Exclusive: Bank Grade Security - The Key For Qualified Crypto Custodians
Exclusive interview with Wincent Hung: Part 1
Despite crypto winter in 2018, OTC has become the latest battlefield for crypto exchanges/leaders. Binance, Bittrex, Coinbase Prime, Poloniex, Circle etc. launched their OTC services respectively. Does it mean crypto OTC is only a game for the giants only?
We have the pleasure to speak with Wincent Hung, Director of Genesis Block HK to share his prediction on crypto OTC market and how Genesis Block can survive given such fierce competition. Wincent also revealed a key obstacle for crypto OTC service provider to be qualified as crypto custodian!
What is your generic view on the crypto OTC market worldwide in 2019?
For 1Q 2019, I would say the crypto market sentiment was pretty bad. It is because the Bitcoin price hovered between 3300 to 5000 for the past six to seven months. Everybody wonders if Bitcoin price will drop even more. During the 1.5 years of the bear market, the OTC market basically dried out. However, the market started scooping up since April 2019. I see there are a lot more trades globally among all kinds of parties and ourselves as well. The market sentiment is getting much better.
I believe for 2H 2019 the market sentiment for crypto OTC will be much better. My personal view is that the bear market has ended. The Bitcoin price will go up which attracts more newcomers and previous investors to the OTC market.
Apart from crypto exchanges, competition in crypto OTC market can further intensify with the entrance of wall street giants, such as Fidelity Digital asset services. Given such fierce competition, what is the competitive positioning of Genesis Block in the crypto OTC market? (OTC is one core business segment for Genesis Block)
The first thing is that we are a local company and most of our customers come from Hong Kong. Our ticket sizes are much smaller compared to Circle or Galaxy Digital or the other international OTC providers. We speak Cantonese and we know what Hong Kong customers want for OTC trading.
Our customers are mainly individuals and general public in Hong Kong. We provide guidance to them from the basics of cryptocurrencies until they become semi experts. The customers will learn different security addresses and the major altcoins for trading. This is what we are doing to tell them what is cryptocurrency. On the contrary, the big names do not provide such guidance as they're all looking for professional investors.
In terms of the Hong Kong market, do you notice any local competitors doing the same OTC service as well? How do you compare Genesis Block against them?
The biggest crypto OTC provider in Hong Kong of is Circle and the ticket size is USD 100,000, which can be a huge barrier of entry for new investors. The ticket size for another competitor TideBit is also USD 100,000. On the contrary, the ticket size for Genesis Block is HKD 100,000.
Do you think the smaller ticket size will be an advantage for Genesis Block?
Yes, this is easier for people to get into the OTC market. When we are talking about huge ticket size like USD 100,000, the new investors may not have enough faith or confidence to invest so much in one time. Hong Kong is a wealthy city yet wealthy people are very cautious about new things. They are still very skeptical about cryptocurrency. We need to warm them up to let them feel the power of cryptocurrency first. For example, we will show them how to perform the instant transfer of cryptocurrencies. If you wish to send crypto overseas, you can send them immediately and the recipients can cash out via local ATMs or OTC counterparties. This is the comparative advantage of crypto. Crypto OTC trading can be used in businesses and trading parties do not need to undergo KYC procedures with the banks, which is much more convenient to them.
Office snapshots of Genesis Block
How important is custodian solution in crypto OTC trading? What are the steps to become a qualified custodian in OTC trading?
Cryptocurrencies only exist for 10 years and a lot of people still have no idea what it is. They are always afraid that the coins will just disappear as it's not a bank with your signature and ID that you can withdraw the money anytime. For cryptocurrency, if people are putting a lot of money and they don't know how to control their own wallets, then it can be disappeared if there are any hacking accidents.
We have inquiries for people who want to buy, but they don't want to touch the coins. They just want to keep the coins with us because they don't want to make any mistakes. To drive crypto adoption and boost public confidence in crypto, a custodian is necessary. However, it is pretty tough to become so-called qualified, because we are an OTC service provider and not a bank. We don't have anything like a big safe or a place as secure as a bank. Meeting the bank’s safety standards is very difficult. I don't think we can do this so far. I would say to become a qualified custodian, you need a place as secure as a bank such as a place with layers and layers of passwords, as well as securities and physical setup on your cold wallet storage.
Does Genesis Block plan to integrate custodian service in your OTC trading like a collaboration with a third party?
This is our move because I always emphasize as an OTC trading company, we will just position ourselves as a crypto bank instead of just a brokerage service in the future. We are moving towards providing services available in traditional banks, such as the possibility in providing crypto borrowing and lending services in the future.