Investment funds have been cautious about sinking assets into cryptocurrencies. But Justin Chan says such currencies and the projects that have spawned them offer enormous promise for investors. The co-founder of Singapore-based Overseas Chinese Investment Management has included cryptocurrencies in his OC Horizon Fintech fund.
In written responses to questions from ThirtyK, Chan and John DeCleene, who co-manage the fund, said, “We try to foresee the potential of technologies and the synergies between them far more ahead than society usually sees.” Blockchain fits with this philosophy because of “its potential to decentralize functionality, service distribution and data ownership,” they wrote.
OCIM, which launched in 2015, has $35 million under management via the Horizon and three other funds. “As we developed, we recognized the emerging space of digital assets that could give rise to many possibilities,” Chan and DeCleene wrote.
ThirtyK: Your recent paper focused on private coins. What prompted your interest in this facet of cryptocurrency at this time?
Chan/DeCleene: One of the main theses of the OC Horizon Fintech fund is its forward-looking nature. We try to foresee the potential of technologies and the synergies between them far more ahead than society usually sees. For instance, a couple of aspects about blockchain-related technologies caught our attention. Without referring to their relative importance, they are:
- Utility (other than payments)
ThirtyK: Do you see blockchain as transformative?
Chan/DeCleene: We see cryptocurrency, or more generally blockchain architecture, potentially altering our economic ecosystem by its potential to decentralize functionality, service distribution and data ownership. We think it is a very important step as compared to our existing economic model, where technology is developed and delivered from a centralized tech giant that controls everything, including the data its users produce. Blockchain will change all that for the better, and cryptocurrency is just an aspect to it that allows transmission of value (and data) to take place.
ThirtyK: What other benefits do you see?
Chan/DeCleene: Blockchain is also opening a new sphere of analysis where users get to share the value of an application directly via the tokens. The consequence of such dynamics (of many future applications) is yet to be known but we foresee this to allow better user feedback, more effective user acquisitions and also a more balanced and fair ecosystem as far as application development goes. Most people bothered by the ups and downs of bitcoins (BTC) aren’t even aware of what is possible outside of bitcoins.
The current market cap for the entire digital asset space is about $420 billion. This is less than half the market cap of any major U.S. technology stock.
ThirtyK: Has there been a fundamental misunderstanding about private coins you wanted to correct?
Chan/DeCleene: The idea about privacy easily gives the general public the perception that the coins would be used by criminals. That is a misconception — everyone demands privacy to a certain extent. When a person purchases something, is it crucial for each transaction to be fully open to the world, or can it be selectively open to certain professionals (such as auditors) whenever such privileges are enabled in a programmable way? I believe the latter is more important.
ThirtyK: Bitcoin by its nature offers an enhanced degree of privacy compared to current payment systems? What do you see as demand for an even higher degree of privacy? Who are those individuals — aside from criminal elements — who are most looking for the increased privacy (secrecy?) that private coins offer?
Chan/DeCleene: Bitcoin’s transactions are posted on a website that will expose the wallet’s address, which will introduce other potential threats such as monitoring. Platforms such as PayPal will link the account to a personal/corporate identity. The two platforms are exposing transactions in different ways. We see the need for higher layers of privacy in the sense that information about individuals and transactions should only be shared with certain conditions or certain authorized personnel with valid reasons, but not to the entire world for no utility value and no reason. That is where an advanced layer of privacy can add value to user experience.
ThirtyK: What do you see as likely regulatory actions?
Chan/DeCleene: The likely actions from regulators would introduce more functionalities into the privacy coin space that allow seamless integration with regtech [regulatory technologies] such that more personal information would be released only in a managed, authorized situation.
Rise of Digital Assets
ThirtyK: When did you launch Overseas Chinese Investment Management? What is the philosophy of OCIM?
Chan/DeCleene: OCIM was launched in the latter half of 2015 when we were granted the fund management license in Singapore. Initially, we were planning to launch a quantitative fund. As we developed, we recognized the emerging space of digital assets that could give rise to many possibilities. We believe we are working on an important asset class that will be unique by itself, and can integrate well with my own experience with financial markets. We currently manage four funds with approximately $35 million under management.
ThirtyK: Why launch the OC Horizon Fintech? How does it dovetail with your other funds?
Chan/DeCleene: OC Horizon Fintech is a theme-based fund that offers investors focused exposure to innovations in financial technology. It invests in a highly selective collection of funds, equities, and digital assets. Our approach is multi-disciplinary. We believe long-term alpha comes from a strong understanding of technologies, their implications and relationships among them and with our current state of societies. In other words, we look far into the horizon when it comes to long-term performance.
ThirtyK: Are you invested in any of the three coins you address in your paper or do you intend to invest in these coins? What place should they have in a portfolio?
Chan/DeCleene: Yes, we have a small exposure. [We] won’t recommend specific coins, or a specific proportion of portfolio for an individual investor, though, as it depends on their knowledge, convictions, and also risk appetite to those tokens. However, we believe a general exposure of about five to 10 percent of any person’s portfolio to reputable digital assets (based on market capitalizations, unique value propositions of the assets, and the exchanges where they are listed) will be appropriate.
An Investment With Potential
ThirtyK: How do you choose what cryptocurrencies to invest in?
Chan/DeCleene: I believe general unique value of the tokens, the sectors that they try to add value on, and reputation of the development teams, are the most important.
ThirtyK: Institutional investors are cautious by nature. How do you make the case for a cryptocurrency fund? What is the industry’s potential for investors?
Chan/DeCleene: The potential for institutional and [high net worth individuals’] participation in this space is enormous. Consider, the current market cap for the entire digital asset space is about $420 billion, which includes the value of a thousand tokens if not more. This is less than half of the market cap of any major U.S. technology stock. Is there much more unrealized potential in the future? The answer is obvious.