Block Kong is a series of interviews with blockchain-related entrepreneurs and financiers in Hong Kong, brought to you by Charles D’Haussy.
As I make my way to Star Street in the busy but gritty neighborhood of Wan Chai, I feel privileged. Three of the busiest crypto entrepreneurs in Hong Kong have synced their agenda to have breakfast with me.
I arrive at Oolaa Petite, in one of the city’s coolest neighborhoods, a mini village of restaurants and cafes situated halfway between Wan Chai’s notorious red-light streets (themselves now full of hipster co-working spaces) and the corporate institutions of Admiralty.
Dave Chapman, Hugh Madden and Ken Lo are not surprised to meet me: they are very surprised to be at the same table together, however. Their travel schedules mean the three co-founders of BC Group are rarely in the same place at the same time.
After some chitchat, we order.
Wow. A “Full English”, four-egg omelets, even a steak!…These fellows will be fueled for the day.
I go for a smoothie. Don’t judge me.
The business these three have created is now a Hong Kong-listed company. But the trio has been at the heart of the local digital-assets industry since its early days.
BC Group is best known for its subsidiary brand OSL, an over-the-counter digital assets brokerage for institutional clients. But it also runs an exchange (ANXOne), a technology vending business, and insured custody. Its roughly 150 employees working in offices throughout the region, including mainland China, Singapore, the Philippines – and Mexico, making this now a truly Pacific-spanning operation.
The story begins in 2013, when Ken Lo was head of compliance at BT Global Services (aka British Telecom). In his spare time, he traded bitcoin via LocalBitcoins, a peer-to-peer marketplace.
“It was a fun way to meet likeminded bitcoiners,” he says.
That’s where he met Hugh Madden, then a forex I.T. architect at HSBC. Their initial contact was a dispute over the pricing of a trade. But instead of fighting, they got along and kept in touch.
At the time Madden was working alongside Chapman, who ran a chunk of HSBC’s technology group focused on client onboarding.
All three of them were tired of corporate life and were looking for new opportunities. They ended up combing forces.
“From risk perspective, our venture didn’t necessarily make perfect sense,” Madden says. “But we were all convinced this technology was the future.”
Perhaps because “Chapman, Madden & Lo” sounds too much like a 1970s prog-rock or jazz-fusion band, they decided to call their first venture “Asia NexGen”, or ANX.
ANX launched that year as a retail-oriented crypto exchange. In January 2014, it distributed red envelopes of “lucky money”, a longstanding Chinese New Year’s tradition, with vouchers for HK$10 worth of bitcoin (or US$1.2, when bitcoin traded close to US$1,000 – those vouchers would be worth about HK$80 today, not bad!).
They followed up the next month by launching the first bitcoin ATM in Asia, which they called the “liberty teller”.
Their feat was overshadowed by the collapse of Mt. Gox, a Tokyo-based crypto exchange that went bust the same week. Even so, the trio regarded the ATM as a success, with people queuing. The ATMs enabled self-KYC and converted cash into bitcoin.
This led to a bit of strutting. “We were the O.G.,” says Chapman, who notes the ATM was quickly followed by not just an Asia-first, but a world-first, with the issuance of a crypto debt card that summer.
I do not know what “O.G.” is, however.
Again, do not judge me.
[“Original Gangster”, name of an Ice-T album from 1991, denoting someone with old-school authenticity. Word. –Ed.]
It was Madden, the business’s main tech lead, who pushed the trio towards the institutional market. He realized the technology they had built could be sold on a white-label basis to other exchanges or brokers. ANX was also beginning to aggregate liquidity with likeminded players in other markets. And institutional business promised higher margins.
More importantly was diversification, a strategy that proved itself in the 2018 “crypto winter”. (This is slang I know.) Offering both markets and products to retail and institutions allowed ANX to keep its head above water while many other crypto players drowned.
Even before that, however, the trio was looking at all sorts of ways to grow the crypto ecosystem. Among their projects was a foundation, OAX, created in the middle of the ICO boom in 2016. This non-profit group was funded via Hong Kong’s first token sale.
The project – I know this very well – aims to offer exchanges and the broader community a trustless decentralized exchange (DEX) with Layer 2 capabilities allowing high performance, with up to 1,000 transactions per second.
Ha, now who is the O.G.? I am so crypto gangster I almost forget to finish my smoothie.
It was Chapman who led a revamp of the entire wholesale business by launching Octagon Strategy in 2016, an OTC trading desk for institutional and wealthy clients. With legitimate formal banking arrangements in place – no mean feat for a crypto business – and minimum trading ticket sizes of US$100,000, Octagon blasted off. Riding the crypto boom of 2017, by December that year the business facilitated turnover in crypto equivalent to US$1.5 billion.
Using the capital and the momentum from that success, the founders and their strategic investment partners acquired a controlling stake in a main board-listed business on the Hong Kong Stock Exchange, BC Technology Group (aka BC Group). BC Group now offers institutional brokerage and exchange services. Its flagship brokerage business is known as OSL, a division now led by Wayne Trench, a former head of electronic trading at Morgan Stanley.
Since then other big players in Hong Kong’s cryptosphere, including Huobi and OKEx, have also found their way to becoming listed entities.
Despite the 2018 downturn, BC Group has continued to add new hires, if not in a straight line. With about 150 employees, it is no longer a hip startup. It is on its way to becoming a small or medium-sized company. Is this hard?
“Now that the company is established, it’s easier to attract talent and compete with deep-pocketed banks,” Lo says. “Having blockchain experience in your resume has become attractive.”
Much of that hiring is going to helping BC Group bring institutional standards and regulatory legitimacy to the young crypto industry. Speaking with the founders, I see an exciting dash to M&A, consolidation, and new business ventures. The game is on and the bases are loaded…
I am out of smoothie but my guests are still keen to chat.
The two hot acronyms right now are FATF and STO. I know this one! The Financial Action Task Force – or, if I may, Groupe d’action financière, or GAF, a far more eloquent acronym but your French accent must be très bon – is an intergovernmental organization to combat money laundering and terrorism financing.
FATF is considering a “travel rule” to be implemented by its 37 member countries. Madden is very engaged with this, as it means the beginning of harmonizing a regulatory framework for digital assets.
“Japan turnover rose 480% the same year as regulation there began,” he says. “Regulations are catalysts.”
Chapman adds: “STO [securities token offerings] and regulated digital assets are next. We’re getting ready to operate under regulations around this new asset class.”
The trio has notched impressive accomplishments in a short period of time. But the founders remain humble and committed to the local crypto community. They are active participants in groups like the Fintech Association of Hong Kong, where Madden is co-chair of the blockchain committee, and the Bitcoin Association of Hong Kong.
“Industry engagement through associations is incredibly hard,” Madden says. “You can’t hire to get it. It has to be done by senior members of the company.”
We conclude with a turn back to the ordinary: Madden coaches a rugby team, Chapman is training for a triathlon, and Ken will spend the weekend relaxing. It is a satisfactory ending for pioneers in an industry that is meant, ultimately, to become part of our normal lives.
- 9 Star Street, Wan Chai
- Latte x2
- English Breakfast x1
- Fluffy 4-Egg Omelet x2
- Steak & Sweet Mash x1
- Avocado x1
- Sausage x1
- Bacon x1
- Healthy Smoothies 😉 x1
- Black Coffee x1
- Total HK$1,011 (US$129.62)
- Paid by credit card