Bitcoin ETF: another signal for tokenization, says Cathay Innovation

The VC Cathay Innovation is delighted with theinstitutionalization of the economy crypto illustrated by the ETF Bitcoin. Its CEO Denis Barrier says he is ready to mobilize substantial resources to support the tokenization. Interview.

Cathay Innovation – a VC mainly owned by Cathay Capital – is a major player in the investment arena. With $2.5 billion in assets under management and a new $1 billion fund set up at the end of 2022, the company is well placed to make its mark in innovative sectors.

Web3 is one such sector. Since 2022, the global player has been present on the market in partnership with Ledger through the €100 million Ledger Cathay Capital fund. Although news has remained fairly quiet since its creation, the fund – which can invest in equity and tokens – has completed a number of transactions.

Crypto: “We were right to be a little cautious”.

Denis Barrier, co-founder of Cathay Innovation, points out, however, that the company opted for discretion and deferred announcements. This was due to the parasite effect of the affairs undermining the crypto universe, such as the FTX bankruptcy and the Binance conviction.

“We felt uncomfortable” with the sector, says the investor. For reasons of security and due diligence, Cathay Innovation therefore chose to take its time, and partner with Ledger to support the French ecosystem in particular.

We have an ultra-specialized investment structure and team,” says Denis Barrier.

And the Cathay Innovation boss has no regrets about his conservative strategy towards the crypto market.

We were right not to rush into things. We were right to be a little cautious,” he says.

Indeed, the news of 2022 and 2023 seems to validate this approach. Cautious, then, “but we’ve kept the faith”, he defends.

Bitcoin ETFs, another sign in favour of tokenization

The institutionalization of crypto finance, which gained momentum in 2023 and is being confirmed with the first Bitcoin spot ETFs in the USA, is a strong signal. “In the long term, tokenization, generally speaking, will represent a massive movement for economies”. Cathay intends to be part of this trend.

We have the specialized fund with Ledger, but we also have a billion-euro fund. Our various funds enable us to get involved in very ambitious projects that require resources,” emphasizes Denis Barrier.

This analysis is reflected in the leading role we played in the $50 million Series B fundraising of Flowdesk, a crypto market maker founded in France – and also present in Asia and North America.

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Cathay Innovation is therefore betting on a recognized startup and partner of institutional investors, including SG-Forge, Société Générale’s tokenization entity.

Meeting with institutions and authorities

But the VC is also banking on the institutionalization of the market, confirmed by the SEC’s endorsement of Bitcoin ETFs.

They are confirmation that the American authorities don’t want to kill off the crypto and token field (…) Over the past year, we’ve been witnessing a form of rationalization, very similar to that at work on the financial markets in the 80s”, considers Denis Barrier.

At the time, “the rules were not yet properly framed, and abuses were observed”, he sums up. The regulator then took over. Crypto is experiencing a similar movement – even if the American ecosystem continues to criticize SEC policy and call for clear rules.

For Cathay, policing and regulation by the authorities are nonetheless welcome. Another positive sign is the participation of major institutional players, who bring with them a respect for compliance and a proven methodology.

The moment we’re living through is one of institutional players, such as BlackRock and Fidelity, coming together with the authorities through the SEC to set market conditions.”

Transformation of traditional finance

This meeting heralds the development of a financial economy and the entry into a phase of standardization. ETFs will democratize access to Bitcoin – and tomorrow to Ethereum, before the probable arrival of other funds indexed to various tokens.

The democratization movement in favor of tokenization is not confined to the United States, notes the co-founder of Cathay Innovation.

It is truly global (…) Opening up, as Larry Fink of BlackRock pointed out, is the use of tokens in asset management.”

“This creation of ETFs not only gives a start to everyone buying bitcoins, but also marks the beginning of the tokenization of the internal workings of asset and market managers”.

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For Denis Barrier, the key to tokenization is considerable productivity gains.

Tokenization will also affect traditional financial assets. The imagination of those who build financial products can be totally unleashed.”

Surfers waiting for the wave

These present and future transformations offer “the prospect of an enormous market for investment in the web3 , where the legal risks and the risks of doing business are controlled”. The tokenization movement is surrounded by “a whole range of startups and companies”, which have a real market in which to grow.

These are all players likely to be of interest to an investor like Cathay, one of the “surfers waiting for the wave”. And this wave is benefiting from the adoption of tokenization by traditional finance.

What about the new crypto entrants who promised 2 or 3 years ago to disrupt the financial world, or even make it obsolete?

I think that was a misconception (…) That’s one reason why we didn’t invest. We didn’t believe in that kind of talk. What we do believe in is the tokenization of finance that is now taking place”, Denis Barrier reacts.

Tokens providing real services

But the big players won’t be able to act alone. New companies are needed to provide them with solutions for implementing this economy.

Customers, partners and authorities are finally enabling these new players to develop within a framework that is appropriate and reassuring for the end customer,” he continues.

Nor does the executive rule out the possibility of “new BlackRocks” in tokenization emerging and competing with established institutional players. “Perhaps we’ll be able to finance them.

The VC is also looking at token providers offering “real services” and based on a sustainable business model, thanks in particular to the associated fee rules.

The value of the token is justified by the utility value of the service rendered. This presupposes that a real economy is attached to it,” explains Denis Barrier.

Finally, the co-founder of Cathay Capital points out that we’ll have to keep an eye on the emergence of other trends over time.

Little by little, the whole economy will become tokenized. So we’ll be keeping an eye on everything that happens. But in terms of timing, we’re facing a trend that’s accompanied by enough volume to justify an investment strategy. We’re not just in the financial economy, but other sectors need to move forward too (…) We have 10 to 15 years of great adventure ahead of us”, he concludes.

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