Libra Foreshadows a Changing of the Guard
Letter from the CEO: Hugh Madden, Chief Executive Officer
US Secretary of the Treasury Steven Mnuchin’s latest response to Libra may be indirectly helping the acceleration of the digital assets industry towards regulation. Regulatory clarity helps to protect consumers, whilst opening the asset class to regulated entities to do business. The entrance of institutional players to a regulated digital asset environment signals an impending “Changing of the Guard” in the digital asset eco-system.
BC Group is uniquely positioned to help drive and benefit from this paradigm shift; capitalising on this change is fundamental to our digital asset vision.
As I start my new role as CEO of BC Group, I want to share with our staff and partners the progress we have made and the milestones we have achieved to this end. We have accomplished a great deal and are well positioned to prosper as the industry implements the processes and systems necessary to further bring this asset class into our financial markets.
Our Strategy
For the past year we have been positioning BC Group as the partner of choice for professional digital asset traders. During Ken Lo’s tenure as CEO, the Group assembled a world-class management team. We underwent an independent financial statements audit by PwC[1], established institutional-grade security controls to support the first insured custody offering in Asia[2], completed a US$14.7 million[3] equity raise to strengthen our balance sheet, and continued to build our market leading brands.
At the same time, the Group has continued to develop and explore opportunities to use its digital asset expertise to maximise revenues from its marketing and business park management service businesses.
We have firmly established the requisite corporate and technical infrastructure to attack the market and crystallise the value we have created. We are now re-focusing our attention on growing revenue and engaging regulatory bodies to best position the company in the long term. Our cost base continues to reflect greater efficiencies and enhanced focus across the organisation.
Leadership Team Update
To this end, my partner Ken will turn his attention to managing our most important senior investor relationships and senior corporate governance matters with his appointment as Deputy Chairman of the Board.
My other partner Dave Chapman (CEO of ANXONE and Chairman of OSL) will continue to chair the trading business while also leading the growing custody and infrastructure solution units.
Wayne Trench, CEO of OSL, continues his capable leadership of OSL, Asia’s leading digital asset broker. At the same time, Gary Tiu, our Head of Regulatory Affairs, has been elected to the Board. This appointment reflects our unwavering commitment to ensuring regulatory compliance and capability at all levels of the organisation.
We also express our appreciation and gratitude to Mr. Fang Bin for his past contributions to the Board as he moves on to devote more attention and energy to his other business interests.
With a clear mandate to further strengthen our risk, audit, regulatory, and technology foundation to position ourselves for the journey towards a fully regulated asset class, it is a privilege for me to take on the role of CEO for the Group.
Commitment to our Strategy
Since we began building the Group’s digital asset business, we have consistently positioned ourselves to take on institutional order flow. The current global regulatory trends present a timely opportunity for us. With audited financial statements, industry leading technology and trading infrastructure, and the most trusted brand in Asia, we are well positioned to lead the digital asset market through the impending Changing of the Guard.
Specifically, our go-to-market strategy remains as firm as ever; we are uniquely positioned as a partner of choice for institutional players looking to access the digital asset market.
Perhaps this juncture provides an opportunity to re-articulate BC Group’s vision for digital asset markets.
Digital Assets, Past and Future
From the early beginnings of Bitcoin markets, digital asset volumes and market leaders have been cyclical. Several years have been colloquially termed “crypto winters”, and there have been many “Changes of the Guard” with rise and fall of a number of digital asset exchanges.
In my view, another Changing of the Guard is imminent. The catalyst this time is the rapid introduction of regulations following the recently ratified Financial Action Task Force (FATF) requirements for virtual assets service providers. These requirements mandate the introduction of licensing of digital asset service providers as a foundation for Anti Money Laundering (AML) and Counter Terrorist Financing (CTF) compliance[4]. Given the reach of the FATF and economic importance of adhering to its requirements, we believe that regulations in most jurisdictions is inevitable.
While many existing digital asset brands see the upcoming regulations as an impediment to business, financial institutions see regulatory clarity as the first critical step towards offering digital assets products and services to their clients. This represents an opportunity for BC Group and the wider digital asset ecosystem.
Among regulated financial institutions, let’s look at global asset managers:
The market capitalisation of digital assets is currently estimated at about US$255 billion[5], which is roughly one-half the market capitalisation of Facebook.[6] In contrast, the top-400 asset managers control nearly US$70 trillion (€66.4 trn)[7] worth of assets across equities, fixed income, and alternative assets.
A 1% allocation of this capital to digital assets would triple the capitalisation of the market; a significant opportunity for service providers.
But regulated asset managers cannot do business with unregulated brokers or high risk trading counterparts. Investors and regulators require such discerning behaviour from their asset managers. As a result the trading flow from regulated asset managers will only be directed to suitable digital asset trading venues.
This is the moment when transparent balance sheet, track record, compliance framework, and regulatory licence matter — not just for the risk management departments of regulated asset managers, but, in time, for any sensible professional investor who cares about counterparty risk and anti-money laundering obligations.
We believe the paradigm shift to institutional digital asset flows within a regulated environment will initiate the next Changing of the Guard. Organisations with the right profile and positioning — like BC Group — stand to benefit from capital flows that potentially dwarf existing digital asset markets.
This inevitable transition is at the heart of BC Group’s business strategy and is the basis for many of the most important decisions we have made thus far. Instead of short-term revenue opportunities, we have always had our eye on the promise of larger institutional volumes. This sets the stage for how we plan to operate, compete, and grow our business in a regulated digital asset environment.
Getting Ready for the Changing of the Guard
BC Group’s go-to-market strategy envisions leveraging our own branded venues in its strong market segments, whilst to gaining additional reach into other markets via its software business.
Our Software as a Service (SaaS) platform is offered as an institutional-grade, cloud-based solution. Eventually we expect to see this offering penetrate infrastructure markets across traditional asset classes.
From a scalability and bottom-line perspective, BC Group has an elastic shared services model for technology, middle, and back office. This provides an economies-of-scale advantage to the entire distribution strategy: ANXONE, OSL, and platform customers.
We have positioned BC Group well for the Changing of the Guard through 2020.
A focus on execution is now our priority.
BC Group Execution Updates
Significant successful milestones were met in the first half of 2019, including:
- Launching a custody solution with Asia’s first combined hot and cold wallet insurance [8]
- Expanding into complementary strategic markets
- Completing a US$14.7 million equity raise
- Aligning cost structure to better reflect the transition from setup to execution
- Rebranding the Group
BC Group, with the start of the digital assets business in 2018, completed the financial statements audit by PwC, our independent auditor. We believe this was a significant undertaking and increased the credibility for our partners and suppliers.
Moreover, BC Group obtained Asia’s first hot wallet insurance coverage along with its cold wallet insurance. The ANXONE Custody business backed by this insurance coverage has already received a letter of intent from its first customer, signed in June.
At the same time, our 24-hour trading operation has been strengthened with the establishment of offices in both Singapore and the Americas, giving the group true “follow the sun” capability. In addition, the platform business launched its first client in the second quarter, with a significant pipeline of other platform clients expected to go live throughout the rest of the year.
Reflecting our increasing mix of digital asset and related platform services, BC Group changed its listed entity name from “Branding China Group Limited” to “BC Technology Group Limited”. The group’s digital asset business is branded as “BC Group”, the umbrella Group for the ANXONE and OSL brands.
Whilst the success of Libra remains to be seen, it has already catalysed a Changing of the Guard by focusing attention on the regulation of digital asset markets. Our own success will be dictated by the execution capability of our staff and relationships with our partners.
I look forward to working together through this exciting period where digital assets earn an allocation in regulated asset management portfolios.
Hugh Madden
17 July 2019
[1] https://www1.hkexnews.hk/listedco/listconews/sehk/2018/1228/ltn201812281305.pdf
[3] https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0528/ltn20190528005.pdf
[4] https://www.coindesk.com/g20-reaffirms-it-will-apply-expected-tough-new-fatf-rules-on-crypto
[5] https://coinmarketcap.com/charts/ and https://coincodex.com/market-overview/
[6] https://www.bloomberg.com/quote/FB:US
[8] https://finance.yahoo.com/news/bc-group-unveils-asias-first-102800715.html
