Institutions’ top 3 crypto remains Bitcoin, Ether, XRP: BC Group

Ben Ng July 22, 2020 06:00

Hong Kong-listed BC Technology Group (00863), operator of institution-focused digital assets trading platform OSL, said despite hundreds of thousands of digital assets available in the market, the professional investors are still very focused on the top three, namely Bitcoin, Ether, and XRP.

One year after expanding into the digital asset business, BC Group reported an increase of 736.9 percent in revenue year-on-year, driven by its digital assets platform OSL.

OSL offers institutions and professional investors services that include over-the-counter brokerage, automated trading services, Software-as-a-Service (SaaS) solutions, and custodial services.

During the year, the number of active customers for OSL increased by 254 percent, according to the firm, with the overall digital asset trading volumes reaching HK$50 billion, a 654 percent year-on-year increase.

“Institutions have been entering the [digital asset] market for several years,” said BC Group (00863) CEO Hugh Madden.

Corporates and institutions accounted for less than 50 percent of OSL’s customer base in 2018, and the ratio jumped to almost 80 percent in 2019, according to the group’s Chief Financial Officer Steve Zhang.

“Quite early on, high-net-worth individuals (HNWIs) and family offices started to take positions. In the last 12 months, we have seen licensed funds offering digital asset portfolios to their client base, banks undertaking projects to service digital asset clients and, investment banks and traditional licensed exchanges, expanding into services in this new space,” said Madden, “so [institutions] are not ‘coming,’ they’re here.”

Madden told EJ Insight that the institutions investing in this new type of asset class have been very focused on the three major digital assets, namely, Bitcoin, Ether and XRP, as these assets have historically demonstrated the highest liquidity profiles.

The fast adoption of stablecoins, cryptocurrencies that attempt to offer price stability and are backed by a reserve asset, has become the major phenomenon in the market, according to Madden, which has been largely driven by the launch of social media giant Facebook’s Libra stablecoin initiative, as well as the growing efforts from governments worldwide to develop central bank digital currencies (CBDCs).

USDC, the second-largest US dollar-pegged stablecoin after Tether (USDT), reached a US$1 billion market cap this July, 21 months after its launch by the Centre Consortium, an organization co-founded by cryptocurrency exchange giant Coinbase and Circle.

Positioning the firm as the institutional gateway to global digital asset capital markets, Madden said compliance and regulatory clarity are critical for its segment of client base.

Shortly after Hong Kong’s securities regulator, the Securities and Futures Commission (SFC), announced its new regulatory framework for digital asset trading platforms in November 2019, OSL applied for Types 1 (Dealing in securities) and 7 (Providing automated trading services) licenses under the SFC guidelines.

With a new office in Singapore last year, OSL has also been granted an exemption from holding a licence to provide digital payment token service under Singapore’s Payment Services Act.

Madden views the introduction of licensing for digital assets as an inflection point. “The digital asset space is quickly becoming regulated. Almost every major jurisdiction is introducing licensing frameworks,” he said, adding that such regulation will galvanize institutional participation in the space.

While some digital asset exchanges are not eager to apply for licenses due to “a little bit of regulatory arbitrage”, according to Madden, exchanges without licenses will not be able to onboard institutions and large pension funds and asset managers, an enormous opportunity to be captured by licensed digital asset platforms.

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Ben Ng

EJ Insight writer