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 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