This episode’s guest: Rocky, Co-founder of Blue Ocean Capital, Twitter@Rocky_Bitcoin
*All texts are for sharing only and do not constitute any investment advice.
TL;DR
1. About Trader Rocky
The core of trading is "people". A person's experience, background, personality, and financial attributes determine the development of his or her trading strategy.
What is Rocky's trading strategy?
1) Transaction logic
The secondary fund adopts a subjective strategy, using a combination of Alpha and Beta. Alpha seeks high returns, while Beta seeks to anchor the trend of BTC.
A top-down (from macro to micro) investment research and analysis framework: macro analysis determines trends and manages positions, industry analysis selects bet tracks, and project fundamentals analysis screens projects and manages investment portfolios.
2) Funding size
The size of the fund is determined by the risk drawdown that can be tolerated. For a high-risk, high-return alternative investment market such as cryptocurrency, the size of the fund should be such that even if all losses occur, it will not affect your life, so that the long-term holding period can be guaranteed.
The size of the fund needs to match the number of investment targets. For 0-200,000 USD, there are about 5; for 200,000-1 million USD, there are about 10; for 1 million-5 million USD, there are about 15; for 5 million-20 million USD, there are about 20; for more than 20 million USD, there are no more than 30.
Currently managed fund AUM is US$45 million
3) Expected returns and funding cycle
As Zhou Jintao said, making money in life depends on Kondratieff cycles, and cycles are often the core factor that determines returns. When studying expected returns, the key is actually to study the dollar cycle, because any asset in a risky market is strongly correlated with the dollar cycle, and so is the capital cycle.
Generally speaking, the US dollar has a 4.5-year cycle. The two-year contraction period is the interest rate hike cycle, and the 2.5-year expansion period is the interest rate cut cycle. The contraction and expansion form the US dollar tide. Now is the end of the interest rate hike cycle, and the interest rate cut cycle is about to begin.
Rocky posted a tweet on May 25, 2022, https://x.com/Rocky_Bitcoin/status/1529399434420707328. His judgment on the cycle is: the first quarter of 2023 is the bottom of the Kitchin cycle. The real outbreak will occur after the interest rate cut ends and QE begins to be released, and it will last until the end of the third quarter of 2025, which is the end of the expansion period of the Kitchin cycle. U.S. stocks and cryptocurrencies will most likely reach their peak at that time point.
4) Risk Control
Risk control is mainly divided into three aspects: position risk control, investment portfolio risk control and baseline risk control.
The first point is position risk control, that is, position management. The position directly determines the retracement line and the space for holding U. In the case of a decline, holding U will have more room for operation. Position management mainly relies on the grasp of macro data. Different data have their corresponding weight scores, and the comprehensive score will correspond to specific position recommendations. At present, in Rocky's active position management, the macro data with relatively heavy weights are: US dollar index, 10-year US Treasury yield, and M2 data.
The second point is portfolio risk control, that is, the management of the projects held. The so-called fundraising, investment, management, and withdrawal, "management" is a very important link. It can judge the stage of the project, have the confidence and basis to replenish the position when the project falls, or give early warning and take profits when the project declines. The management of the project holdings tracks data by setting up a dashboard for the project, including user growth, daily activity, TVL, revenue, etc.
The third point is the risk control of the basic line. Rocky's fund currently follows the principle of 340, that is, 30% risk control warning and 40% liquidation line. There are other internal data as support for liquidation and risk control warning.
Why did Rocky develop such a trading strategy?
1) Trading experience:
Rocky went all in on Web3 in 2016, and made his first fortune in the ICO era in 2016 and 2017. From 2018 to 2021, he worked in blockchain vertical media and investment incubation. In 2022, he established the Blue Ocean Capital Fund, and the fund's current net value is 4.5. The two experiences that had the greatest impact on Rocky's trading strategy were one that established his faith in the industry, and the other that gave him awe of the market.
The first time, the high return for entering the market
When Rocky first came into contact with cryptocurrency, he thought it was a very empty thing, because in his opinion, any asset needs to be backed by an entity to have a relatively reasonable price. But out of trust in his friend, he gave 200,000 yuan to his friend to invest in the crypto market, and gained 4 times the return in 2 months, which was in sharp contrast to the A-share market.
Rocky was shocked by the high returns, so he started reading various materials, such as the Bitcoin white paper, Hayek's Denationalization of Currency, The Road to Serfdom, and other theories that leaned towards free economics, and developed a certain belief. Then in 2016, he went all in on the industry and earned his first pot of gold of nearly 20 million RMB in the ICO era.
The second time, 100 BTC lost on March 12
From the end of 2019 to the beginning of 2020, Rocky believed that BTC had bottomed out from a cyclical perspective, so he opened a BTC long order with a leverage of 1x at around 7,000, and based on the judgment that "BTC could not fall by more than 50% anyway", he believed that this was a very safe and winning strategy. However, the extreme market conditions on March 12 directly led to the loss of 100 BTC, and Rocky locked himself in his room for two months of review and reflection.
This incident led to three changes in Rocky: First, he formed his own "Three No Principles": don't touch leverage, don't touch contracts, and don't borrow money to trade in cryptocurrencies; second, he began to build his own investment risk control system and form a team, because separating operations (research and investment) from madness is the real way to reduce the risk factor; third, he changed from a "technical school" to a "value investment school". Technical indicators can guide the timing of buying or selling at certain nodes, but cannot determine whether the rate of return is guaranteed in a long period of time.
2) Professional background:
Before Rocky entered the crypto market, he worked as a researcher at Changjiang Securities Research Institute. The experience of working in a securities firm brought Rocky two advantages: the first is a sound macro strategy, and the second is a top-down investment research and analysis framework, from macro to track to specific projects. This systematic way of thinking has been guiding Rocky's investment in the crypto market.
Who is Rocky's trading strategy suitable for?
Rocky's trading strategy, or systematic way of thinking, is actually suitable for all those who want to "make money sustainably." Buying and holding may not be difficult, but the difficulty lies in how to judge your own capital cycle according to the market cycle; finding an Alpha may not be difficult, but the difficulty lies in how to discover a potential track and continuously capture Alpha.
2. Rocky's Trading Story
Knowledge verified by practice is true knowledge. Reviewing and looking back on specific transactions can help you understand and learn the application of trading strategies more intuitively.
How to capture Render $RNDR and Kaspa $KAS?
1) About Render
Because of Multicoin’s investment attention to Render
In 2021, Multicoin invested $30 million in Render, which attracted our attention and led to our long-term tracking of the project. There are two reasons why we are so sensitive to Multicoin’s investment:
Rocky's investment strategy in 2021 is to follow Multicoin, including SOL, GRT, AR, and LPT, and the returns are very good.
Multicoin is a research-driven investment. Each investment has a detailed report, which has been a great help to Rocky's investment thinking.
By analyzing the fundamentals, it is determined that Render can be invested
Render's business model: a positive capital cycle
In the context of the bear market at the time, Rocky thought about what kind of projects could survive in the bear market. The answer is: the income generated by the project can cover the support and bring a positive capital cycle. At that time, there were few projects that met the requirements in the market except DeFi projects, and Render was one of them. Render's parent company is OTOR. The company's product Octane provides rendering services to film and television companies such as Hollywood and Disney, which is very profitable. At that time, the core problem of OTOR was that the computing power cost would be relatively expensive, so the founder of OTOR did the Render project to solve the pain point of insufficient computing power, rather than issuing coins for the sake of issuing coins.
Render's founder: an extreme workaholic and geek
Rocky believes that the founder is very important when judging an early project, because the founder determines the long-term development path of the project. The founder of Render has the following characteristics: First, OTOR has been very successful and has no shortage of money; second, he founded OTOR in 2008 and founded Render in 2017. He has been the person in charge of OTOR for 9 years and is a "doer"; finally, he works more than 50 hours a week all year round and is an extreme workaholic and geek. He carries a 10-kilogram laptop that he modified to demonstrate the development of his own software in the rendering field to others.
Communicate with the project team to identify additional potential and determine investment
Rocky was an Ethereum miner in 2017, with a lot of GPU computing power. At that time, he discussed computing power cooperation with the project. Although the cooperation was not successful in the end, he got the information that Rende might release a C-end GPU interface. Rocky believes that this is a great demand, because after Ethereum switches to POS, it will definitely need a new project to undertake computing power. Although it has not been implemented yet, he saw the potential of the project, so he built a position around November 2022, with a cost of about US$0.5, which was a heavy position at the time.
2) About Kaspa
For the story of Kaspa, please refer to this tweet by Rocky, https://x.com/Rocky_Bitcoin/status/1641064973748277248. Here is a brief review:
After Ethereum switched to POS, Rocky looked for new projects for his mining machines, so he asked his research team to dig, and they found Y God’s project Kaspa.
Y God is the earliest inventor of DAG, or directed acyclic graph technology. Many projects that use this technology, including IOTA and Avalanche, have borrowed from the content of Y God's paper.
The entire team is composed of professors from the Hebrew University. It is a purely Israeli project. One characteristic of Israeli projects is that they will not give up halfway, which is the type of team that the Rocky team prefers.
Kaspa's mining model is 100% mining, no pre-mining, no team reservation, and no VC. Considering the founding and team situation, we decided to try mining.
Because the price of KAS is not high, mining loses 30,000 yuan in electricity bills every month, but the mining output is good. The overall return is about 200 times the profit. I sold part of it and still hold part of it.
The common feature of the two projects, Render and Kaspa, is that decisions are not based on K-lines or technical indicators, but on focusing on research. This is a reflection of the shift in Rocky's investment methodology after the "3.12" incident.
Which sectors are promising in the second half of the bull market? Why?
This question will be divided into two parts: First, when will the second half of the bull market occur? Second, which sectors are optimistic about the second half of the bull market?
1) Rocky believes that the second half of the bull market is likely to occur after the interest rate cut.
By summarizing the rules of the past three interest rate cuts, we can see that interest rate cuts have a relatively large impact on the market, especially the U.S. stock market, which may experience a relatively large retracement during the interest rate cut period. The data of the three major interest rate cuts in the past 30 years are as follows:
The first time was during the Internet bubble in 2000. The Federal Reserve lowered the federal interest rate from 6.5 points in 2001 to 1 point in 2003. From March 2000 to October 2002, the S&P 500 fell 49%.
The second time was the financial crisis from 2007 to 2008, when the federal interest rate dropped from 5.25 to a low of 0.25, and the U.S. stock market fell by 57% from October 2007 to March 2009.
The third time was during the COVID-19 pandemic from 2019 to 2020, when the federal interest rate dropped from a low of 2.25 to 0, and the U.S. stock market fell by about 34%.
The next cycle will be a decline from 5.5, and is expected to drop to 2% in two and a half years.
2) Rocky is optimistic about five tracks, namely AI, RWA, DePIN, BTC ecology, and GameFi
In the current market cycle, there will be a copycat cycle in October 2023 and another copycat cycle in February 2024. Through these two copycat cycles, we can actually determine the core narrative of this cycle. Projects or tracks that did not succeed in these two cycles basically do not need too much attention. The following is a detailed explanation of the reasons for being optimistic about the five major tracks.
The first one is AI. Top VCs are all betting on it, and the investment enthusiasm in the primary market remains high. The data in Q2 is close to 1 billion US dollars.
The second one is RWA. The RWA track is equivalent to the DeFi track in 2020. In the past, the US strategy was called the nationalization of US dollar assets. Many countries allocated US debts, but in recent years, the superior returns have not been good, and many countries that have allocated US debts are selling them. Therefore, the United States has also changed its strategy to the globalization of US dollar assets, that is, to allow users around the world to allocate US dollar assets. This strategy is actually very successful in this round of US dollar tide, because under the background of the tide, the currencies of many developing countries have depreciated sharply, such as the Argentine peso and the Turkish peso, which has led to a strong demand for the US dollar. However, due to the strong control of the country, this part of the demand has shifted to the "online US dollar", that is, USDT and USDC. In fact, the "US public chain" Solana is currently clearly entering RWA, which is a very politically correct path.
The third one is DePIN. One billion users is a base point for a qualitative change from quantitative change. The Internet track has also shown exponential growth after one billion users. Therefore, one billion users is also a key indicator for Web3, and the DePIN track is the easiest way to introduce Web2 users into Web3.
Fourth, the Bitcoin ecosystem. Bitcoin currently has a huge scale of 1.2 trillion, but it does not bring any interest-bearing assets. Once this area is opened up, it will release more liquid assets for secondary allocation, thereby bringing a strong incremental market. With the layout of more head VCs and the emergence of derivatives such as ETFs, there will be more ways to play in the future.
The fifth one is GameFi, the game market. The main source of user growth in the early days of the Internet was games. GameFi actually plays the same role in Web3, which is to attract traffic. Although everyone is now criticizing the economic model, sustainability, playability, etc., if the general logic is correct, these things will be filled slowly, because the development cycle of GameFi is still too short. Analogous to Web2, GameFi has only developed to the stage of Tetris, Playing Subor, and Red Douluo, and needs to be given time and space to grow.
When will a trading strategy fail? What is your own Stop Doing List?
Rocky believes that this cycle is most likely the last one for ordinary people and small and medium-sized institutions. The next stage may be the gameplay of professional financial institutions represented by Wall Street, such as round-the-clock hedging, high-frequency trading, AI robots, etc. Before this stage arrives, Rocky feels that his strategies are effective, but he is also actively deploying AI+, such as AI+ event-driven, AI+indicators, AI+on-chain data, and investing in research and funds.
As for the Stop Doing List, Rocky believes that we should do the right things and not do the wrong things. What are the wrong things? There are 5 in total.
First, don’t touch leverage, don’t touch contracts, and don’t borrow money to trade in cryptocurrencies. If you have the ability, spot trading can make you rich slowly; if you don’t have the ability, leverage will only accelerate your demise.
Second, don’t engage in high-frequency trading, and spend more time and energy studying the macro economy, tracks, and projects.
Third, don’t work in isolation. Broaden your horizons, communicate more with friends, communicate more with seniors or experts in the industry, and attend more conferences.
Fourth, don’t invest in projects you are not familiar with or don’t understand. You will feel more confident when you invest in projects after you have a certain understanding of them.
Fifth, don’t think about taking shortcuts or overtaking on the curve. The development of social media can make people very anxious, and anxiety will cause FOMO, but FOMO often does not make money. Only by sticking to the right path can you achieve something extraordinary. You still need to find projects in the market that can truly contribute to Web3, or have narrative logic, so that they can bring real value. Although value is sometimes illusory, Web3 has developed to this day and is still driven by value to generate its core.
3. Rocky's "Must Read"
The growth of an excellent trader is inseparable from continuous external input, learning from other excellent people, and reading content that is meaningful to learn from. We can also continue to accumulate and grow through other people's [Must Read] lists.
Rocky's recommended content is divided into three categories:
The first category is macroeconomics. Rocky strongly recommends that ordinary investors learn some knowledge related to "cycles".
Recommended books to read include:
Zhou Jintao's (Oscillation Cycle Theory) (Rocky has read this book more than 10 times. He believes that Zhou Jintao's grasp and understanding of cycles are currently ranked first in China.)
Hong Hao’s (Cycle) (Rocky believes that Mr. Hong Hao should be one of the few chief economists in China who dares to tell the truth.)
Kindleberger's (Manias, Panics, and Crashes: A History of Financial Crises)
Ross's (Diary of the Great Depression)
Shiller's (irrational exuberance)
Mankiw's (Theoretical Evidence Analysis of Business Cycles) uses a relatively large number of cases and papers to explain the causes and circumstances of economic cycles.
Recommended Twitter followers:
Bianco@biancoresearch, an institution that has been engaged in macro analysis for more than 20 years
Bloomberg analysts: @matt_levine @elerianm @ritholtz
The second category is industry.
He mainly tracks the Twitter accounts of top VCs. For example, in the field of AI, Rocky mainly follows Sequoia Capital, Multicoin, and a16z.
Category 3: Specific projects
Mainly focus on Messari's report @MessariCrypto, Nansen's Smart Money data, market sentiment observatory @LunarCrush, AI-driven Web3 market heat tracking @TrendX_official, and early Alpha project capturer @alphascan_xyz.
For more tools recommended by Rocky, you can check out his tweet 👉 https://x.com/Rocky_Bitcoin/status/1789986481945161850
Conversation Record
FC
The reason I got to know Rocky is that we started the mapping project in the second half of last year. We wanted to look back at the ten-fold and hundred-fold coins in the previous cycle and see if there was any pattern. Then when I was searching, I saw Rocky’s pinned tweet which was reviewing the characteristics of the hundred-fold coins in the previous round. It was very detailed and we could basically use it right away. This was the first connection between him and me. The second was that Rocky had a membership program and got a list of coins they recommended. I had a deep impression of it. I remember there were $Render, $KAS, and other AI and Game-related ones. Later, when I was preparing to do Space, I read all of Rocky's content very carefully. I found that he was a regular soldier, so his entire system construction, including how to select coins, how to look at the track, and how to look at the cycle, was very comprehensive, so I said that I must invite him to have a chat with everyone, including myself. I also want to know more, especially at this stage, Bitcoin has risen from 55,000 to 65,000 and another 10,000. We have also talked with Murphy and Ni Da about the issue of bottom-picking and timing. The next part is what the alpha of the entire bull market will be. I hope Rocky can tell what the possible trend of the second half is in a very systematic way, and how to think about this matter instead of simply telling us which coin we should buy.
Our entire content is actually divided into several parts: the first part is an introduction to Rocky’s own background; the second part is Rocky’s trading growth experience, including other trading strategies, his personality, and how he formed his current trading strategy. We hope that everyone can identify what kind of personality is suitable for what kind of strategy; the third part is a detailed explanation of the current trading strategy; the last part is how individuals can continue to grow.
So first of all, Rocky, could you please tell us how you entered this industry and what your background is?
Rocky
I am now the co-founder of Blue Ocean Capital, focusing on the secondary market of Web3. I used to be a researcher at the Yangtze River Securities Research Institute. At the end of 2016, I went all in on the cryptocurrency industry. I got my first pot of gold during the ICO in 2016 and 2017, and it was a roller coaster ride. From 2018 to 2021, we have been working on vertical media for blockchain and doing some investment incubation-related businesses. In 2022, we established the Blue Ocean Capital Fund. The current net value of the entire fund is 4.5, and the return is actually quite good. This is my general background.
FC
Let's talk about the whole trading strategy. You just said that your current return is 4.5 times. I just got the data today. Bitcoin has increased from 15,000 to more than 3 times. In fact, you have outperformed Bitcoin. So I want to know which of your past transactions, for example, I saw that you had a ROI of 40 times, and then a retracement, laid the foundation for your current trading strategy, and what is your current trading strategy?
Rocky
From 2020 to 2021, I was working alone. The main source of the 40-fold return was betting on some core narratives. The first one was DeFi. At that time, there were two tokens, one was Sushi and the other was AAVE. Because I have a certain advantage in traditional finance, because I am relatively good at observing data and speaking with data, so correspondingly, for example, decentralized exchanges, such as lending, it is data growth, we are still quite keen, following such data growth, we grasp such a node and valuation, relatively speaking, we have obtained a return from beginning to end. Another one with relatively high returns in the last cycle was the public chain. At that time, we mainly bet on Polkadot, which was invested in the primary market, and there was also a MATIC, which was Polygon. These two plus BNB's IEO at that time actually accounted for a relatively high part of the entire investment return. I remember that we bought BNB around 2019. The first new issue was the currently popular project, FET, which is also an AI project. The second or third issue was MATIC. So at that time, the entire BNB income plus the IEO income was actually a very good return.
Why is the retracement so severe? The core reason is that in the last cycle, the judgment of the cycle was actually a mistake. In fact, the retracement from the 519 wave in 2021 led to a light position in the second half of 2021, that is, the position was not so heavy, because after the shadow of 519, the new high of Bitcoin in the next round was actually hit by a relatively large setback, so this led to the recognition of the entire subsequent retracement cycle, which may be relatively weak. There was another important reason at the time, because there was no team, because in any investment market, risk control actually requires an independent department or independent personnel to operate. When you execute it completely subjectively, your operation, your research and your risk control, if it is one person or two people, the risk factor is actually still relatively large, so it will lead to a retracement in the later period, especially after 69,000. We are basically about 50,000, that is, when Bitcoin fell from 69,000 to about 50,000, all retreated, which is equivalent to the stop-profit situation of the retracement.
FC
So what is your current trading strategy? For example, what is the scale, expected returns, including the risk control you just mentioned, etc.
Rocky
In terms of trading strategies, there are actually two experiences that have had the greatest impact on me, which I would like to share with you.
The first experience is that anyone who enters this market will definitely have a period of expansion. My expansion period was in 2016, when I just entered this industry. It was a coincidence. When I was in a securities company, in the second half of 2015, there was a stock market crash in the A-share market. Later, it was said that financial collusion between China and foreign countries led to malicious short selling, and the futures index led to such a situation in the A-share market. Throughout 2016 and 2017, if you were in the A-share market, or in a securities company, it was actually not very optimistic. It was actually a coincidence that I entered this industry. At that time, I was a partner of a securities company. When they had dinner together in the evening, they talked about ICO. At that time, I didn’t really understand it. In the traditional financial thinking system, I thought that cryptocurrency was actually a very empty thing, because in my cognition, any asset or pricing must be endorsed and supported by an entity to make a relatively reasonable pricing. The whole encryption is actually a string of codes. At that time, I couldn't understand it at all in my cognitive system. It was just a string of codes. When ICO was very popular, some projects might have white papers or some projects didn't have white papers. Once they were listed, they brought 10 times, 20 times, or even 100 times of returns. In fact, it was very exaggerated at that time. At that time, my friend was in the financial group, and I was in the materials and chemical group. He said that ICO was the same as the IPO of stocks, and he mentioned a concept to me that the future would be a world driven by code software + hardware. Looking back now, we find that his judgment is actually very correct. We do have virtual assets now and it is through software, such as AI, that our world is moving forward. At that time, I didn't know anything, but because we were colleagues for many years, I trusted him and gave him 200,000 yuan. About two months later, at another dinner, he asked me to do a settlement. At that time, he returned me about 800,000 yuan. In fact, this was something that shocked me a lot, because he made a four-fold profit in two months, and he also deducted his "commission". In the A-share market, an annualized return of 20% or 30% is already very good, which is already very impressive. So a four-fold return in two months was a big shock to me personally at the time, so I went crazy looking for information, including the Bitcoin white paper, Hayek's Denationalization of Money, The Road to Serfdom, etc. I tended to be inclined towards the theories of free economics or related books, and developed a certain belief. This was my period of expansion, because after the ICO to the peak in 2017, I made my first pot of gold, which was close to 20 million yuan. It was a big shock to me at the time, because after all, I was still relatively young.This was a period of expansion for me. The expansion period led to a big problem, which is that you often cannot keep your wealth in the first round of bull and bear markets, but in the second round you may settle down. If you are lucky, you can settle down a relatively large amount of wealth. The real wealth may come in the third round.
When was my biggest setback? The biggest setback was actually the misjudgment of my cognition caused by the expansion period. The retracement on March 12, 2020, was an event that had the greatest impact on my trading system. Some of my current risk control strategies and risk control systems are actually based on the 312 logic system. At that time, I remember that I hoarded Bitcoin at the end of 2018 and 2019. The cost was about 4,000 US dollars, and I hoarded nearly 200 pieces. The exchange rate at that time should still be around 6.100 pieces was about 2 million RMB. I was in Guangzhou at the time, so 2 million RMB was only half a house in Guangzhou. Now I think it’s not too expensive, because at that time, the economic environment was relatively good for everyone to make money. At the end of 2019 and the beginning of 2020, Bitcoin was a bit like the end of 2022 and the beginning of 2023, when the price was between 15,000 and 20,000. At that time, I thought Bitcoin should be almost the same from the perspective of this cycle. I was very confident at that time. I opened a 1x leveraged BTC long order at about 7,000. At that time, I thought the price of 7,000 was relatively safe. I only opened a 1x leverage. Bitcoin could not fall more than 50%, so I was very confident. Basically, I had such a logic of winning. But everyone should know what happened on March 12. At that time, there was no time to charge the margin. The entire market was directly down. At that time, more than 100 Bitcoins were directly gone. This experience was still quite painful. 100 Bitcoins should be half a small goal now. At that time, I basically did not go out for more than two months. I stayed in a room in a daze and did some reflection. In such a situation, I realized the risks of the entire crypto market, and gained a new understanding of leverage and a new respect for the market. So from that time on, I built some risk control systems. The biggest factor in this is the three no principles that I often share on Twitter, that is, don’t touch leverage, don’t touch contracts, and don’t borrow money to speculate in cryptocurrencies. If you have the ability, spot trading can also make you rich slowly;If you don't have the ability, leverage will only accelerate your demise.
So there were two events, one was the expansion, and the other was the huge awe I had for the market, which had a great impact on my entire trading or cognitive system in cryptocurrency.
FC
I understand. I feel that the comrades who came in 2017 just play contracts. The stories of different lines are roughly the same. But I think you are quite amazing. After your wealth expanded so quickly, you came back and sorted out your emotions, and you were able to build this team again. So I want to know what is the investment strategy of your own fund for the 4.5 times return you just mentioned? For example, is it Buy and Hold, or what kind of strategy? Including your expected returns and stop losses, how do you do these?
Rocky
In fact, our entire secondary level is mainly based on subjective strategies, using a combination of alpha and beta. Alpha seeks high returns, and beta seeks a market-anchored BTC trend.
First of all, the scale of funds. Everyone's fund scale and volume may be different. In fact, when investing in cryptocurrencies, how much money should you bring into this market? This determining factor is not how high a return or how high a profit you want to get, because I often tell our LPs that your fund scale is actually related to the risk drawdown you can bear. So we honestly say that cryptocurrency is an alternative investment market with high risks and high returns. We suggest that you take out a fund that may lose all your funds to participate in the investment. This is a psychological preparation that I think anyone who enters this market may have to make in advance. This fund scale will not affect your life, that is, a fund that will not reduce the quality of life. In this case, the risk you can bear and the period you can hold for a long time can be guaranteed. Because any market actually moves in the form of fluctuations. For example, when it fell to around 54,000 some time ago, many people said that this market may have encountered a bear market. Whether the market is in a bear market is actually controlled by the pressure that its funds can bear. If we look at macro data or other aspects, it is still a bull market, but why do many people have this situation? It is fear. The root of fear is investing in a high-risk and uncertain market beyond your affordable financial range. This causes your fear. This is a key point. The size of funds is controlled by this (tolerable risk drawdown).
I would like to say one more thing about the scale of funds, which is to match the investment targets. In fact, from the perspective of traditional financial investment, the scale of funds should normally be divided into five levels. The first level is from 0 to 200,000 US dollars, the second level is 200,000 to 1 million US dollars, the third level is 1 million to 5 million US dollars, the fourth level is 5 million to 20 million US dollars, and more than 20 million US dollars belong to the fifth level. In cryptocurrencies, at present, there is a spindle distribution, and nearly 60% are basically in the range of 0 to 200,000 US dollars. This is an assessment made by a third-party agency. In the range of 0 to 200,000 US dollars, we recommend that the investment portfolio targets are about 5, the investment targets of 200,000 to 1 million US dollars are about 10, the investment targets of 1 million to 5 million US dollars are about 15, the investment targets of 5 million to 20 million US dollars are about 20, and the investment targets of more than 20 million US dollars are no more than 30.
Let's talk about expected returns. What is the expected return related to? It is correlated with the cycle to which BTC belongs. From a long-term perspective, the price of BTC is correlated with the US dollar cycle and the US Treasury yield. So when we study expected returns, we are actually focusing on the US dollar cycle, because any asset in the risk market is strongly bound to the US dollar cycle, and can basically reach a correlation of nearly 80% to 90%. The US dollar cycle is generally a 4.5-year cycle. The two-year contraction period is the interest rate hike cycle, and the 2.5-year expansion cycle is the interest rate cut cycle. Under the background of the US dollar tide, every tightening and loosening of the US dollar cycle will have a huge impact on the risk asset market. From the traditional financial market in history, we can see that, for example, in 1994 and 1995, the most typical crisis was the Mexican peso and the Argentine peso. We may be more familiar with the Asian financial crisis in 1997 and 1998, which was actually formed under the US dollar tide. So if you want to get an expected return, the essence is to grasp the time node of the US dollar cycle. The cycle is often the core element that determines our returns. Just like Zhou Jintao said, getting rich in life depends on Kondratieff, not on your hard work. Hard work is useful, but it does not account for a particularly large proportion. So we suggest that for most ordinary investors, you should know the theory of monetary cycles, including the corresponding books. Here I can recommend a few books. The first one I recommend is Zhou Jintao's (Theory of Monetary Cycles). In fact, I have read this book more than 10 times, and the pages are basically torn apart. Zhou Jintao's grasp and understanding of cycles should be ranked first in China. There are also Kindleberger's (Fanatical Panic and Crash) and (History of Financial Crisis), which are also very good, and Ross's (Diary of the Great Depression), which talks about the current situation under the overall economic depression. A very famous book is Shiller's (Irrational Exuberance), and there is also Mankiw's (Theoretical Evidence Analysis of Economic Cycles). This book uses a lot of cases and papers to explain the causes and situations of economic cycles.
So I think if you want to get the expected return, it is actually very important to track the dollar cycle and follow the timing of the current dollar cycle. For example, we are now at the end of a rate hike cycle and the rate cut cycle is about to come. In the past two days, we have seen that the U.S. stock market is not so optimistic. The main reason is not only the financial report of the U.S. stock market, but also the U.S. banking system and commercial loans. That is, there are some problems with commercial loans in real estate, which has led to a situation in the entire market. This morning, I found that many scholars or economists in foreign media are calling for an early (rate cut). Previously, the rate cut node was probably in September and October. At present, the rate cut may be made in advance in August. The above is an important impact of the dollar cycle.
Next is the area of risk control, for which we actually have several points.
The first point is position risk control, that is, position management, which is directly linked to macroeconomic data. When we track the macro, there will be some weighted indicators that are proportional to the position allocation, such as the US dollar index, which has a relatively large weight, and the 10-year US Treasury yield, including M2 data. This is our current active position management. There are three indicators with relatively heavy weights. They will have some weight scores. Different scores are real-time display of position suggestions, which are given to our own funds, and then we will take corresponding measures, because the position actually directly determines your retracement line and your space to hold U. When you empty your position, you actually hold U. When you hold U, you will have more room to maneuver in a falling environment. When many people fell to 54,000, their positions were full. Seeing such a good opportunity at 54,000, but there was no position to cover the position, it was also a very painful thing. So the first one is actually position management. The main source of position management lies in the grasp of macro data.
The second point is the dashboard of the project held. After buying a target, many people may occasionally check its Twitter, and ignore other things. They sell it after it goes up, and they also sell it after it falls a lot, or they rush to buy it after hearing a certain KOL's call. In fact, this is quite irresponsible for your own investment. The so-called fundraising, investment, management, and withdrawal, management is actually a very important time node. We basically connect APIs to each project we hold to build a dashboard to track the corresponding data of the project, such as its user growth, daily active users, TVL, expenses, revenue, etc. (Through) these data, we can observe a project. Is it in the growth period of the steep curve, or has it encountered a bottleneck period of smooth curve, or has it entered a recession period at the end of the curve? These data play a key role in the projects we hold. In each period, we hope to invest in a project that is in the rising period of the curve, and its various data are constantly running up. Such a project is held for a long time, and in the bottleneck period or recession period, early warning and profit-taking are carried out. If you have such a dashboard and make corresponding observations on your holdings every day, you actually have enough confidence in your project to hold on to it, especially when it falls, you have enough confidence to increase and cover your positions.
The last point is the risk control of the basic line. For example, in the stock market, private equity funds and sunshine private equity funds follow the principle of 2:3:0, with 20% risk control warning and 30% liquidation line. Our current principle is 3:4:0, with 30% risk control warning and 40% liquidation line. We have other internal data to support liquidation and risk control warning, so I won’t go into details here.
The last part is about the capital cycle. The capital cycle is actually centered on observing the dollar cycle. I had a tweet on May 25, 2022, https://x.com/Rocky_Bitcoin/status/1529399434420707328. At that time, our judgment on this cycle was that the bottom would be reached in the first quarter of 23, the bottom of the Kitchen cycle, and then it would most likely be in the third quarter of 25. At that time, equity products had bottomed out, that is, the stock market and the currency market. If you invest in the first quarter of 23, like Nvidia and Microsoft, which are the weight stocks of the seven golden flowers in the US stock market, your investment return is very good, including the first quarter of 23 of cryptocurrencies. At that time, we mentioned a point that the Kitchen cycle contracted, with a median of 14 months, that is, the general market would bottom out after a 14-month decline. We can see a situation in the last cycle, that is, the big cake peaked on October 1, 21, and then the bottom date was December 1, 2022, which happened to be 14 months. Therefore, our judgment on the economic cycle and the market actually determines our judgment on the cycle of holding funds. Why do we think the bull market has not ended in this cycle? Because the real outbreak must be after the interest rate cut ends and the entire QE begins to be released. It is expected to be around the end of the third quarter of 25, the end of the expansion period of the Kitchin cycle, including US stocks and cryptocurrencies, which will most likely reach their peak at that time point. This is also an important key node for our long-term optimism about Web3.
FC
That's amazing, Rocky. I feel like you have basically answered all my questions. I took a few notes, so we can just break up and ask. The first question is, how did you invest in KAS and Render? Just now you also emphasized data and valuation, including the system you learned at the brokerage firm. Can you combine the two cases of Render and KAS to share your entire judgment logic with everyone?
Rocky
What advantages do brokerages bring to me? The first is a sound macro strategy, and the second is the investment research system framework. Because brokerages train you to think more about the way and thinking of a company or project. The most typical solution in brokerages is a top-down investment research analysis framework. The team leader gives you a listed company or a listed company of a corresponding competitor to analyze. You can't start from the micro company. In many cases, when we look at the research reports of brokerages, we will find that the first thing he writes is definitely macro, that is, what impact the macro economy has on the micro market. The macro economy includes some monetary policies, such as inflation, unemployment rate, fiscal policy, etc., and then the industry, which is actually equivalent to what we now call the track. The track must be large enough and strong enough. At that time, our group was engaged in chemical materials. In 2015, 2016, and 2017, the biggest imagination space (industry) was new energy vehicles, so the biggest focus of everyone's attention in the materials category was the upstream and downstream of lithium batteries. (Put it in Web3), in this cycle, there are large enough tracks in the imagination space, such as AI, RWA, and DePin. There are also countless research institutions, such as Messari, Goldman Sachs, Citibank, and Boston Consulting Group. They have issued countless reports and talked about this track, and the track space is (very large). For example, RWA is a scale of 10 trillion, AI will be more than 2 trillion by 2028, and DePin is also close to 2 trillion. The imagination and scale must be large enough, so that you will find the right thing with a high probability when looking for investment targets in this. How is the industry prosperity of this track, how is the scale of the track, the market demand and supply, the views of investment institutions, because the linkage between the first and second levels is a very important observation indicator, as well as policies, technology trends, etc.
What comes after the track? Then we move on to the project. The project includes some of its data, team, valuation, competitors, risk analysis, etc. If you are not a sell-side investment research, you will end here, but because we need to make investments, we will add the following points. The first point is the construction of the investment portfolio. After our analysis, it may directly affect how we make decisions to buy and sell, so we must have a certain weak correlation in the construction of the investment portfolio. For example, if we invest in AI, I can't invest in many projects in the computing power category. Although the computing power track is very crowded, such as IO, NOS, ATH, all of which are computing power, I can't say that I will invest in all of them. It is definitely enough to invest in only one or two of them. In addition to computing power, AI also has intelligent agents, and applications for video rendering, such as RNDR and LPT, as well as corresponding data ownership and privacy security. There are many categories in this track segmentation. Which category is the leader? You need to get its advantages through competitive product analysis. For each track segmentation, you may only need to invest in one, otherwise there will be a strong correlation. Strong correlation will bring a problem. Once a black swan appears in the track, or when there are some problems in this track, its decline will have a particularly large impact on your position. Weak correlation, being a leader in different tracks, shields the impact of market correlation to achieve reasonable risk control of position portfolio, that is, risk drawdown and return on expected returns. The next step is to manage the position data, which is equivalent to regular evaluation and regular dynamic tracking of projects. This is a key to our five-step approach in this area. This is a relatively systematic framework and structure in the investment research system that was brought to me by the brokerage.
So how did we find the two projects we just talked about, Render and Kasper?
Let's talk about Render first, which is RNDR. For this project, we have to mention an investment company Multicoin. In fact, we had an early strategy at the time. We invested in whatever they invested in, which was very simple. Basically, my investment in 2021, that is, when I invested in the last cycle, I followed him. For example, Solana, GRT, AR, LPT, I basically followed him. Let me tell you a data. In the primary investment market, Multicoin said it was the first and no one dared to say it was the second. The entire investment return from its establishment in 2017 to 2024 reached 93 times. With a large scale of funds, it is still terrifying to achieve such a 93-fold return. Even in the case of the FTX incident in 2022 and Solana's sharp pullback (when it lost 91% at the time), at the lowest point in 2022, the fund still had a return on investment of nearly 20 times. I mentioned this VC organization more than once in my tweets. It was the key to our grasp of Render, because this company is a paper-driven investment company. It will write a report on each project it invests in, and it is publicly shared on its official website. Everyone goes to the official website to see why it invests in this project. What it writes is relatively detailed. It is their investment thinking, which is actually very helpful to us. We basically print out all of Multicoin's investment reports, bind them, and give them to every new person who comes in as a must-read guide. If you hope to get a good return in the investment market, I suggest you go to the official website and read all of Multicoin's previous "Why Invest" reports. The investment in Muticoin became a key point, because we were mainly concerned about this project at the time because Multicoin invested 30 million US dollars in Render in 21 years, and we have been tracking this project for a long time.
The second point is that, in the context of the entire bear market, we have been thinking about what kind of projects can survive the bull and bear markets. First, the income generated by it can bring long-term and positive (cycles). At that time, we found that there were actually very few such projects in the entire market, that is, the income could cover the entire development or employee salaries. Among them, there are game projects such as Axie, MakerDAO-now doing US bond market and previously doing lending, it is also a stable profit, and like Aave, basically all the income can cover. At that time, in addition to these traditional Defi projects, we saw the company Render, which can also cover. We should know that it has a parent company called OTOR. This company has a core product called Octane. This software mainly provides rendering services to film and television companies such as Hollywood and Disney. And its founder, Wolbach, founded OTOR in 2008 and founded Render in 2017. For 9 years, he has been the person in charge of OTOR. At that time, one of the core problems of OTOR was that the computing power cost would be relatively expensive, because the computing power cost of the machines it rented for rendering, that is, the computing power cost of the GPU, was relatively high. Because of this pain point, he created the Render project to solve the problem of insufficient computing power in the rendering field. The first point here is that the parent company of OTOR is very profitable, so the founder did not create such a project just for the sake of issuing coins. He brought such a project to solve the pain point of the parent company; the second point is that when we look at a project, its founder is very important, especially for some early projects. The founder determines the long-term development path of the project in the future. The Render project is actually a very old project in 2017. With 30 million US dollars in financing in 2021, the project itself is not short of money. The founder OTOR has been very successful and is not short of money. At the same time, the founder can be found on the Internet or YouTube. Some reports on his entrepreneurial history can be found. He is an extreme workaholic and geek. How to say it? First of all, the founder works more than 50 hours a week all year round;Secondly, I was impressed by a report that he modified his own laptop, which was a 10kg laptop, and installed two 1080 graphics cards, which were overclocked super graphics cards, to demonstrate the development of his own software in the rendering field. So for such a workaholic and geek, I think this project will definitely be good.
We also took the initiative to contact the project party, because the logic of its rendering network GPU mining is in cooperation with the B-side. I was an Ethereum miner in 2017, and we actually had quite a lot of GPU computing power. At that time, the project was very promising, and we also wanted to cooperate with it, but later they said that their rendering had very high requirements for computing power stability and bandwidth. Now they basically cooperate with large computing power computer rooms like Microsoft and Google, and there are no C-side cooperation resources. But one of the information points they gave us at that time was that they might release the C-side GPU interface in the future. This is actually a very large demand market. Under the circumstances at that time, Ethereum had a path to convert to POS. If you think about the large GPU computing power market of Ethereum, once it stagnates, it will definitely need a new project to undertake, at least to undertake its computing power logic. The market size of this computing power logic is actually very large. Although the information given to us at that time was that it might come out soon, although it has not come out yet, it has a certain impact on our investment decision at that time. We are communicating with each other. During the entire later stage, a series of actions including continuous tracking of data and transferring it to the Solana public chain became a key to our investment in it. At that time, the investment should have been 0.5 US dollars, around November 2022. At that time, it was a project that we had relatively heavy investments in.
I should have written about the Kaspa project at the time, https://x.com/Rocky_Bitcoin/status/1641064973748277248. At that time, I was mining Ethereum, and I actually had a lot of 1660S mining machines. Everyone who mines should know that 1660S is actually a relatively cost-effective model. After Ethereum switches to POS, it will be wasted. I thought it was a pity at the time, so I asked the research team to dig, and then found Y God's project. Y God is a PhD in cryptography from Harvard University, and it is a purely Israeli project. We prefer Israeli projects. One of the characteristics of Israeli startups is that they will not give up halfway, but once they grow to a certain stage, they will choose to sell it and start a business again after selling it. They have such a spirit to start a business again, and they will not give up halfway, unlike some European projects. Many European projects are just working on it, maybe the benefits are too good, or something (other reasons), anyway, the update speed is very slow, and they can't continue because they are out of touch with the market, but Israeli projects are different, they generally will not give up easily, and the entire team of Kaspa is professors from the Hebrew University. Another core is that this project is 100% mining, there is no pre-mining, no team (reserved), and no VC, it is purely mined by mining. We also found a lot of literature, that is, God Y, he is the earliest inventor of DAG, that is, directed acyclic graph technology. Kaspa is actually essentially a strategy of an improved version of directed acyclic graph. In fact, in the entire cryptocurrency field, especially in the Ethereum killer field, there were two solutions at the time, one was sharding, and the other was the logic of DAG directed acyclic graph. At present, many projects also use directed acyclic graph technology. I have mentioned IOTA here, including Avalanche, which actually adopted the system and some references of God Y's corresponding papers.
So we tried to mine at that time. Actually, we didn’t buy much in the secondary market. We mainly mined. At that time, we basically lost money every month because the price of KAS was really low. When it was listed on Matcha, the price was only a few zeros. At that time, mining lost nearly 30,000 yuan in electricity bills every month. We didn’t use 1660s. At that time, we replaced all of them with 3080 graphics cards. Later, professional mining machines, such as Iceberg and Antminer, came out. Now the income from mining with graphics cards is actually relatively low, but in the early days of mining, its output is still very good. If you keep it until today, its return is about 200 times the income in the early days, but we took part of it and still have some of this coin.
So you will find that these two projects are not based on K-line or some indicators. We put more energy into research. This is why I said that 312 had a great impact on us, because before 312, I was a pure technical person, and I was basically familiar with all the technical indicators. Technical indicators can guide you to make a timing decision at certain nodes, such as buying or selling, but they cannot determine your return rate in a long period. It may give you a relatively good judgment on buying timing in a short period, that is, under the background of all macro, at the bottom, and in the final decision-making situation. It is a decision from macro to micro to the final, but it cannot determine your investment return in the entire market. Only by doing such detailed analysis and research can you bring you a truly considerable return. This is also the huge impact that 312 has brought to me. Now I basically look at the K-line once a week or once every two or three days. I don’t look at the daily line, 15 minutes, or one hour or four hours.
FC
I have two additional questions. First, you just mentioned data. For example, the market space for research reports written by Messari and Delphi, how do you ensure that it is true? Or do you think that as long as everyone writes about it, there will be a consensus? Second, you can judge whether the project is going up or down through data, but there is a lag, so it will actually affect your buying and exiting timing. I don't know what you think about this?
Rocky
I think all data are lagging. One of our mentors told us before that A-shares are auctioned in a call auction. At the last second of the call auction, if you take out a 10 million large order to smash the market, can you directly determine the trend of this K-line or technical indicators? Originally a golden cross, can it be smashed into a dead cross? In fact, there was only a 10 million order in the call auction. So I think any indicator, especially technical indicators, has a serious lag. Why is data important? Because data has long-term data, medium-term data and short-term data. Long-term data can determine trends. For example, when doing macroeconomic analysis, it is actually supported by long-term data. For example, it is impossible to raise interest rates today and lower interest rates tomorrow. It is impossible to lower interest rates this quarter and raise interest rates next quarter. It is often that there is a cycle for raising interest rates and a cycle for lowering interest rates. Moreover, this cycle has certain trends, extensions and sustainability. This determines the basis for your judgment in the long, medium and short cycles. That is why it is said that there is such a sequence from macro to track and then to project.
In this sorting situation, we focus on the long-term data to determine your judgment in the medium-term, and provide your position management and real-time control in the short-term. Position management is determined by the macro cycle, and project risk control is based on the project data, dashboards, such as StepN. At that time, many people should have tracked its data growth, after all, it is a 100-fold coin. For a game project like this, once it starts to run an upward cycle, it will have a very smooth or very steep upward curve. When it starts to slowly become smooth, when the steep upward curve begins to decrease in slope, you can perceive this trend, not that it changes immediately. I don’t know if you can understand what I mean, that is, any curve has a trend extension, and this extension is a key point for your investment decision-making through the judgment and data of this trend. This thing is actually very important. The trend of the data is the basis for your judgment, and you use the long-term data to cooperate with the medium-term and short-term data to form a system of your investment strategy.
FC
I understand. Let's talk about the second half. Do you think the Alpha tracks we bet on will continue in the second half? AI, DePin, Game, RWA, SOLANA, etc. If so, why? And if we are looking for Alpha in the second half, what logic should we follow? To be honest, I am still confused now. We can't participate in Meme, so what should we do with the others?
Rocky
I think the second half can be positioned after the interest rate cut, because there may be a relatively large retracement during the interest rate cut. The past three interest rate cuts actually had a relatively large impact on the market, especially the US stock market, because there was not much data on the crypto market at the time. Let me roughly talk about this data. There have been three major interest rate cuts in the past 30 years. The first wave of interest rate cuts was during the Internet bubble in 2000. The entire rate cut started in 2001, and the Federal Reserve's federal interest rate dropped from 6.5 to a point in 2003. The U.S. stock market responded by falling 49% from March 2000 to October 2002, with the S&P 500 falling 49%; during the financial crisis from 2007 to 2008, when the federal interest rate dropped from a low of 5.25 to 0.25, and the entire U.S. stock market fell from October 2007 to March 2009, a drop of 57%; the next wave of interest rate cuts was the COVID-19 pandemic from 2019 to 2020, when the decline was about 34%, because the federal interest rate did not drop much at the time, from a low of 2.25 to 0, so the decline was actually not large. We are currently decreasing from 5.5. If it decreases to a certain percentage, you can expect it to decrease to 2%. From 5.5 to 2%, it will be a two-and-a-half-year interest rate reduction cycle. The interest rate reduction will have a certain impact on the market, especially the US stock market, which is the impact of recession expectations. So in this case, we actually think that in the second half, after the interest rate cut, the strategy in the second half may be a situation of falling first and then rising.
The core direction of our Aplha path remains the same, because this cycle narrative is already there. For example, there will be a copycat cycle in October 2023 and a copycat cycle in February 2024. With these two copycat cycles, we can actually determine the direction of our core narrative and core track in this cycle. If there are no projects or tracks that have come out in these two cycles, you basically don’t need to pay too much attention to them, because at present, funds have determined the dynamics of the market. In every rebound, the first narrative is still AI. Judging from the current investment enthusiasm in the primary market, it is still unabated. I remember that the data in Q2 was about 1 billion US dollars.
The second track is probably RWA, which is actually a rigid demand. Whether it is BlackRock or the recent Solana, if you look at Solana's recent official push, you can find that Solana has now directly entered the RWA field with the loudest horn. You can think that the "American public chain" Solana determines the future development of the financial development of the United States. It has a strategy to allow global users to realize the allocation of US dollar assets. When we communicated with some American teams, because the overall influence of the US dollar is currently declining, they have a strategy of US dollar assets, which was previously called the nationalization of US dollar assets. Many countries go to allocate US debt, but you find that the countries that allocate US debt are constantly selling, because the country is not stupid, and thinks that the return of the US dollar is not very good at present. In this case, the United States now has a new strategy, which is the globalization of US dollar assets. This strategy is actually very successful in this round of US dollar tide. We look at many places, such as Dubai, Southeast Asia or Mexico, and you will find that your USDT is very useful. What is the main reason? This is a problem brought about by this round of dollar tide. The currencies of many developing countries have depreciated severely, including the typical Argentine peso and Turkish lira, whose currencies have depreciated by 70% and 80%, so their demand for the US dollar is very strong, but the state control is also very strong, so the online US dollar, that is, USDT and USDC, has a particularly large demand, which is also a core of the current US strategy. Solana actually determines that US dollar assets, that is, US dollar investment assets, are involved in a core strategy among ordinary people. Recently, Solana’s official reports are basically going in the direction of RWA. I think this is a completely politically correct path, so the RWA track is equivalent to the DEFI track in 2020. RWA is actually an upgraded version of DEFI, which we call DEFI3.0.
The third track is the DePIN track. I think this track is actually the easiest to introduce Web2 users into the huge scenario of Web3. Because the DePIN track is our mining track, you buy a piece of hardware, put it at home, put it in a certain occasion, and mine its coins. How long will it take to get back the money? Such a scenario may have some needs, such as 5g, maps, etc. But whether there is such a demand is not important. What is important is to introduce Web2 users into Web3. Web3 has a demand point, which is to reach 1 billion users. 1 billion users is a base point population from quantitative change to qualitative change. Because the Internet track also shows exponential growth rapidly after 1 billion, 1 billion users is a key indicator. DePIN will bring such a scenario. In the future, the entire market, especially the data market, is very important. Whether it is our health data or (or other) various data, it can be shared and connected through DePIN. Especially in the future development path of AI, I think this is very easy to expand.
The fourth is the Bitcoin ecosystem. Bitcoin is now worth 1.2 trillion, which is a huge scale. People just keep the coins in their wallets. 1.2 trillion actually does not bring any interest-bearing assets or any ecosystem. In fact, this is a dormant asset, which will actually bring a huge fermentation effect. Many developers, many users, project parties, and VC investment institutions will see this market. Recently, Multicoin has also invested in several projects in the Bitcoin ecosystem. Once this area is opened up, it will bring a strong incremental market and incremental funds. The reason why the Ethereum DEFI craze brought a hot bull market at that time was that more stablecoins were released through staking, or more liquid assets were released for secondary configuration. If the entire market value of Bitcoin in the entire bull market can reach 5 trillion, and 10% of the 5 trillion has such a DeFi function and will be pledged, there will be 500 billion such an incremental fund. Although there is leverage, there may be risks of liquidation in the future, but this will push up a huge incremental component of the market and promote a bigger bubble. In fact, with the emergence of derivatives such as ETFs, this direction will definitely emerge in the future, because the way financial derivatives are played in the United States is too fancy. ETF is just the first step, and some derivatives corresponding to ETF will appear later. This is 100%. This is actually an incremental market generated by BTC logic, but whether this incremental market will be placed in a traditional financial market or a Web3 DeFi financial market in the future. Wall Street actually wants to control assets because the asset volume is still very large.
The fifth one is GameFi, the game market. We know that the development of the entire Internet is a history of game development. The main source of user growth for the entire Internet was games in the early days, so GameFi actually has the same idea as Web3, which is to attract traffic. I think this demand can be compared with the Internet market of Web2, and it is still very important. Although everyone is now criticizing its economic model, sustainability, playability, etc., if the general logic of this thing is correct, these things will be filled slowly, because the development cycle of GameFi is still too short. It has only developed to the period of playing Tetris in the Internet cycle, or the period of playing Subor and Red Douluo. You can't give it time to grow, because it has been more than ten or twenty years since the period of playing Fortnite and League of Legends, so in this case, it takes a certain amount of time and space to grow.
The above is why I think the five major tracks are the logical points where we should focus our configuration in the next half.
FC
Thanks Rocky, you are really well prepared and explained in detail. So you don't watch MEME? You don't buy MEME at all?
Rocky
Currently we have only bought one MEME, PEPE. You will find that many of my Twitter posters are PEPE, because PEPE is still very popular in North American culture. We basically don’t have any other MEMEs.
FC
Understood. Then we have two last questions. First, what is the stop doing list in your trading strategy? Or do you think about when your strategy will fail? And how to prevent this?
Rocky
I think this cycle should be the last cycle for ordinary people like us, or small and medium-sized institutions like us. The next stage may be the strategy of Wall Street derivatives. Whether they are all-weather hedging, high-frequency trading, AI robots, etc., these strategies basically have nothing to do with our Xiaomi plus rifles. I think for most of us, this cycle is over. The previous trading strategy will actually become a huge gap and watershed for the later ones. How to play the later trading strategy may combine many AI paths. We are also investing and researching in this AI aspect, such as AI+event-driven, AI+corresponding indicators, AI+funds, AI+on-chain data, etc. We are making some investments and research, and we have invested a lot of money in it. This may be the next cycle. For the current cycle, the trading strategy should still be effective.
Speaking of Stop Doing List, in fact, many times we ask you to do the right thing, and doing the right thing means not doing the wrong thing. What are the wrong things?
The first one is what I have been emphasizing, don’t touch leverage, don’t touch contracts, and don’t borrow money to speculate in cryptocurrencies. These are the three reasons why most people leave the poker table in Web3. In fact, you won’t lose too much in Web3, but once you open these three things, there is no turning back.
Second, don’t do high-frequency trading. Spend more time and energy studying macroeconomics, tracks, and projects. In other words, look more and learn more, especially look at some North American markets, including these primary markets, their latest investment trends and some of their investment paths. For example, Paradigm and A16Z added AI to their official websites very early, including Sequoia Capital, which has already smelled a direction of the market, and in turn invests and thinks about your U.S. stocks and your cryptocurrencies. At that time, if you saw this dynamic in the primary market, you would start to pay attention to the AI track and these projects. In fact, your investment return should not be bad. So you need to spend more time and energy on these, not for the pleasure of dopamine from high-frequency trading, which is meaningless.
The third is not to delve into your own scope, but to open your horizons, communicate more with friends, attend more conferences, and communicate with industry seniors or experts. Because many times, a word from others may enlighten you, and you will be enlightened. Many times, we who trade in cryptocurrencies may stay in a space and never come out, just like playing games with ourselves in front of our screens. This is actually a scenario for many people. I think this scenario is very closed, and sometimes there will be a situation of working behind closed doors, which is very undesirable.
Fourth, when investing, don’t invest in what you are not familiar with, and don’t invest in what you don’t understand, which is very similar to Duan Yongping. If you are not familiar with it, don’t invest, and don’t know what it is, because in many cases, many times when you enter the community, a KOL or someone shouts about this project, in fact, it may be just one or two sentences, and you rush in. You don’t know what this project is about, don’t know the background of this investment, and don’t know the risks of this project. You just blindly rush to buy a coin or a coin. Don’t do this (investment). It’s best if you have a system architecture and you hear this news, but you spend one or two hours, because AI is very convenient now, you go to ask gpt4, this project helps me analyze the investors, background, team, competitive advantages of the project, and corresponding data, and gpt4 can give you a pretty good analysis. In this case, after you have a subjective judgment, you think that I understand this project, or I have a certain understanding of this track, and then you invest, it may be one or two hours later than the person who shouted in the group, but in fact, one or two hours will not have much impact on you. First, you gain knowledge, and second, after you have a certain understanding of the project, you will feel more confident when you invest.
The fifth point is that in the Web3 market, you must not think about taking shortcuts, or thinking about overtaking on the curve, or thinking that someone has gained 100 times or so, and you start to rush in. Now the entire social media is too developed, which will make people very anxious. When you are very anxious, you will have a bandwagon effect. Often, few people make money in the form of bandwagoning, especially in the market of inscriptions at that time. Inscriptions were indeed very FOMO at that time. Now looking back at inscriptions, there are actually few people who really make money. Maybe you invested in ORDI or some of the top ones, which may be slightly good, but some inscriptions that were born later, basically few people really make money. So don't think about taking shortcuts. We believe that it is still better to stick to the right path and be surprising. Indeed, you still have to find projects in the market that can really contribute to Web3, or have some narrative logic. In this case, you can bring real value. We still prefer value. Although this value is sometimes illusory and many people deny it, I think that Web3 has developed to this point today, and there is still a certain value drive, which is giving it a core. This is a direction we have always firmly believed in.
FC
Thank you. The last question is, in the next episode, which trader would you like to hear about what kind of content?
Rocky
I don’t actually follow that many traders. In my Twitter following list, I usually focus on three categories:
The first category is institutions. For example, in the field of AI, we will always follow the Twitter accounts of popular institutions such as Sequoia Capital, Multicoin, and a16z for their latest developments.
The second category is macro, for example, Teacher Hong Hao. Teacher Hong Hao has a very good book (Cycle). You can also read it. Teacher Hong Hao should be one of the few chief economists in China who dares to tell the truth. I think a lot of what he wrote is quite good. Although it is biased towards stocks, I think there is actually relevance in it. There are also researchers from Bianco, an institution that has been doing macro analysis for more than 20 years. You can also follow its Twitter, and then there is also the analyst from Bloomberg.
I actually pay less attention to the third category of specific projects, because we don't use Twitter to track specific projects, but rather use software and some reports. For example, we prefer to read Messari's reports, such as Nansen's Smart Money data. In fact, many early alpha projects are actually bought by Smart Money, and the market reacts only after they are bought. The market reacts because the price has risen, and the real funds will be earlier than the market reports. The smart money on Nansen is actually very interesting. Another is to insert AI-driven software into the Market Sentiment Observatory, and there is also Alphascan, which is also a very good software for (discovering) early projects. So we usually use these software to capture, and those on Twitter are relatively rare. I personally pay more attention to institutions and macro.
FC
Special thanks, I didn’t expect the content to be so rich. We will organize this content into a text version. That’s basically all the questions I have. Thank you for listening.
