The Summit began with a gap: demand for structured products linked to digital assets exceeds their supply. The final session turned from diagnosis to an example already in the market. Ericsenz Capital, a Singapore-based private-equity and venture-capital firm as well as a partner of GenTwo, joined us to examine one Bitcoin structure in detail. The session followed the product from the investor need that prompted it to the counterparties and operational arrangements that make it possible.
We began with Wei Nee Chew who discussed Ericsenz, for which digital assets are the newest of several business lines. Damien Loh then unpacked the product itself: a Bitcoin dual-currency note and its inverse. He explained where its coupon comes from and what an investor is accepting when buying it. The discussion then turned to the counterparties such a structure requires, why Ericsenz continues to issue the note, and how the model might extend beyond digital assets.
Wei Nee Chew is Head of Operations, Private Equity and Investor Relations at Ericsenz Capital. Damien Loh is Ericsenz Capital’s Chief Investment Officer.
The Firm Behind the Note
Most of the audience was meeting Ericsenz for the first time, so we started with the firm. Wei Nee Chew set out its origins in corporate turnarounds and M&A about twenty years ago, and its path since into private equity and venture capital, a regulated fund management business in Singapore, and a client base of high net worth individuals, family offices and institutions across Asia, Switzerland and the United States. Early pre-IPO positions in technology companies that later became household names established the venture side of the house. Digital assets are the most recent addition, and the reason for the session.
“We have quite a large traditional finance client base,” Chew said. “So for our first initiative with GenTwo, we really wanted to build a bridge to give our TradFi client base real digital asset exposure, but in a format they understand and are familiar with.”
What Clients Are Asking For
Client demand had run through the whole week, seen in the Supply Gap session from the asset manager’s side and in Market Making from the market maker’s. Here we were looking at it from the vantage of a firm serving its own traditional finance clients, and we asked Loh what those clients were actually asking for.
“Overall, the demand is definitely for Bitcoin within the underlying digital assets,” Loh said. “But more than that, it’s how they’re going to be able to access Bitcoin and digital assets broadly. A lot of their money is held within the TradFi rails, custodians, banks, brokerages, and for them to access it they need to be able to buy a security. The structure we’ve set up through GenTwo allows them to access it directly, in an easy form for them to buy and process through where they already hold their money.”
Spot exposure, we put to him, was already well served. He agreed and said that was the point of building something else.
“I think spot exposure has already been covered by other players. Most people here are no stranger to IBIT, the Bitcoin ETF, and you get that exposure even for Ethereum and so on. So we didn’t want to reinvent the wheel,” Loh said. “We wanted something different altogether that we’ve not seen anyone else do, a structured product, which is a security, accessible by accredited investors, where the end client can generate a yield while waiting to get delivered their Bitcoin.”
The product came out of a question Loh had carried from an earlier career. He and a colleague, now also at Ericsenz, had worked together at a previous firm, one a structurer and the other a trader, building and risk-managing structured notes on currencies, interest rates and equities.
“We were always wondering why there was no similar product in the digital asset space,” Loh said. “So rather than just wondering, we decided to build it. We took a very similar playbook to what was in TradFi already and brought it over to digital assets.”
A Familiar Structure, a New Underlying
Not reinventing the wheel was deliberate. Loh said the aim was to add as little as possible to what an investor already had to absorb.
“Investors are looking at a new frontier, so that’s already something for people to learn and get their heads around. For us to offer a structure, we don’t want that to be a second thing they have to learn,” he said. “So we took something that should be familiar to most accredited investors who already invest in structured notes in TradFi, with a very similar payout, and brought it to digital assets.”
The nearest thing in traditional finance is the dual-currency note, and Ericsenz kept the name for that reason, calling its product a Bitcoin dual-currency note (DCN). A dual-currency note pays an enhanced coupon over a short term and, at maturity, returns the investor’s money either in the currency they started in or converted into a second currency at a level set in advance, depending on where the exchange rate has moved by the end. Ericsenz’s version uses this mechanism with the second currency simply being Bitcoin.
The note is short-dated by design, which Loh tied to how his clients actually use it. “People have views on the direction of Bitcoin and also want to use this as an instrument to generate yield on a short-term basis, so we’ve kept our note durations between one and three months,” he said. The yield comes from an option written into the note. “There’s an embedded option within the note that the end investor, the note holder, has sold, and that’s actually where most of the premium is generated for the note holder.” As with the two products taken apart in the Market Making session, the coupon here is option premium rather than interest, the investor being paid for selling a downside option on Bitcoin.
The note is also collateralized and kept separate from the firm that assembles it. “It’s segregated from all the other assets and liabilities of Ericsenz,” Loh said. “It sits in its own cell within an issuing vehicle that we’ve put in place with help from GenTwo, who made this a turnkey, easy-to-use setup for us.”
Setting the Strike
What the investor controls is the strike price, and with it the size of the coupon. Loh described the choice as a dial rather than a fixed term.
“What’s interesting about this product, just as in regular structured notes, is that investors can set the strike,” he said. “The strike decides whether the client gets back their initial investment in the same denomination they invested in, or gets converted. A strike further away from spot means the investor gets a lower coupon. A strike closer to spot means a higher coupon. So there’s always a trade-off.”
For clients large enough to want their own terms, he added, “we create bespoke tenors, strikes, and even payoffs based on their specific needs.”
The Payout and Who It Is For
The payout follows directly from the strike. Loh walked through the regular note as the graph on his slide showed it.
“For a regular Bitcoin dual-currency note, the end investor puts in US dollars. They know the coupon they’ll be receiving in one to three months’ time, usually on the order of 20 to 30% per annum. All they have to do is wait until the end of the life of the note,” he said. “At the end, we take a snapshot of where Bitcoin is. If the spot price is below the strike, the client gets converted at the strike level and receives their investment back in Bitcoin. If it’s above, they get it back in dollars.”
That describes the mechanism. The person it is built for, Loh said, is someone at the start of a Bitcoin allocation rather than in the middle of one.
“What we had in mind is people who have very little or no Bitcoin, people who are just dipping their toes into this industry,” he said. “They’d like to earn a coupon while waiting for Bitcoin to reach the price level they’re comfortable converting into and holding for the long term. It could be 5% below spot, or 10% below current levels. You choose, and we structure it.” The same shape, he noted, gives an investor a measured way to build a small position, “say 1 to 5% of their portfolio in Bitcoin.”
Either result serves that investor. “You either get your cash back plus the coupon, so you earn a nice big coupon,” Loh said. “With that coupon you could invest again, could keep buying notes every month or every three months. Or you get delivered Bitcoin, which is not a bad outcome either, because you’ve been converted at a level you were happy to take delivery at.”
At settlement the money returns to wherever it already sits, a brokerage account today and, he said, potentially a private bank account in future. Because of how the framework is set up with GenTwo, the note has an ISIN (International Securities Identification Number) and clears through SIX SIS, the Swiss central securities depository, which is what lets it be held and booked like any other security.
The Inverse, and the Two in Tandem
Alongside the regular note Ericsenz runs its mirror image, for investors who already hold Bitcoin. In the inverse note the strike sits above the current price rather than below it, the investor puts in Bitcoin rather than dollars, and the coupon works the same way. Loh framed it around a complaint he hears often.
“We’ve had a lot of customers say, 'I have Bitcoin, but it yields me nothing. I could lend it to a DeFi platform, which I might not be comfortable with, or I could hold it at a custodian, where they actually charge me,'” he said. Ericsenz’s product offers a third option: “With this note they can put their Bitcoin to work and earn some interest.”
The two products were launched almost together, and Loh described them working as a loop.
If you’re holding cash and you get converted to Bitcoin, you can buy the inverse. And if you get converted from the inverse, you can go back to buying the regular dual-currency note. By continually investing between the two products, you’re always able to earn a yield in every market environment.Damien Loh
He was clear that not every client wants to run the cycle. Some buy and hold, others wait for levels they have conviction on. The point is optionality rather than obligation.
Why It Runs Again and Again
The first pair of notes were a proof of concept. Ericsenz has issued the structure repeatedly since. We asked Loh why, and he gave three reasons.
The first is familiarity, as new clients watch others use the product and try it themselves. The second is the coupon. “They can’t say no to the high coupons. If they’re earning 20% per annum, they’re inclined to keep doing it over and over, and it’s easy for them because they can invest from their brokerage, or potentially a bank account in future.”
The third reason reflects an increasingly prevalent macro view. “There are rumblings again of dollar debasement. We’ve seen gold be a big beneficiary of that theme. For a while Bitcoin wasn’t, because of all the noise about the Clarity Act and US regulation, but that’s taken a backseat, and if you look at the charts now the correlation between gold and Bitcoin is back at its recent highs, because people are looking to diversify and buy back into Bitcoin.”
Asked how quickly a client can actually get such a product, Loh made the constraint a regulatory one rather than an operational one. “If you already have an account with one of our distributors, it could be really quick, a few days,” he said. “As mentioned, it’s only for accredited investors, and our regulated distributors have to make sure you’ve gone through all the KYC and AML. But once you’re in, it’s really quick.”
Beyond Digital Assets
We ended the session, and the week, by looking beyond these original products and then beyond digital assets. Loh set out the near-term direction first, and it started with distribution. “The main angle for us is working with more regulated distributors globally. We’ve set it up in an open-architecture framework,” he said. From there, the goal is more variety in the notes themselves. “We’re looking to diversify our payouts. The fixed-coupon note takes the lion’s share of issuance notional in the TradFi space, and it’s possible for us to do that, so we’re looking at it. Potentially other digital asset underlyings as well, and maybe even tokenized gold.”
Because the GenTwo issuing structure is not confined to crypto, the same vehicle can reach into the firm’s venture book, and Loh pointed in passing to a participation note referencing a pre-IPO SpaceX position now subject to post-IPO lockup as one example of extending the idea to a venture holding.
Chew brought that back to the core of the firm. The Bitcoin note, she said, was part of something wider. “Our work with GenTwo has introduced me to AMCs, actively managed certificates, as a means of providing our clients exposure to digital assets but also to private assets, not as unit holders in a traditional fund, but as debenture holders,” Chew said. “You issue an ISIN, and the AMC provides exposure to the asset in a similar way to the funds, but cheaper and much faster for the clients.”
The through-line, in Chew’s account, is the issuing relationship with GenTwo rather than any one note. It is what lets her take the standing problems of a private equity book, the long holds and the cost of servicing them, to Loh and have them answered in structured form. The Bitcoin note is one use of that relationship, and she expects more of them.