Crypto investment bank and asset management company Clipper Coin Capital (CCC) has launched in Hong Kong this week. Its digital token CCCX is now listed on the digital asset exchange Coinsuper.
Asia Sentinel reports that founder and former Wall Street hedge fund manager Zhen Liu wants CCC to be the leading provider of professional financial research, investment banking, and asset management services to the cryptocurrency market.
CCC will apply traditional securities and credit analysis methods to cryptocurrencies in an effort to help investors identify tokens that have real potential – separating the wheat from the crypto chaff.
Market for lemons
Clipper Coin’s white paper explains its approach to crypto investment.
While blockchain-based systems benefit from decentralised technology, the lack of intermediation means that cryptocurrencies themselves are susceptible to economist George Akerlof’s ‘Market for Lemons’ problem.
Using the example of used cars, Akerlof’s own 1970 paper highlighted how asymmetric information can disproportionately hurt high-quality sellers, and lead to a degradation in market quality. This creates a ‘market for lemons’ (cars that are found to be of poor quality after purchase) rather than ‘peaches’. In any such asymmetric system, the intrinsic value of high-quality assets stands for little due to overall quality uncertainty.
While traditional financial markets have ratings agencies, cryptocurrencies suffer from a lack of comparable intermediaries to carry out due diligence. Clipper Coin is positioning its ClipperX Rating Agency to fill this gap, establishing a standardised rating system for initial coin offerings (ICOs).
The firm will employ AI as part of its evaluation and ratings process for cryptocurrencies, and establish a forum and pricing mechanism to allow regular investors to help rate ICOs. CCC believes this will help solve a core problem in the cryptocurrency sector: calculating a fair value for any token.
ClipperX Investment Bank
Alongside this service, ClipperX IB will offer investment banking services to both crypto investors and tokenisation projects. CCC’s white paper explains:
Cryptos are difficult to price and lack reliable information. Many market participants focus on short-term speculation, thus inducing strong price fluctuations.
By receiving project tokens as partial service fees, investment banks will align their interests with market participants and are incentivised to bring only the best projects to market.
The firm also plans to introduce ClipperX Capital. This broker-dealer will span both crypto and traditional financial markets.
Internet of business says
The traditional banking sector has become a riskier and more adrenaline-fuelled space in recent years – as evidenced by the 2008-09 crash and widespread examples of fraud and market rigging among major banks, such as the Forex, Libor, and Euribor scandals. But despite this, many still view it as a sober, trustworthy, and secure market.
The crypto world is more overtly dominated by speculators. At present, its shallow, high-turnover nature, compared to traditional markets, makes it a risky proposition – more akin to a casino than what we think of as traditional investment banking.
Clipper Coin’s efforts to bring intermediation will help to weed out the more opportunist ICOs – likely around 90 percent of the countless new offerings.
Yet for those that lack faith in the fundamental mechanisms of cryptocurrency, this announcement will do little to change their minds. Prominent opposition from the likes of governor of the Bank of England Mark Carney still stands, claiming that cryptocurrencies act as money only to some people, and to a limited extent, and only then in parallel with traditional currencies.
And, for many, the fixed supply rules are another deficiency. They benefit early adopters and creators at the expense of later investors – a value system that relies on the beliefs of its participants, rather than being backed by gold or other assets.
Yet those invested in cryptocurrency, both literally and figuratively, will be reassured by CCC’s announcement. Along with moves from the likes of Goldman Sachs, the news means that those with an interest in crypto have new options for investment and advice.
However, the announcement should also be seen in the context of a number of recent moves in the blockchain space, which has seen major companies and organisations come together to explore how to create new business opportunities around distributed ledgers, Tangle / Directed Acyclic Graph (DAG) data models, and more.
At the core of some of these alliances are cryptocurrency experts, and so the gradual emergence of new markets fuelled or incentivised by tokens, and backed by data ‘gold’, seems likely.
In this probable future, smart environments, micropayments, services, location-based systems, AI, distributed processing, self-organising ledgers and more, will combine in fascinating new shapes, and largely outside of the traditional banking realm.
At that point, the early adopters will say “I told you so”, and Mr Carney and his peers may find themselves in a strange new world in which monolithic systems and processes are broken apart and replaced by a mesh of peer-to-peer networks.
But the traditional banking sector is not too far behind, as Internet of Business reported recently.
Yet despite all this, there remains an inescapable problem with all cryptocurrencies: elementary physics and the cost of electricity. Without knowing the cost per watt of mining locally – and in global environmental terms – the market value of any token may be an illusion.
Additional reporting: Chris Middleton.
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