Amy Yu says she was hired as CEO of SEBA Bank’s Hong Kong business because of her background in capital markets serving hedge funds and other big trading clients. But she joined just as those clients exited the market. Are they about to come back?
[UPDATE: The day DigFin published this story, SEBA Bank rebranded as AMINA. We have retained the old name for this article.]
“Our clientele shifted,” she said. Those who are institutional investors largely pulled out of trading on centralized crypto exchanges. Crypto specialist firms, meanwhile, primarily sought access to US money markets, either directly or via tokenized T-bills.
The market now expects the US Securities and Exchange Commission to approve a raft of exchange-traded funds that track Bitcoin or Ethereum, or a basket of the most liquid coins: a decision is expected by the end of January 2024.
That has driven up crypto prices: Bitcoin was trading at $16,000 at the start of 2023, and now trades at close to $38,000. Ethereum started the year below $1,300 and is now above $2,000.
But money from big US hedge funds has not yet entered the market: the price rise is likely due to crypto whales bidding up prices in thinly traded markets.
But US institutions can access ETFs, because they are regulated instruments with tax and accounting structures they can book, whereas only the most aggressive hedge funds were prepared to trade individual coins on spot or derivatives exchanges. If they can invest in ETFs offered by the likes of BlackRock and Franklin Templeton, and they don’t want to miss out on big price swings, their entry could drive crypto prices up, at least for a while.
This is Yu’s turf. She worked in Hong Kong for six years packaging synthetic derivatives for JP Morgan for its hedge-fund clients. She then spent three years leading BitMEX efforts to expand its derivatives products to traditional institutions. For two years, 2021-2022, she ran sales for Asia at Genesis, the OTC crypto options firm, out of Singapore.
She returned at the start of 2023 to head up SEBA Bank’s newly launched Hong Kong business. SEBA is one of two Swiss-regulated banks that serve crypto clients (the other is Sygnum Bank), and it obtained capital-markets licenses from the Securities and Futures Commission.
What the Hong Kong branch does not do is bank customers. Its Swiss parent can take deposits and make loans, but the Hong Kong arm is purely a capital-markets entity.
This suited Yu, who was hired to help SEBA diversify into serving the kind of big hedge funds that she’s dealt with throughout her career. The Swiss entity’s focus is more on wealth management, so she brought the sharp elbows of a trader, relationships with the big US prop desks, and Asia experience.
Her problem this year was, however, that her skillset was out of fashion.
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Yu cites the FTX meltdown in November 2022 coupled with the rise in interest rates as two reasons for the lack of institutional demand.
The collapse of Silicon Valley Bank and Silver Gate Bank in the US in March of this year also raised questions about the health of any crypto-serving bank.
But the SVB debacle ended up serving SEBA and Sygnum well: crypto-native clients were in desperate need of a bank that would accept them as depositors and take their fiat money. But the Hong Kong office could only refer inquiries to Switzerland, where the parent entity can both offer deposits and loans, as well as facilitate fiat/crypto exchange and payments.
The institutions from TradFi that were once active on centralized exchanges such as BitMEX, FTX and Binance had retreated.
“The basis trade had brought a lot of traditional hedge funds into crypto in size in the US,” Yu said. (The basis trade involves exploiting the difference between an asset’s spot price and that of its derivative.) “It was similar to statistical arbitrage trading, it was easy for them to understand, and it involved the most liquidity and the lowest risk.”
TradFi’s next move
After a quiet year, she says demand is perking up. “Institutional investors are excited by the potential of ETFs,” she said, noting now even the largest private banks are offering crypto products to wealthy clients in Asia. “Having ETFs in the US would be a positive sign for the asset class.”
But she doesn’t see an immediate return to basis trades or other strategies familiar to hedge funds. While ETFs might bring in institutional money, crypto is still on the defensive vis-à-vis US regulators. US courts are weighing a range of cases brought by the SEC and other regulators. The US has also just levied a massive $4 billion fine on Binance and is seeking jail time for its founder, Zhao Changpeng, who has pleaded guilty to laundering money.
That might help clear the way for a more durable crypto industry, but it also means the freewheeling – and sometimes criminal – ways of centralized exchanges is over. Are hedge funds going to trust these platforms enough to go back to trading crypto in size? How attractive will the trading opportunities be in “crypto 2.0”?
If prices zoom up like many in the industry hope, that will be enough of a magnet. But for now, Yu says institutional demand is going to be basic.
“Demand today is for the simple stuff,” she said, citing ETFs and other tracker products. “TradFi is not going deep into alt-coins.”
There may be some interest in baskets of assets, but she says investors are sticking mainly to Bitcoin and Ethereum, with one or two exceptions – Solana, for example, is on fire (from $13 in January to about $60 now).
She says Asian investors, particularly family offices, are interested in structured products designed to minimize risk while capturing plenty of upside.
From her perch, tokenization deals have yet to materialize. “That demand is more in Europe,” she said. That said, both SEBA and Sygnum have platforms for tokenizing real-world assets, but she says her firm hasn’t picked up demand. “We have the technology and the platform, but we need use cases and demand from investors, not just from those who want to tokenize an asset,” she said.
She pitches a licensed bank with lending and capital-markets arms as in a better position in 2024 than the centralized exchanges. “People will pay a premium to keep their assets in one place and avoid counterparty or settlement risks,” she said. “What’s in demand and who’s active are constantly changing.”