Dancing towards the convergence of traditional and digital asset finance

Sophia Shluger, Managing Director for Europe at Amber Group, has plotted an unusual path from being a ballerina to specialising in digital assets. She talks to Shanny Basar about the firm’s belief that digital assets will be the most important category of future wealth, despite the current market downturn, and the importance of ESG and diversity.

Shluger said Amber Group characterises itself as a digital assets investment bank or neo-bank as the firm has comparable lines of business: sales and trading, asset management, principal investments, lending and borrowing and private wealth management. “We are focused on offering clients a high touch end-to-end service 24/7/365,” she added.

She argued that Amber Group differentiates itself through its high-yielding investment subscriptions and structured products.

“As an aggregator of liquidity, we can offer our clients best pricing and execution with minimal fees,” Shluger added. “In addition to offering clients more flexibility and customisation we also have sophisticated trading tools that allow our clients to hedge exposure, manage price slippage and risk.”

Crypto prices have been dropping this year, and on 13 June total market capitalisation fell below $1 trillion for the first time since January 2021 according to CryptoCompare. In addition in May TerraUSD (UST), an algorithmic stablecoin, shed more than 90% of its value in less than two weeks, and Celsius, a lender in decentralised finance (DeFi) also appeared close to collapse in early June.

“It has been a very historic couple of weeks in the crypto markets and our company tends to excel in periods of high volatility,” said Shluger.

Amber Group is market neutral and does not take directional risk. Shluger argued that the firm is well integrated in the DeFi ecosystem and is well aware of the risks inherent in different tokens and projects, including algorithmic stablecoins, as well as constantly managing its risk.

She studied economics at Wellesley College and believes it is important to be well versed in macroeconomics because, although crypto is considered an alternative asset, it is not exempt from the forces of the economic environment.

“It will be interesting to see how quickly digital assets will be adopted in an era marked by a reduction or potentially a complete lack of quantitative easing,” said Shluger. “We have all been taken by surprise by the degree of volatility seen in the traditional asset classes, so Bitcoin being part of this risk-off trade is not at all surprising.”

In fact, Amber Group is seeing institutions accumulating at these levels as their thesis on the asset class remains unchanged. Shluger argued there will be a better indication of where the market is headed once the current ‘storm’ of the confluence of macro and geopolitical headwinds has passed.

“The geopolitical scenario will likely have the largest impact on both the market and our livelihoods as it seems the world alliances are shifting considerably and becoming more fragmented and less globalised,” Shluger added. “We have been through various cycles before. Crypto is no stranger to these moves, but we will get through, and it is a question of when and what will be the catalyst for outperformance.”

Funding round
In February 2022 investment company Temasek led a $200m Series B+ round in Amber Group with participation from existing shareholders including Sequoia China, Pantera Capital, Tiger Global Management, Tru Arrow Partners, and Coinbase Ventures, which valued the company at $3bn.

Steven Ji, Partner of venture capitalist Sequoia China, said in a statement: “Digital assets are becoming an increasingly important category to watch, especially for institutional investors. We continue to invest in this round and believe Amber Group has the potential to become a leading digital asset platform in the Asian market.”

Singapore-headquartered Amber Group was founded in 2017 and serves both institutional and retail markets, dependent on jurisdiction and licensing. It has global operations across 12 cities and said cumulative transaction volume has exceeded $1 trillion since launch.

Michael Wu, Amber Group’s Global Chief Executive Officer, said in a statement: “Besides making key hires to support our institutional business in Europe and the Americas where there have been tremendous interest from traditional financial institutions and large family offices, we plan to expand WhaleFin’s global footprint in both developed and developing markets worldwide and advance OpenVerse, which is already experiencing hyper-growth with a strong line-up of gaming studios, sports collectibles, digital artists and other partner brands.”

Amber has a 100-person team building capabilities and tools in the Metaverse via WhaleFin, its flagship all-in-one digital platform.

“The platform has been built with our deep expertise in both institutional and consumer markets so investors can capture long-term value irrespective of their experience level,” said Shluger. “We have a solution for everyone interested in participating in digital assets.”

She leads the firm’s efforts on WhaleFin in Europe and oversees the Blue Whale Club, a private club with exclusive concierge services for the highest tier-clients such as family offices and high net worth individuals.

Institutional interest
In the institutional market Shluger believes that, generally speaking, the market is seeing a huge inflection point in terms of institutions participating in digital assets. She cited Pantera Capital, one of Amber’s venture capital backers, mentioning that some pension funds are allocating 10 basis points into digital assets. Recent data also suggests that around 20% of hedge funds and 30% of family offices in Asia and Europe are active in digital assets, either through direct exposure or indirectly via venture capital investments.

Shluger said Amber is getting a lot of inquiries, particularly from family offices, high-net worth individuals and asset managers, depending on their investment mandate.

“Amber has $5bn in assets under management and we are growing very rapidly,” she added. “We utilise best in class partners, including FireBlocks as the tech infrastructure layer for our custody solution and take the safeguarding of client assets very seriously with our ‘zero trust’ security approach.”

In June 2022 Amber Group announced its acquisition of Celera Markets, a discretionary asset management firm that engages in traditional securities and derivatives brokerage services and is fully licensed by the Securities and Futures Commission (SFC) of Hong Kong. Through the deal Amber Group has secured five SFC licenses which allows the company to carry out a broad range of services including advising on and dealing in securities and futures contracts as well as providing asset management services.

Wu said in a statement: “As an asset management player with a decade-long track record, Celera Markets offers valuable market expertise and TradFi [traditional finance] experience which is critical to our global mission to facilitate the convergence of TradFi and digital asset finance. This acquisition also marks a significant milestone in Amber Group’s commitment to regulatory compliance as we strive to build institutional investors’ trust and confidence in crypto assets.”

Outside Asia, Europe is one of the largest and more active markets in digital assets, particularly because the regulatory landscape is more favourable across certain jurisdictions according to Shluger. In Europe Amber Group is finalising its entity and setting up licences in different jurisdictions.

“A lot of traditional financial institutions would love to do more in crypto but they are heavily regulated,” Shluger said. “At the moment they mostly only offer synthetic products to their clients or seek to find partnership opportunities with crypto-native firms.”

She sees a future in which real assets will be tokenised and all asset trading will be brought on blockchain.

“In that sense traditional investment banks might try to evolve to look more like us,” said Shluger. “We have a competitive, first-mover advantage in that we are crypto native and have been building since 2017.”

She argued that Amber’s insight, knowledge and business activities in DeFi is priceless and difficult to replicate. Amber Group also unequivocally believes that digital assets will be the most important category of wealth in the future.

“That doesn’t mean other assets will disappear overnight, it is more likely that eventually digital assets won’t be classified as alternatives anymore,” she added.

The biggest hurdle for institutions is the lack of regulatory clarity according to Shluger. She continued that it is very reassuring that the UK Treasury has committed to make the country a crypto hub.

“Everything is moving in the right direction; regulators realise the industry is here to stay and investors, particularly in this macroeconomic environment, are looking for yields within alternative assets,” said Shluger.

Education also remains a hurdle and is prioritised by Amber Group. For example, the firm published an asset allocation report to help clients understand blockchain technology, Bitcoin, DeFi and the different protocol layers.

Crypto investments have also met criticism from environmental, social and governance (ESG) investors, particularly due to the energy consumption from mining – the creation and verification of new transactions on the blockchain. Shluger said Amber takes ESG very seriously and the firm aims to be a sustainable business and empower clients to invest responsibly.

“Actions speak louder than words and we have recently adopted a whale named Salt through the Whale and Dolphin Conservatory and have purchased $2mn worth of carbon credits to offset mining,” she said.

Shluger became interested in capital markets, and its focus on decision making and resource allocation, while studying economics which she described as the study of behaviour and trade-offs across the production and consumption of goods and services which is applicable in our everyday lives.

Before joining Amber in 2021, Shluger had worked in traditional finance including as an analyst and in equity sales at Goldman Sachs. As a result, throughout her career she has worked as an investment advisor across different asset classes and advised clients on how they should think about investment opportunities, markets and their positioning.

She describes her path to Amber as quite serendipitous as she was referred to Annabelle Huang, Amber Managing Partner by a former hedge fund client in New York and was inspired by management’s long term vision for the company. Shluger said: “Beyond trading and helping our clients build their wealth in digital assets, it was their commitment to being innovative and an enabler of frictionless markets that impressed me.”

Four of Amber’s most senior women are leading business development and sales efforts in different global regions including Latin America, the US and Europe.

“Amber takes diversity and inclusion very seriously,” added Shluger. “We can continue to showcase the accomplishments of women and offer up opportunities for other women to meet and look up to those role models.”

She continued that diversity is a challenge across multiple industries and crypto is not immune; especially as it is a “beautiful marriage” between finance and technology, two industries that historically been male dominated. However she argued that crypto, unlike traditional banking, is a great leveller as you don’t necessarily have to have a financial background to get involved.

“Anyone who is curious, can add value and help build the industry with their existing skill set can find a suitable role,” Shluger said. “I like to think that this is similar to the ethos of crypto in being permissionless and open.”

Shugler put her success down to perseverance, working hard, being passionate about the industry and having an inclination towards self-improvement. As a former ballerina she also describes herself as adaptable, energetic and quick on her toes.

“Because crypto is all about building something new, we also need to have a collaborative ethos,” she added. “I am a curious person by nature so, as long as I am continuously developing myself professionally, then I am very motivated.”

Her advice to women wanting to work in crypto is to read as much as possible on the industry, attend a DeFi conference but most importantly, reach out to a woman in the industry to get insight on the different paths available.

“There are so many players doing different, remarkable things in crypto,” she said. “The question should fall back on the candidate; what drives them, what is their core competency and how do they want to have an impact. Knowing the impact I want and could have in helping to trailblaze and shape the future of financial services is very motivational and inspiring to me.”

©Markets Media Europe 2022

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