G ROWI N G PA I N S

The craze about bit­coin has died down for now. For Dave Chap­man, founder of Oc­tagon Strat­egy, Hong Kong’s first cryp­tocur­rency bro­ker­age, this is the mo­ment for se­ri­ous in­vestors to take a hard look at this dy­namic – and mad­den­ing - mar­ket.

The Peak (Hong Kong) - - Portfolio • View - STORY RYAN SWIFT

The hype around crypto-cur­ren­cies may be break­ing. ICOS – Ini­tial Coin Of­fer­ings – where to­kens are of­fered up in sup­port of blockchains, have in­creased dra­mat­i­cally. A re­cent re­port in the SCMP even noted that Taobao ven­dors are of­fer­ing ghost­writ­ing ser­vices for ICO whitepa­pers. Mean­while, Google searches on bit­coin and other cryp­tocur­ren­cies are a frac­tion of what they were in late 2017.

Reg­u­la­tors have fired warn­ing shots and sounded notes of en­cour­age­ment to the cryp­tocur­rency/ico mar­ket. China banned ICOS, stat­ing that some 90 per cent were fraud­u­lent. Hong Kong’s SFC re­cently halted sales of a to­ken of­fered by a com­pany called Black Cell Tech­nol­ogy, whose to­ken, KROPS, pur­ports to cre­ate a sin­gle mar­ket for all farm­ers and con­sumers.

And yet, the Peo­ple’s Bank of China is re­port­edly in­ter­ested in de­vel­op­ing a sov­er­eign cryp­tocur­rency. Ju­ris­dic­tions in Europe and Ja­pan are keen to host cryp­tocur­rency ex­changes and busi­ness, and in­sti­tu­tional in­ter­est is grow­ing.

David Chap­man, a Hong Kong based cryp­tocur­rency en­trepreneur, says the vast ma­jor­ity of cryp­tocur­ren­cies are junk – es­ti­mat­ing that just ten per­cent of the 2000 or so coins out there are worth in­vest­ing in. That said, in Chap­man’s view, you’d be crazy to ig­nore them. “Ev­ery­one says crypto is so bad, but there’s no dif­fer­ence be­tween this and any other time when peo­ple have gone into some­thing (new),” Chap­man says. “Is it new? Yes. Does it need to ma­ture? Yes. Will it be reg­u­lated? Yes.”

For Chap­man, the cryp­tocur­rency mar­ket, in terms of its de­vel­op­ment, is where the in­ter­net was in 1995 – a very new thing where the user ex­pe­ri­ence was still be­ing de­fined.

In 2013, Chap­man and two as­so­ciates, Hugh Mad­den and Ken Lo, founded ANX, a blockchain so­lu­tions provider and ANX Pro, a cryp­tocur­rency ex­change. More re­cently, Chap­man has added a new busi­ness to ANX’S port­fo­lio, Oc­tagon Strat­egy, a cryp­tocur­rency bro­ker­age aimed at in­sti­tu­tions and ul­tra high net worth in­di­vid­u­als and their fam­ily of­fices.

Busi­ness, he says, is good. In De­cem­ber, Oc­tagon did US$1.5 bil­lion in trades. Oc­tagon moved into its own of­fices a few months prior to a visit and it was al­ready full. The com­pany is due to ex­pand to new of­fices in Cen­tral with an ad­di­tional 5,500 square feet of space, which is be­ing “ag­gres­sively ren­o­vated”. Oc­tagon’s cur­rent of­fices are tightly packed, but there’s still room for a well-stocked beer fridge.

Chap­man de­scribes him­self as a “cor­po­rate refugee”, and like many first movers in blockchain and cryp­tocur­ren­cies, he is some­thing of an evan­ge­list for the tech­nol­ogy, as much as he is a busi­ness­man. Born in 1980 in Bris­bane, Aus­tralia, Chap­man was en­grossed in tech­nol­ogy from when he was a tod­dler. He re­mem­bers the school com­puter in 1985 – “that was huge.”

Chap­man went into in­vest­ment bank­ing, mov­ing to Lon­don to pur­sue the high life.

He wound up work­ing on high fre­quency trad­ing sys­tems for the likes of Credit Suisse in Lon­don and later de­riv­a­tives for HSBC when he moved to Hong Kong.

Disil­lu­sion­ment fol­lowed. “I went into fi­nance with one view and came out of it with an­other view,” Chap­man says, cit­ing the con­stant fail­ures, the num­ber of peo­ple that had been hurt by ex­otic prod­ucts, and the con­stant fines re­sult­ing from mal­prac­tice. “It broke my con­fi­dence a lit­tle bit, to see how it op­er­ates.”

Chap­man was work­ing at Bear Stearns dur­ing its col­lapse in the early days of the global fi­nan­cial cri­sis 2007-8, and was work­ing at HSBC in 2012 when the global bank paid out nearly US$2 bil­lion in a pros­e­cu­tion deal re­lated to drug car­tels and money laun­der­ing.

HSBC Hong Kong was Chap­man’s last job in tra­di­tional fi­nance.

In 2012, Chap­man first be­came aware of bit­coin. By 2013, he was enough of a be­liever that he left HSBC to start a bit­coin ex­change with Ken Lo and Hugh Mad­den. Like Chap­man, Lo and Mad­den were work­ing cor­po­rate jobs at the in­ter­sec­tion of fi­nance and tech­nol­ogy. Like Chap­man, they were dis­il­lu­sioned with bank­ing. “The three of us met, and we had sim­i­lar ideas – a lit­tle bit tired of tra­di­tional fi­nance, bu­reau­cracy and red tape.”

Chap­man also found a sense of pur­pose with cryp­tocur­ren­cies. “One of the re­ally fas­ci­nat­ing things that kept me com­ing back to bit­coin when I first saw it, is that there was no cen­tral au­thor­ity. That means no one can stop it. A

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