For Anchorage’s Diogo Mónica, this crypto bear market has been the easiest to bear of the five that he’s experienced so far.
The startup’s federal charter is a big part of that, and Mónica says rival crypto custodians must now pursue banking licenses of their own to help shore up the sector.
Institutional investors, he said, are “looking for partners that are regulated, clear, qualified custodians and people that have actually done well during the downturn.”
Founded in 2017, Anchorage is a crypto institution co-founded by Mónica and Nathan McCauley. It enables industry players and institutions access to integrated financial services and infrastructure solutions such as custody, staking and trading services.
Now as the bear market takes hold and a changing-of-the-guard occurs at some crypto’s most weathered institutions including FTX, Kraken and NYDIG, Anchorage’s business remains steady, creating a base for further expansion.
Already this year, Anchorage has pushed into Asia with five new partnerships, it has teamed up with AngelList to enable investors to invest in funds with the USDC stablecoin, and it has secured a custodian role with buzzy new Layer 1 blockchain Aptos.
Surviving a bear market without spending a dime
And yes, it’s managed to do all this without spending a dime from its $350 million Series D fundraising round from last December, Mónica said.
Anchorage is currently valued at over $3 billion. Its backers run the gamut from traditional finance players such as Goldman Sachs and KKR to crypto native firms such as Alameda Research and Polychain Capital.
“Throughout this whole bear market, throughout all of these cascading liquidations, throughout Terra Luna failure, throughout all of these counterparties in the ecosystem in the industry going bankrupt, we've had zero capital losses to ourselves, to our clients and we've had zero breaches of [Service Level Agreement] of any of our services,” Mónica said.
No one cares about regulation in a bull market
At the height of the raging bull market, when interest rates were low and crypto prices kept going up, no one cared about Anchorage’s regulated status, Mónica said.
Anchorage was the first crypto firm to receive a federal charter, which means it is regulated by the Office of the Comptroller of the Currency (OCC).
“Nobody talked about that,” said Mónica, describing the environment last year. “Nobody asked us questions.”
Anchorage went through a four-year process to secure the charter, operating as a trust company for three years, then doing a trust conversion to a federal charter.
The process of securing a charter is costly and time consuming, and it doesn’t get any easier once it’s secured. For the companies that hold charters there is a high burden in terms of the level of transparency involved and the continual oversight, Mónica said.
What Anchorage is less transparent about is who its clients are, which it keeps private as a matter of policy. Mónica spoke to The Block earlier this year about custodying NFTs for hedge funds, not long before the industry’s darling hedge fund, Three Arrows Capital, collapsed.
“I have no exposure,” said Mónica on whether Anchorage lent to Three Arrows Capital. “We lost no funds, and we don't really talk much about our clients because they rely on us for our discretion. That's what I can say about the actual clients that we have.”
A flight to safety hidden in plain sight
Mónica still views Anchorage as under-the-radar despite the company’s regulatory recognition, major fundraising rounds and regular spots on the crypto conference circuit.
"The goal is for the spotlight to be on our clients and our clients’ products, not on us,” Mónica said. “Part of the reason why we’re under-the-radar is because we’re not a consumer company. We’re not trying to reach consumers, we're not doing publicity for consumers, we’re not trying to get eyeballs.”
Anchorage is unique in that it’s bankruptcy remote, meaning that the OCC will step in and divest its assets in an orderly fashion in the case of bankruptcy.
Its business-model structure and an “impeccable” track record is attracting new clients; however, the startup remains tight lipped about exactly how many “billions” of assets are in custody. That is not the case for its rivals. Matrixport and Hex Trust, for example, each recently revealed that they look after about $6 billion.
“There has been such an amount of flight to safety, that we actually end up winning, we end up winning more during the bear market, because it's very obvious that you now want to charter a regulated entity, an entity that has been around for five years, that has never had any issues,” Mónica said.
Institutions aren't slowing down
Traditional institutions and players continue to unveil new crypto offerings despite the bear market.
BlackRock, the world’s biggest investment manager, recently launched a product offering institutional clients exposure to spot bitcoin. While Charles Schwab, Fidelity Digital Assets, Citadel Securities and other industry players have come together to launch a new digital assets exchange called EDX Markets.
“From our vantage point, we see a lot more,” Mónica said. “That’'s just the tip of the iceberg.”
For institutions looking for a custody partner, a charter automatically ticks thousands, if not, tens of thousands of checkboxes, Mónica said.
No plans to go public
Lending remains one of Anchorage’s fastest growing businesses. It started to slow in “the doldrums of the bear market,” but is picking up again, Mónica said. He views this as a testament to Anchorage’s risk management and credit systems, naturally.
But Anchorage’s lending is confined to the world of institutions. It only safeguards funds from institutional clients, and only lends to professional operators in the sector — such as hedge funds. And things look set to stay that way. Retail is not territory Mónica wants to explore.
“It’s not our business or our DNA,” Mónica said. “I would rather have institutions that come and create new products and build on top of Anchorage and get benefit by proximity.”
Equally he has no appetite to let retail get exposure to the startup, which is valued at over $3 billion, through the public markets.
“There are no plans to IPO, definitely not in this market,” he added. “And there are no plans for us to raise any future rounds at this point. There’s no need.”
Mónica remains cautious on M&A even as other players including FTX and Binance rush to pick up distressed assets. Binance may spend over $1 billion on deals this year, according to a report from Bloomberg.
Any deals Anchorage explores need to align with the company’s product roadmap and at a valuation that makes sense, Mónica said.
“The reality is that, yes, you might have a great valuation and you might have a lot of cash, but so do these other companies,” Mónica said. Even the companies running out of cash are still sitting at very lofty valuations, he added.
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