China's Biggest Crypto Players Now Vying For Institutional Investors

As predicted, less than a quarter into 2021, we are already seeing big, Asia-based companies building the infrastructure for institutional investors to jump into the crypto market. Huobi Asset Management just announced that the Hong Kong Securities and Futures Commission(SFC) has granted it a license to manage “portfolios that invest in virtual assets.” 

To comply, Huobi must submit to being a regulated asset manager. With that regulatory approval, Huobi Asset Management plans to launch a BTC tracker fund, an ETH tracker fund and a multi-strategy digital asset fund.

This is not Huobi’s first entry into the asset-management world. In July 2020, the firm applied for and received a Type 4 license, which allows them to advise clients on securities, and a Type 9 license, which allows them to manage clients’ assets. 

This week’s da bing looks into the state of Huobi’s institutional play and digs into why it must have a seat in the non-retail side of the business. 

Everyone is targeting institutional investors 

Huobi isn’t the only player that has received the SFC’s precious license. Arrano Capital, the blockchain arm of Venture Smart Asia Limited, was the first SFC-approved asset manager with a dedicated crypto focus. It launched a BTC tracker fund in April 2020, buying and selling BTC only. Arrano has said it is interested in launching future funds that allow more active management of a basket of various tokens. 

Mai Capital, an alternative investment manager in Hong Kong, was the second asset manager that received SFC approval. The firm is now well into its second crypto quantitative fund, the “Bitcoin+ Investment Fund1,” which aims to track Bitcoin’s performance under different market conditions.

It does not take much imagination to calculate the return of these two funds as BTC rallied above $50,000 in recent months.

“Huobi Asset Management is not the first SFC licensed crypto fund manager but they are the first ‘branded’ tokenized fund that brings with it a compliant suite of diversified offerings for the institutional crypto market,” said Leslie Lamb, Head of Institutional Sales at Amber Group, a crypto finance firm. “It will serve as a necessary on-ramp for traditional investors in Asia looking for exposure to a regulated, actively managed crypto fund.” 

Getting sophisticated 

Huobi’s entry into the crypto asset management arena is an overall positive sign and adds more sophistication to the infrastructure. Compared to competing funds that are structured to track the OG coins— BTC and ETH—Huobi has a lot more to offer, especially in its multi-strategy fund. It’s built a veritable crypto empire covering services such as trading, custody, staking, and even yield farming.

The industry insight Huobi can bring to the table will offer institutional investors and professional traders more sophisticated products. And the additional liquidity that results will further legitimize and solidify crypto as a viable asset class. 

Diversifying Huobi’s business 

Huobi had been struggling since its founder Leon Li  was rumored to have gotten in trouble with the  Chinese government around its over-the-counter exchanges. Not only did Huobi launch its blockchain, HECO, much later than Binance launched it Binance Smart Chain. Some liquidity mining projects that were launched on Huobi are taking flak in Chinese media over allegations that they are draining users’ funds within hours. 

And more importantly, Huobi is competing with other headstrong China-focused exchanges such as Binance and OKEx. After launching its own credit card, Binance is becoming even more ingrained in retailers’ crypto journey.

Huobi is seeking a less-traveled path to onboard institutional players. Getting over the regulatory hurdle is step one, but there will likely be bolder moves later on. 

For now, we don’t know the details around subscriptions to the Huobi fund. But if the data ever becomes available, it will be a flagship indicator of Asia-based institutions’ interest in the crypto world. 

The top 3 other things that happened in China last week

1. Meitu buying 40 million worth of BTC and ETH

Oh, the days when your correspondent was obsessed with Meitu’s various filters and would not Instragram anything without a Meitu sanity check!

Now, some years later, Meitu, a Hong Kong- listed Chinese photo retouching app with 300 million monthly active users, announced that it has purchased $40 million worth of BTC and ETH. The firm is also evaluating the possibility of launching a decentralized application.

But this is not Meitu’s first crypto-related activity. In fact, it had gotten a black eye with blockchain and the ICO buzz back in 2018 when Wensheng Cai, Meitu’s CEO, launched a token, BEC, and a crypto wallet. 

Like most ICO tokens, BEC had no real use case, but the price shot up 4000% after it was listed on OKEx.  It quickly tanked. Perhaps this time, it will be different.

2. Inner Mongolia banned crypto mining 

This past week, I had the honor of joining a WeChat group where 500 people discussed buying laptops to mine crypto. The number of people who went on Taobao, China’s largest e-commerce platform, and shopped for suitable laptops, exploded.

But not all mining activity has gone as smooth as laptop mining. One of the largest mining provinces, Inner Mongolia, announced that it plans to halt all new and existing bitcoin mining projects by the end of April. That’s because bitcoin mining is hampering the state from meeting the central government’s goal of achieving carbon neutrality in 2060.

As a result, many mining farms would have to be forced to move to Sichuan province where abundant hydroelectricity has already industrialized crypomining. (And for those who have resources abroad, moving to places such as Texas where cheap and stable electricity becomes increasingly attractive.)

3. Meerkat Finance’s hacking drama on Binance Smart Chain

(Obligatory disclosure: My day job is in corp dev at ConsenSys, an Ethereum incubator.)

While DeFi projects getting hacked on Ethereum has become a norm, no one had attempted hacking the Ethereum clone Binance Smart Chain until last week. That’s when Meerkat Finance, a fork of Ethereum’s Yearn, reportedly got bit for $31 million a day after its mainnet launch. 

But the drama didn’t stop there. On March 6th, a developer behind Meerkat Finance announced that the “rugpull” was not a malicious act but a “test” of user’s greed and “subjectivity.” Jamboo, the anonymous dev, claimed on Telegram that it will refund 95% of funds in the vault while 5% will be compensated through its new project, XFarm. 

So basically, the team staged a hack but was unable to offload its theft, since Binance monitors its blockchain and could freeze the stolen funds. And now, the scam team has launched a new “product” in an attempt to trap more users? 

BSC is indeed playing a unique game. 

Do you know?

“土狗” which means “mutt” in Chinese, refers to scam projects such as Meerkat Finance on China’s CEX’s blockchains. These projects fork Ethereum’s DeFi projects and tend to drain users’ liquidity within a few days of launch. 

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