Crypto-currencies have had a meteoric and controversial few years. The market in some ways is close to life at the end of the 90s dotcom bubble - time for a second, or third phase of the market, a practitioner argues.
Crypto-currencies such as Bitcoin have been around for a few years and already an issue that has rattled investors is the gut-wrenching volatility of the digital currency space. To some extent such price gaps are an understandable feature of a fledgling market. But such volatility clearly causes even enthusiasts concerns, and as the market tries to mature, infrastructure to enable participants to hedge volatility will evolve. Such a "mainstreaming" process will, advocates hope, boost liquidity, reduce volatility and increase liquidy further in a virtuous circle.
Despite scepticsm from certain quarters, Bitcoin and certain other cryptos aren't going away, and the underlying distributed ledger technology of blockchain continues to draw in interest and finance. This publication recently spoke to the organisation BitSpread, which says it brings investment banking sophistication and muscle to this nascent asset class. In February BitSpread launched a range of capital-protected strategies that it believes break new ground.
This news service recently sat down with Lionel Fournier, CEO of BitSpread Financial Solutions, a division of BitSpread, to ask about how it is trying to evolve the crypto-currency space.
When was BitSpread established and who are its founders?
BitSpread was established five years ago by Cedric Jeanson, a highly experienced former JPMorgan, Barclays, BNP Paribas and Nomura investment banker.
I also come from an investment banking background, having worked with BNP Paribas, Credit Suisse, Bank of America/Merrill Lynch and CitiGroup, and I lead BitSpread Financial Solutions (BFS), which is a new division which will specialise in customised investments, hedging and financing solutions on blockchain assets for professional investors.
Recently we launched a unique new range of capital protected crypto strategies, the first time that capital protected investment strategies using sophisticated derivatives have been utilised in the crypto space.
Where is the firm located? I see it has FCA registration here?
The firm is located in London and Singapore. BitSpread Financial Solutions is an Appointed Representative of Met Facilities, which is authorised and regulated by the UK Financial Conduct Authority.
Why was the firm created?
To be the leading provider in crypto currency investment solutions.
Cedric was extremely interested in the crypto space, but felt it lacked a serious institutional player. He felt there was an opportunity to use his investment banking experience to build that serious institutional player, which combines expertise in digital currencies with extensive experience in traditional finance.
How did you come to be interested in the blockchain/crypto currency space?
Blockchain, cryptocurrencies, and digital assets more broadly are the next frontier for finance. Given my background in financial engineering, it was almost inevitable that I gravitated towards the space.
What is distinctive about BitSpread in terms of this market and why?
We are without a doubt the leader in crypto currency investment solutions. While some provide asset management, others offer custodian services, and still others engage in market making through derivatives, we provide a comprehensive suite of services in digital assets to clients around the world. And crypto is an asset class that never sleeps, so you need to have a global presence, which we have from London, to Singapore, to the United States.
Our unique new range of capital protected crypto investment strategies is a perfect example of the distinctive offering we bring to the market. Exposure to pure market beta from investing directly in cryptocurrencies, futures or ETFs entails taking the associated volatility and risk of capital loss. Our ability to provide substantial downside protection is just one example of the sophisticated investing approaches which make us unique. We believe this smarter way of investing in crypto currencies is the future.
Wherever you look there appear to be a bewildering array of currency trading platforms, offerings and price feeds for a mass of different crypto currencies. Even to seasoned financial professionals this looks confusing. Are you trying to simplify this?
We believe this highlights the need for a serious, experienced, institutional approach. And we take a very stringent approach in selecting our partners. We only work with the best.
With the volatility in cryptos, are you attempting to give investors the ability to both exploit that volatility and hedge it?
Yes. Our clients’ needs are wide ranging, and we offer solutions engineered to achieve both these goals among others. Our strategies, produced by experts in financial engineering, offer investors opportunities to participate in the upside of Bitcoin while having a significant proportion of the capital protected on the downside. BitSpread Financial Solutions (BFS) in fact was launched in November of last year with the explicit aim of providing professional investors with customised investment opportunities, as well as hedging and financing solutions for blockchain assets, by drawing on our wealth of specialist experience and expertise in financial engineering.
You refer to the world moving to “crypto 2.0”. What do you mean by that?
As we enter in to a much more mature phase of the market, we are witnessing an increasing professionalisation of markets for crypto assets, which is in turn drawing in large incumbent firms and the institutional capital which they command. To name but a few examples of this institutionalisation of crypto markets, JPMorgan just launched their own coin. Fidelity Investments (one of the five largest financial service providers in the world) has launched a cryptocurrency trading and storage platform, geared towards enterprise clients. Elsewhere, Intercontinental Exchange (the parent company of the New York Stock Exchange) is preparing to launch its own platform, which aims to offer all manner of cryptocurrency related services, in addition to trading and warehousing.
Additionally, regulators around the world are now catching up with technological developments. Just last month (January) the FCA published a consultation paper outlining the work being done regarding digital assets.
Do you believe that if it is made easier for people to mitigate and hedge crypto-volatility that this will draw in new entrants, boost liquidity and create a virtuous circle of more liquidity, etc?
Yes, digital asset markets are maturing, but with the crypto space not yet at a stage of maturity at which it can exhibit levels of volatility certain actors are comfortable with, such services are in high demand. Until now, sophisticated investment tools for investors who take an interest in crypto as an asset class but who value capital preservation and do not wish to invest in a purely directional way, have not been available.
But capital protection strategies such as the unique new range BitSpread recently launched can open the door for professional investors to start allocating portions of their portfolios to this nascent asset class, allowing them to tap in to the significant upside potential and diversification benefits crypto can offer, now that the downside risk can be better managed.
Who can use BitSpread at the moment? Sophisticated investors/professionals, other?
Only sophisticated investors. We have absolutely no intention of going in to retail.
Are there minimums that people must have as collateral to use the platform? What other limits and tests are there for leverage, deal sizes, etc.?
We do require a minimum deposit on BlockBerry, our platform, of $100,000 or equivalent.
Where do you see your business in five years’ time?
The market is evolving quickly, our aim is to continue to be ahead of the game by introducing ever more sophisticated and institutional infrastructure and strategies to the space.
Are you concerned about the lack of regulatory consistency or is a piecemeal, evolutionary approach to be expected, even a good thing?
We are very pro-regulation and we are constantly liaising with regulators around the world. BitSpread is in fact also working with its peers towards putting in place best practices to aid in the process. Simply put, the stability and transparency which regulation is increasingly bringing to the asset class is important to fuel growth in it.
What are your views about the public’s perception of crypto currencies? Are you a big enthusiast for cryptos or do you take a neutral view?
I think the inflation and subsequent bursting of the speculative bubble in crypto assets just over a year ago bears a marked resemblance to the Dot Com bust of March 2000 which cannot be ignored. We are now witnessing the emergence of new players in the blockchain space, in much the same way the likes of Google emerged in the wake of the Dot Com crash. In my view, things are going to happen more quickly this time regarding crypto. We are already seeing consolidation and growth at a much faster pace than with the internet all those years ago.
Are there other points you want to make, such as how you see the wealth management industry using cryptos in different ways?
Significant actors are already allocating portions of their portfolios to digital assets. There is no question that we are now coming up to a vital inflection point.
Certainly the asset class, from an investor’s perspective at the very least, offers a very attractive means of portfolio diversification. This is particularly the case at this stage in the market, as investors stand to gain from the immense room for growth given current valuations.