The Korean fund helping Wall Street enter the crypto space

Issac Lee, managing partner at BlockWater Capital

This article is part of Tech in Asia’s partnership with Asia VC Cast hosted by Daniel Song where we publish the revised transcripts from the podcast’s interviews with inspiring entrepreneurs and experienced VCs. This is heavily revised from the show’s original transcript. For the full interview, go here.

Issac Lee is the managing partner at BlockWater Capital, a digital investment firm focusing on bringing blockchain-enabled projects to real-world application. With extensive experience in the blockchain and crypto space, Lee and his team have invested in projects like Fantom, Fusion, and Bibox.

Lee talks about some interesting insights on blockchain investment and the gap his company is trying to address.

What is your background and how did you enter the world of crypto?

I founded BlockWater Capital with my partner, Francisco Jo, in January this year. Prior to that, I studied in the US for about 10 years and went to pharmacy school, but I did not graduate. I was investing on my own in financial products like foreign exchange, commodities, derivatives, and equities.

In 2013, I made a small investment in bitcoin. But I lost most of my investment and thought that bitcoin wasn’t a sustainable asset because of its volatility. Then in 2016, there were more people involved in the space. I have a friend who has been running a mining farm and we started talking. And that’s how I got back into crypto.

Tell us more about BlockWater Capital.

We’re a crypto hedge fund. When we make an investment, our top priority is finding an exit plan. I see a lot of people making “naive” investments in some projects that are likely to make returns. But I think those types of investors will likely lose out as the market becomes more mature.

For BlockWater, we want to make sure that we have a strong foothold as a Korean crypto fund. I think the blockchain industry is focused toward the US or China, even though there’s a lot of retail trading volume from Korea.

Can crypto become the new asset class for institutional investors and potentially replace gold in the future?

Absolutely. I’m not sure if it would replace gold, but I’m sure it will have a similar status as gold.

Institutional investors are hugely interested because of the noteworthy amount of capital flowing into the market. We see a lot of big names in the news every day. A couple of days ago, JP Morgan announced they’ll be offering crypto derivatives. Last year, Cboe and the CME Group started off in bitcoin futures. So looking at these types of events, I’m sure that crypto as a new asset class will be intriguing.

But there is a problem. First is the custodianship and security of this digital asset. There’s only a handful of custody services that could barely solve this problem. The second thing is lack of regulation. For example, the financial regulators in Korea have banned financial institutions from touching crypto. A lot of the banks are now reluctant to work with any blockchain or crypto company. So, this is a huge hurdle for institutional money to flow through.

Tell us about the new fund. How did you decide to structure it?

We’ve structured the new fund in a very common, hedge fund way.

When we were thinking about how the space would evolve, we thought that the next wave of capital would come through institutional investors. And having the expertise and network in the blockchain space, we wanted to serve as the bridge between institutional investors and crypto.

Our main target for fundraising is definitely Wall Street. We want to tap into the market and experience the conversion of traditional assets into crypto assets.

Why do you think it’s important to bridge the gap?

What can we expect from you and BlockWater this year?