Crypto unicorn Anchorage Digital is launching a full-stack API infrastructure offering to bring crypto to institutions. The new "Build With Anchorage" service provides all-encompassing access to a range of crypto services. And President Diogo Monica believes the current bear market is a perfect opportunity to build.
Monica and CEO Nathan McCauley founded Anchorage Digital in 2017. The pair previously worked as engineers for Square, now Block, and Docker, where their security software and infrastructure safeguards billions in annual transactions and data for major banks, governments and cloud providers.
And with Anchorage, they use their expertise to provide secure crypto platforms and infrastructure with institutions in mind. The company has raised over $3 billion in funding from Andreessen Horowitz (a16z), GIC — Singapore's sovereign wealth fund, Goldman Sachs, KKR and Visa. Last year, its Anchorage Digital Bank received approval from the Office of the Comptroller of the Currency, making it the first federally chartered crypto bank.
Covering Institutional Crypto Needs
And the new Build With Anchorage is the culmination of the last five years of work. "It's a crystallization of our path," Monica told Investor's Business Daily. "We have finally arrived at the place where we have enough of the services, enough of the APIs and all the regulatory clarity to provide this."
Powered by Anchorage's API software, Build With Anchorage service provides institutional partners access to crypto payment gateways, financial products and market participation tools. And Anchorage's array of API services covers everything industry players may want to offer customers.
And industry clients will be able to utilize Anchorage's engineers, deployment strategists and test teams to help bring the services to market.
Anchorage already quietly partnered with fintech firms AngelList and Series Financial, as well as a number of crypto firms.
Targeting Industry Players
And the institutional crypto market has largely been overlooked as projects focus on retail clients. That creates an opportunity for Anchorage.
"A lot of the protocols aren't really building with institutions in mind. In fact, I think the ethos is somewhat anti-institution for a lot of them," Monica said.
Although institutional crypto adoption has been slower than consumer adoption, they'll be the most consistent investors during the current bear market.
Consumer adoption so far has been very lumpy and volatile, Monica said, while institutions are on a different track.
"Institutions are all about value, product market fit and understanding the use cases. But they're low and slow," he said. And while retail-focused projects have suffered from inflation pressures on consumer pockets, that hasn't been the case with Anchorage. Most institutions that work with Anchorage have consistently been building through the bear markets.
"They have a very long term horizon on how to invest these assets and how to actually participate in this asset class," he said. "So that's actually what's happening on the ground is institutions keep building no matter what the price is."
Building In A Recession
That institutional investment would still continue in the event of a recession. Even if the amount or number of projects decline. "You still focus on making sure that you're building towards the future," Monica said. And he hasn't seen anyone completely exit the space.
"It's a lot easier to build during downturn markets and during bear markets," he added. "Because it crystallizes the product market fit, it crystallizes the actual goals. And only allows the products that actually have some sort of business need to be built. Which reduces a lot of speculation."
In fact, we could actually see more projects in the space. "Because there's a clear cohesive allocation towards this," he said. And naturally, the fear of missing the next bull market comes into play. "Many of these institutions want to be there because they failed to be there for the last one … so that's definitely something in terms of strategic positioning."
And as industry adoption keeps progressing, Monica says there will eventually be a point when steady institutional adoption surpasses volatile consumer adoption.
Security In The Spotlight
But what sets Anchorage apart from other custodians is the emphasis on security. "This is very different from traditional custody and traditional custodians because it's a highly technical endeavor," Monica said. "It's cybersecurity through and through. "So it's a big benefit that the company was formed by two security engineers."
Hackers stole more than $2.5 billion in various crypto heists so far in 2022, according to VPN services firm Atlas VPN.
Because many of these protocols aren't building with institutions in mind, security can often become an afterthought. Monica says many crypto projects need to realize, and be more upfront about the fact, that they're still in a beta testing phase.
"I think they go straight to production with their products, because they want to have their tokens in market," he said. "And that's understandable, because that's how they essentially make money ... But I think very few of them — and some of them have done it right — where they spend enough time testing having public blockchains. Where things are really, truly validated in production before they launch the actual token."
Consumers and institutions should be aware that a lot of these crypto assets and protocols in blockchains are beta software. The public releases and immediate use means some crypto firms are essentially testing in production.
Meanwhile, Anchorage has taken the more traditional approach with plenty of back-end testing to ensure it can fulfill the security needs of institutions.
What Lies Ahead
Monica still expects plenty of turbulence in the crypto space as the bear market continues. Angel investing in early-stage cryptocurrency startups is similar to venture capital in traditional markets, and you can expect comparable returns. "Nine out of 10 companies fail in the early stages. And you can very much expect nine out of 10 tokens to be the same type of investment," Monica said.
And with a recession, less capital will be injected into the space and the failure rate will increase for traditional and crypto startups that can't get funding. However, those with real utility will survive. Or at least get acquired for their intellectual property, he says.
Where crypto differs is the emergence of what Monica calls zombie projects. Market makers continue buying and selling tokens once they're listed, which maintains a minimum amount of volume even if the company behind it goes under. It makes it more difficult to see when projects fail because they don't ever really shut down.
What About Bitcoin?
Meanwhile, the narrative around Bitcoin is already changing. "For the past three months, Bitcoin has been trading sideways, and the market has been tanking. So there's an anti-correlation now between cryptocurrency, specifically Bitcoin, and other assets," Monica said. Much of the Bitcoin intended to be sold was already liquidated. So he's seeing some price support for the world's largest cryptocurrency.
Whether it's a hedge against inflation or a necessity as sovereign resistance becomes more important during geopolitical conflicts, there are lots of reasons why Bitcoin will continue trading in a way uncorrelated to traditional markets, Monica says.
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