Cedric Jeanson, the founder and CEO of Bitcoin-focused hedge fund BitSpread, which focuses on price disparities across cryptocurrency exchanges and the arbitrage opportunities these price differentials provide, is optimistic about the opportunities of Bitcoin and the broader cryptocurrency world as the market matures.
Unfazed by the market’s behaviour, the London-based fund was launched by Jeanson in April 2014 and maintains offices in Singapore, Paris, New York, Cayman and San Francisco. According to him, the fund has received commitments from investors that will bring its assets under management to $200 million by end-2018.
Jeanson who was previously COO of Equity Derivates at Nomura in London in 2014, believes that as cryptocurrencies mature and regulatory clarity is achieved, initial coin offers (ICOs) will emerge as a powerful crowdfinance tool to complement and compete with established crowdfinance solutions.
ICOs & token types
Given the growth of initial coin offers (ICOs) – the large-scale sale of digital tokens to investors – that 2017 has seen, Jeanson said: “Once the ICOs are regulated for retail investors, it will be a powerful decentralised alternative to centralised crowdfunding, using only cash as a mean of funding. ICO will have the same impact on crowdfunding that crowdfunding had on venture private equity funding.”
The growth of ICOs has also highlighted the difference between the virtual currencies that digital tokens of Bitcoin and Ethereum represent – where encryption protocols regulate the generation of units of currency and verify the transfer of funds – and their decentralised nature, operating independently of a central bank, as well as the utility tokens and equity tokens issued during ICOs.
Utility tokens represent services or units of services that can be purchased and are comparable to API keys used to access the service, while equity tokens are tokenised securities representing ownership of an asset or share in a business.
This development has seen small firms like Finshi Capital and Starta Capital raise small venture funds through the use of ICOs. Asked if he sees this spreading into the broader PE/VC space or remaining experimental for the time being, Jeanson said: “Established Fund Administrators do not have the appropriate AML/KYC procedures and storage facilities for funding via tokens. This will grow over time, once Tier 1 Fund administrators provide this facility.”
Cryptocurrencies & financial markets
Relative to the 2014 Bitcoin market crash and the other crashes that bitcoin has experienced, as well as China’s stock market turbulence in 2015, Jeanson is of the view that alternative coins like Litecoin, zCash and Monero are part of the past narrative.
“The new trend is the upgrade of the Bitcoin and Ethereum public network via “forks” or software upgrades. Bitcoin and Ethereum have an ecosystem of developers or merchants. Altcoins was the story of 2 years ago,” he said.
On the implications of the growth of cryptocurrencies on the capital markets of Asian financial centres like Singapore and Hong Kong, he said: “Financial institutions have a different vision of blockchain, seeing it more as an intranet than the internet. As Asia is the biggest region for trading digital currencies, due to investor interests, it seems legitimate for Singapore and Hong Kong to develop listed products on their Derivatives exchanges, as an alternative to the CME/CBOE listed derivatives products.”
Jeanson also sees virtual currencies benefiting financial inclusion in emerging markets.
“Digital Currencies will change the world as we see it today, providing a new facility of payments for emerging markets that extends to goods, services and employment. Nobody can ignore anymore a wealth of $450Bn on the public blockchains,” he said.
As for the recent decision by Bank Indonesia to prohibit Bitcoin and other cryptocurrencies as payment methods in Indonesia, Jeanson said: “Things always evolve in different pace depending on the level of education. As governments need to develop local prosperity for growth and social stability, governments will not ignore the positive impact of digital currencies as a mean of payment for their local goods and services from oversea clients.”