The collapse of Three Arrow Capital and the counterparties embroiled in the crypto hedge fund’s problems have raised questions about the soundness of the intoxicating investment space for digital assets. For the industry’s survivors, seeing their rivals fall to pieces overnight was an alarming experience.
To understand where the industry is headed after the market turmoil, we spoke with John Ge, chief executive officer at Matrixport, a Singapore-based digital asset manager with more than $10 billion in assets under management and custody.
Ge was previously the head of investment and financing and one of the founders of Bitmain, the world’s largest maker of Bitcoin mining machines. Together with the co-founder and former CEO of Bitmain, Jihan Wu, Ge founded Matrixport in 2018.
Known as 3AC in the crypto community, Three Arrow Capital was one of the world’s largest crypto hedge funds before falling out of favor. Its success was based on a risky strategy: it borrowed aggressively from cryptocurrency lenders and in turn invested that money in other crypto projects.
When cryptocurrency prices began to plummet earlier this year, the company, as well as other similar outfits betting on rising crypto prices, backfired on their creditors and plunged into liquidation. The crypto market has fallen $1.8 trillion since its peak in November, led by the decline in Bitcoin and Ethereum prices.
The recent market crash is “inevitable,” Ge said in an interview with TechCrunch. “The core problem is that we saw players whose business model is like a black box. They borrow money from investors without providing transparency about how the money will be used.”
The other problem is that these crypto managers act as both players and referees, Ge argues. “Many of them offer both wealth management and proprietary trading. An asset manager should not be doing proprietary trading, and if they are, they should follow strict leverage requirements.”
“Even the most conservative investment strategy has risks and can lead to losses, but the principle is to be transparent with your clients, not fraudulent, deceptive or misleading,” the founder says.
Matrixport, which serves individuals as well as more than 500 institutions in Asia, Europe and North America, was exposed to 3AC and filed a claim along with other creditors. But Ge assures that the company’s exposure is “relatively small” compared to the exposure of other industry players and is considered “small” compared to Matrixport’s equity.
In terms of restoring investor confidence in the crypto world, Ge believes that regulators are on the right track to increase oversight of consumer-facing crypto products and protections for retail investors, as is the case in Singapore.
But it is “unrealistic” to let regulators design risk management models for institution-oriented asset managers. “The pace of regulation is lagging behind that of industry development.”
You think that investors have lost “a certain level of confidence” in the crypto market and that the industry needs time to recover. On the other hand, he thinks competition for survivors like Matrixport has declined because “a lot of the other players are gone.”
Matrixport told Bloomberg last year that it planned to go public in three to five years, and Ge said that plan “hasn’t changed.” It’s too early to say what market the company is floating its stock in, but the US is a “probable” option as investors have more “welcome to crypto innovation.”
This post Bitmain co-founder welcomes crypto regulation to restore market confidence – TechCrunch was original published at “https://techcrunch.com/2022/08/08/bitmain-matrixport-john-ge/”