Crypto Investment Bank Debuts in Hong Kong

Those looking for the crypto sector’s equivalent of Goldman Sachs and Morgan Stanley might soon find it in the newly-launched Clipper Coin Capital.

Crypto investment bank and asset management firm, Clipper Coin Capital, is expected to debut on May 14 when it lists its digital token CCCX on the Hong Kong-based digital asset exchange, Coinsuper. Founded by former Wall Street hedge fund manager Zhen Liu, Clipper Coin Capital (CCC) aims to be the leading provider of professional financial research, investment banking and asset management services to the casino-like cryptocurrency market.

Liu has ambitious plans to replicate traditional securities and credit analysis frameworks to analyze, assess and rate digital assets in a way that would help investors identify the next blockbuster token while steering clear of dodgy schemes.

Taming the crypto casino

As the crypto market transitions from a wild casino to an emerging market, it represents a significant opportunity for financial intermediaries, he said. It is high time that professional service providers enter the market, in which more than 90 percent of the 1600-odd initial coin offerings issued so far are scams, Liu said. He likens the current crypto market to a “lemon market,” referring to the Nobel Prize-winning economist George Akerlof’s seminal paper that underscored the perils of markets with a large variety of products descending into chaos due to information asymmetry.

Crypto currencies have plenty of detractors including Warren Buffett, perhaps the world’s most famous investor, and Jamie Dimon, the head of JP Morgan Chase. But the technology is gaining significant backers as well.

Liu, who holds degrees in physics and computer science, has a significant track record of being a financial sector pioneer in China. He established China’s first hedge fund in 2010 and, four years later, the country’s first robo-advisor before being lured into the crypto industry.

“The goal is to create a premier investment bank for the cryptocurrency market, akin to the Goldman Sachs of the crypto sector,” he said. He spent nearly two decades managing quantitative hedge funds for such Wall Street names as DE Shaw, UBS and Brevan Howard.

Rating system for tokens

As a part of its ratings benchmark, CCC has created five-grade systems each for the coins that are already listed on the exchanges in the secondary market and for those their ICO stages in the primary market.

Steve Hopkins, the firm’s director of strategy, said it would also roll out crypto indexes to help track the overall crypto market for the firm’s exchange-traded funds (ETFs) that it plans to issue in the coming months. Index allocations and data will be published at regular intervals, he said.

Alongside its rating system, the firm also provides investment banking services to promising blockchain and digital asset startups as well as advisory and underwriting service for ICOs.

CCC has recently received investments from some well-known institutional investors: Eagles Fund, a China-focused fund that has served as a cornerstone investor for Clipper Adviser, Liu’s earlier robo-advisory firm, GSR Ventures, an early stage venture capital, and CollinStar Capital, an Australian asset management company specializing in blockchain.

These investments recognize the potential for financial intermediaries like CCC to bring value to a market that remains chaotic and opaque, and regulatory frameworks haphazard and nascent.

Identify diamonds in the rough

Distributed ledger technology has tremendous long-term potential, Liu said, particularly for banks and insurance companies to become leaner and more efficient, though there have so far been limited real-world applications in this space.

At this stage, cryptocurrencies remain the only aspect of blockchain innovation accessible to investors, which partly explains their popularity as an emerging digital asset class, he said, adding that the current boom in the crypto sector, largely fueled by Chinese investors, is unlikely to end anytime soon. There are still a lot of Chinese citizens wanting to circumvent the government’s capital controls to move money offshore.

Indeed, what the cryptocurrency market aims to do is to upend both government and regulators, not the agents of free markets, such as investment banks and broker-dealers.

Under current market conditions, however, most retail investors are likely to suffer losses, just like in any other financial markets. But that does not mean crypto investment should be limited to institutional investors. After all, cryptocurrency is, by definition, meant to create a decentralized free-market.

Liu believes that the majority of crypto currency projects are likely to fail in the future, but there will be a handful of winners that ultimately earn eye-popping valuations. The goal is to identify those diamonds in the rough at an early stage.

The firm is in the process of establishing its investment banking operations in both Hong Kong and the United States. As the crypto sector grows in size and maturity, firms such as CCC stand poised to capture a chunk of the investment banking and research business, particularly in Asia, which has so far been the locomotive of the crypto industry.