Crisis vindicates crypto startups who weren't 'super fond' of banks, Foresight's Cheng says

Last week's U.S. banking crisis, which saw crypto-focused lenders Silvergate, Signature and Silicon Valley Bank collapse within days of each other, highlights the wisdom of startups keeping funds in stablecoins and foreshadows the rise of Asia, according to Tony Cheng, a general partner at venture capital firm Foresight Ventures. 

“Most of them took crypto,” said Cheng in an interview, referring to startups he's backed. “When we fund our investments, we usually fund them with USDT or USDC. So at least most of our portfolio companies didn’t really get impacted by this too much and even the ones that did get funded by fiat, a lot of them moved it into crypto to fund on-chain activities.” 

Cheng refers to the venture firm as a relative “newcomer on the scene,” having launched in 2021. It’s backed startups such as Shardeum, Solsniper and Space and Time so far. 

“A lot of these crypto founders, they've never really been super fond of the banking system, so they like to self-custody,” Cheng said. “And I guess it worked out for them.” 

Asia's time to shine

As a former financial services analyst, Cheng admired the smooth banking services that Silicon Valley Bank created for startups but was shocked by its lack of risk management in terms of the duration mismatch in its bond portfolio. As the Federal Reserve increases interest rates to head off U.S. inflation, he sees danger for banks — and a potential break for Asia.

“I think the biggest issue today with the U.S. banking landscape is that all of them are at the mercy of rising rates, all of these rising rates impact their bond portfolios,” Cheng said. “If the Fed doesn't really slow down these rate rises, the bigger issue is the systemic risk that could happen, and I think it’s a really great opportunity for Asia.” 

Foresight is heavily tapped into the Asian market with the crypto exchange Bitget as its largest limited partner. It oversees $400 million assets under management across several strategies. 

“We have $400 million total. I think half of that might be in quant funds, a quarter in secondaries and another quarter is in the private side,” Cheng said. “It's not very clearly delineated because most of this capital hasn't really been called yet.” 

Despite Bitget being a large stakeholder, Foresight Ventures isn’t its corporate venture arm. It’s still looking for early-stage startups that will provide capital gains, Cheng said. 

“They have to make money for it to make sense for us to invest,” he added. 

An unlikely crypto hotspot

Having operated across Asia, Cheng is seeing the most potential for a regional crypto hub forming in Hong Kong, which recently lifted its ban on retail crypto trading. 

“There's going to be a lot more institutional players setting up bases in Hong Kong,” said Cheng, adding that there would be a lot more sandbox-type innovations. 

“Hopefully this institutional background of players is able to flow to the retail side because a lot of these Asian communities are still super into crypto,” he added. “They just don’t have a really good way to go into it because of all the regulations in the past.” 

Singapore is also another center of crypto activity but Cheng notes that the country has been burned by several prominent crypto bankruptcies that occurred under its purview. This has resulted in Singapore taking a step back from the industry and increase its regulatory scrutiny. 

“What we're seeing with a lot of projects is they're realizing that Hong Kong [and] Singapore could be a lot more interesting because it's just easier to get a project off the ground, easier to get banking services, easier to fiat on-ramp and off-ramp,” Cheng said.