly with Chris Lee at Merryl Lynch.
Michel Lee, the Executive President of HashKey Digital Asset Group, has 25 years of investment banking experience with UBS in London, Tokyo, Beijing and Hong Kong. He is the Former Head of APAC Capital Markets and Director of the Board of UBS Securities. He has led over 100 large capital-raising and M&A transactions and pioneered business models in the derivatives and alternative investment markets. He holds an MSC in Computer Science from the Imperial College of London.
Matthew Le Merle is the co-founder and Managing Partner of Fifth Era, which operates BlockChain Coinvestors, the “world’s leading blockchain venture fund of funds.” He is Managing Partner of Keiretsu Capital, which comprises early stage venture investors and boasts a reputation for backing nearly 200 companies annually. He is also the Chairman of Securitize and CAH. Sharing his vast knowledge and experience, he is also now a bestselling author and speaker on investing, innovation and the future.
BARRIERS TO ENTRY:
When asked by moderator, Chris Lee, if large institutions are adopting digital assets, Joseph pointed out early in the discussion that “no, they have not really embraced this. They are watching. They’re monitoring, but they have not really embraced this.” He went on to explain that “there are many reasons for that.”
According to Joseph, there are three (3) main barriers to entry for most large institutions, which have prevented them from embracing this new asset:
- The Lack of “regulatory certainty”;
- The Barriers inherent in existing “ecosystem” of actors (custodians, regulating bodies, other monetary institutions); and
- The Lack of a “use-case”, successful application to serve as example
COMPETITION AND ASIA’S FINANCIAL LANDSCAPE
When it comes to addressing these barriers, our panel pointed out that Asia’s top financial centers are in competition, and that this actually works in their favor in terms of adoption.
Michel Lee pointed out that the financial landscape in Asia represents a space where “you have Japan, you have Hong Kong, and Singapore, all these are essentially competitors to each other.”
“I think what we’re seeing (and it’s a very good thing) in the longer term, is the fact that you have competing financial centers who are that worried.”
Michel went on to say,
“…all the stock exchanges in the region – from Hong Kong, to Singapore, to Japanese regulators, to Korea – they’re all worried that they may miss this trend, they may be allowing the competitor to be faster in moving into the space. So, that has actually promoted a lot of the regulatory changes..”
Echoing this sentiment, Chris Lee, our moderator, explained that
“the Asian markets and also the regulators feel the pressure to compete.”
This competition has paved the way for governments and banking institutions in Asia to provide infrastructure/framework allowing for more adoption– sometimes even circumventing traditional legacy institutional rules – in order to get ahead and stay ahead in the digital asset race.
THE BARRIER OF REGULATORY CERTAINTY
In the midst of this competition, addressing the lack of “regulatory certainty” is one way that each center has competed with others. (Institutional Digital Asset Trading in Asia)
Chris mentioned that both Japan and China have “supported some legislation exercises” in order to achieve this.
Joseph explicated some specific regulatory steps that major financial centers in Asia have taken:
“Whether it’s Hong Kong, with its recent first approval of asset management license for crypto, the sandboxes Hong Kong has for exchange type trading platforms, [or] in Singapore with their digital payment license, that’s attracting a lot of attention.”
WORKING AMIDST AND ADAPTING TO REGULATIONS
Our group of panelists – went into detail on the ways their particular companies and groups have worked to accelerate the adoption of digital assets by addressing each of the three barriers.
Michel leads the HashKey Digital Asset Group– which aids in system development and community outreach, also specializing in regulatory outreach. Based in Hong Kong, his team helps to “move the entire industry forward” and has devoted itself to “accelerating innovation, promoting entrepreneurship” and “contributing to blockchain technology development.”
As examples, Joseph of LiquiBit mentioned specific examples of regulatory adoption, such as “the sandboxes Hong Kong has for exchange type trading platforms” or “Singapore, with their digital payment license” which Joseph noted, is “attracting a lot of attention.”
ADDRESSING THE BARRIER OF A RISK-AVERSE ECOSYSTEM
The second barrier the panel discussed was an ecosystem full of players who by nature are risk-averse. Namely, the legacy financial institutions (i.e. HSBC and Barclay’s) and historical custodians such as Fidelity and J.P. Morgan.
Our moderator himself, Chris, represents some 18 years of experience in investment banking for just such large institutions, having acted as Managing Director and regional head at such legacy institutions as Deutsche Bank AG, Bank of America Merrill Lynch, and UBS Investment Bank AG. While working at Merrill Lynch, he collaborated with another panelist – Joseph – whose company may just provide the solution needed to address the risk-aversion often characterizing these legacy institutions.
In an effort to address this second barrier, Joseph and his company LiquiBit, attempts to alleviate the fears and risk-aversion often associated with adopting this new asset class by providing “proprietary arbitrage-focused strategies that allow [them] to deploy capital in a secure, efficient, and timely manner.” By balancing gains and losses through a strategy that works regardless of market leanings of the moment, his company, and the platform associated with it, is helping to overcome the trepidations associated for institutional investors such as the alma-mater he shares with Chris – Merrill Lynch.
Similarly, Matthew Le Merle, through BlockChain Co-Investors, has worked to mitigate the aforementioned risk by creating a fund that is resilient to ups and downs that characterize this asset category. The portfolio he’s created provides the opportunity for investors to pour into “companies backed by leading venture investors including emerging unicorns.”
THE FINAL BARRIER: SEARCHING FOR A USE-CASE
The third and final barrier discussed is that of the hitherto missing “use-case” that demonstrates a speedy integration and public education about this new asset class. As of now, Joseph pointed out, there has not yet been a clear example in the market. However, Michel mentioned the hope of China’s forthcoming anticipated digital bank adoption – which is exemplified by China’s announcement just this week that it is planning to “test its digital currency,” the Yuan, on “platforms operated by Meituan Dianping,” and has enlisted a “food delivery giant” as a “major step toward the token’s mass adoption.” (News et al. China Plans to Test Digital Yuan)
A GLOBAL TREND: BEYOND THE ASIAN LANDSCAPE
With proposed solutions to the three main barriers being addressed by our panel of experts based primarily in the APAC region, it brings a new wave of excitement and anticipation to the global conversation regarding digital assets.
Beyond the APAC region, we see a move similar to China’s token adoption in the US, where the InterContinental Exchange (ICE) (the proprietor of the New York Stock Exchange) recently began to back a token itself, called the Bakkt. (Hogan, Microsoft, ICE join $300M investment) In Europe, the European Commission has sponsored the EU BlockChain Observatory and Forum has come together to “accelerate blockchain innovation” to “help cement Europe’s position as a global leader in the transformative new technology.” (About, Our Mission, and Our Activities)
As Michel noted, traditional ideas about regulation, licensing, and clearing houses are “being turned upside down” because “the old way of thinking about this…is totally different.” It’s a “reshuffling of the cards,” Lee explained.
Matthew, wrapping up the dialogue, commented that “when the dust settles” the “winning places in the world, are going to be the same financial centers that they are today.”
As for us, we appreciated the insight and wealth of experience that this entire panel offered on the subject, offering clarity and a framework where we might otherwise feel, well, in this unprecedented time, a bit “shuffled.”
Please join us for our next Global Investors Conference, taking place mid-September this year. We will have more details to come.
Linqto, Director. Institutional Digital Asset Trading in Asia, Linqto, 13 July 2020, youtu.be/dTF7vTCJ6Rk?list=PLYRukGK5wc8_ESy_wY5zXfOKqZgRfGx7g.
Huang, Zheping, and Joanna Ossinger. “China Plans to Test Digital Yuan on Food Delivery Giant’s Platforms.” Bloomberg.com, 14 July 2020, www.bloomberg.com/news/articles/2020-07-15/china-to-expand-digital-yuan-test-to-food-delivery-giant-meituan?sref=Dow9BIgK.
Hogan, Madison. “Microsoft, ICE Join $300M Investment into Atlanta Cryptocurrency Exchange.” BizJournals.com, 16 Mar. 2020, www.bizjournals.com/atlanta/news/2020/03/16/microsoft-ice-pitch-into-300m-investment-into.html. Accessed 15 July 2020.
“About, Our Mission, and Our Activities.” EUBlockchain, European Commission, Directorate-General of Communications Networks, Content & Technology, 2020, www.eublockchainforum.eu/about.