Ex-Goldman trader hires old rivals to build a crypto empire

Yuzo Kano is trying to build a global cryptocurrency powerhouse, one former financier at a time.

The Goldman Sachs alumnus, who turned bitFlyer into Japan's largest bitcoin exchange, is scooping up traders and bankers from both his old employer and former rivals as he embarks on an ambitious international expansion. Kano's team, which includes a former fixed-income desk head at Barclays and an ex-senior private banker at Credit Suisse Group, has doubled to more than 150 people in the past six months and is on pace to top 300 before year-end.

While he's far from the only crypto boss to poach talent from Wall Street firms, Kano has been among the most aggressive in taking advantage of recent Japanese regulations that make the finance-to-crypto leap less daunting. The nation's virtual currency exchanges are now licensed by Japan's securities watchdog, giving the venues an official stamp of approval that's largely absent from countries like the U.S. and Britain. For Kano, that makes Japan the ideal base for an increasingly global operation.

"My target is to be number one in the world," the former derivatives and convertible bonds trader said in an interview from his office in Midtown Tower, the tony Tokyo skyscraper that's also home to Blackstone Group and Bain & Co. "To get there, I need to grow headcount. And those with the best skills come from global banks."

Kano's four-year-old exchange is already the world's fourth-largest crypto venue by turnover, after BitMex, Binance and OKEx, according to data compiled by Bloomberg from exchanges, Coinhills and Coinmarketcap.com. Transactions on bitFlyer averaged about $2 billion a day during late April and early May, thanks in large part to bitcoin margin contracts popular with Japanese day-traders. The venue's users have tripled in the past year to 2 million.

On top of existing locations in Tokyo, San Francisco and Luxembourg, Kano is eyeing new offices in Africa, South America, Australia and other parts of Asia. He's also expanding beyond crypto trading to businesses that include digital payments and a brokerage-advisory service for investors and startups interested in initial coin offerings. The strategy is similar to that of Mike Novogratz, another Goldman alum who recently started a New York-based crypto merchant bank.

Kano, bitFlyer's co-founder and chief executive officer, said former traders and bankers are ideal for crypto firms because they understand how to operate in regulated markets -- a skill set that's becoming more important as governments around the world scrutinize an industry notorious for security lapses and money laundering risks. Last month, bitFlyer tightened its anti-money laundering rules after the Nikkei newspaper reported that users could perform some limited functions without fully completing customer verification.

"Crypto companies need finance guys to fill roles across the board: business development, sales, account management, operations, and compliance just to name a few," said Razin Ashraf, head of Tokyo-based recruiting firm Divine Solutions Japan.

Of course, technology matters too. Kano's hiring spree also includes coders, who can make $100,000 at bitFlyer with a high school -- or even middle school -- education if they've got a track record of success at hackathons or coding tournaments.

Kano, 42, said bitFlyer's ideal finance recruits fall into one of two groups: experienced bankers in their 40s tired of corporate bureaucracy, or younger associates in their 20s who've become disillusioned with the industry and are hungry for a taste of startup life.

"Japan is facing long-term headwinds including negative interest rates, which is driving headcount lower at finance firms," said Yoshiharu Akahane, who oversees fintech research at Tokyo-based NTT Data Corp. "That coincides with our huge crypto boom, which is much stronger than in the rest of the world, and explains why more people may jump to the crypto industry."

Kano can't promise to beat the banks on salaries, but he said there are plenty of people at bitFlyer who earn more than $200,000 a year.

Stock options are also a major draw. All of bitFlyer's full-time employees receive them and can cash out without having to wait for the company's planned initial public offering, Kano said, declining to elaborate on a timeframe for an IPO. "At what other startup can the secretary become a millionaire?"

That upside potential could help bitFlyer compete for talent even as Wall Street firms tiptoe into the crypto space themselves. Goldman is preparing to open a bitcoin-trading business, while Intercontinental Exchange Inc., the owner of New York Stock Exchange, is said to be working on a platform that would let investors bet on the cryptocurrency. In Japan, financial companies including SBI Holdings Inc. and Monex Group Inc. are making big investments in crypto businesses.

While Kano declined to discuss details of bitFlyer's finances, disclosures from one of its rivals suggest crypto exchanges in Japan are comfortably profitable. Coincheck Inc., the venue that lost client assets to hackers in January, reported an estimated $490 million in operating profit in the 10 months before the theft (the exchange was later bought by Monex).

There's no guarantee that the boom times will last. Average daily turnover at global crypto exchanges fell to $9.1 billion in April from $17 billion in December as prices for most major tokens sank more than 50 percent from their highs, according to CryptoCompare. In another sign of waning interest, Google searches for "bitcoin" and "crypto" have dropped by more than 70 percent since late last year.

That said, bitcoin is still up more than 1,800 percent on a two-year horizon - trading around $9,270 on Thursday - and the flood of ICOs shows little sign of stopping despite growing regulatory scrutiny. For Wall Street types who watched the go-go years of 2005-2007 give way to the global crisis and a more utility-like role for banks in the aftermath, the excitement surrounding cryptocurrencies is proving tough to resist.

"I just didn't see a future in traditional finance," said Daisuke Murayama, the 35-year-old former Barclays trader who took a pay cut to join bitFlyer in February. "It's never coming back."