Summary: Each generation's version has its own gods; Web3 enters a great era of compliance.
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Editor: Biteye Core Contributor Jeese, Denise
Community: @BiteyeCN
On June 30, the Hong Kong Special Administrative Region government announced that Dr. Jack Kong was reappointed by Financial Secretary Chan Mo-po as a member of the "Dedicated Group to Promote Web3 Development."
The dedicated group is committed to providing policy recommendations for the development of the Hong Kong Web3 ecosystem and promoting sustainable development of Web3. The group is chaired by the Financial Secretary and brings together representatives from the government and the market.
Biteye invited Dr. Jack Kong to the X Space live stream to discuss the current stock and cryptocurrency linkage market, stablecoin policies and practices, as well as opportunities for entrepreneurs and investors in the new cycle.
Guest: Dr. Jack Kong
Founder of Nano Labs, Director of Hong Kong Cyberport, member of the Hong Kong Third Generation Internet Development Working Group, and a member of the Hong Kong Anti-Money Laundering and Counter-Terrorist Financing Review Tribunal.
TL;DR
- The dynamics of this cycle have completely changed; due to the scarcity and strict regulation of stock and cryptocurrency, they have received greater inflow of funds than the cryptocurrency market and enjoyed higher premiums.
- Most people are more suited to hold Bitcoin rather than altcoins.
- The future is a coexistence of decentralized DeFi and compliance opportunities. For grassroots participants, more opportunities lie in decentralized tracks.
- The future global stablecoin competition will mainly be between USD stablecoins and offshore RMB stablecoins.
- Hong Kong is the best place for Chinese entrepreneurs, allowing them to extend their strengths and have a higher chance of success.
One, looking globally at the "cryptocurrency and stock linkage."
1.1 You are one of the few investors who have experienced the entire process of "Canaan listing → mining stocks explosion → cryptocurrency and stock linkage." Looking back, how do you think the traditional financial market's acceptance of crypto assets has evolved step by step?
The traditional capital market, especially the mainland market, has not recognized the concept of cryptocurrency in the past.
We launched our listing in mainland China in 2016, operating through mergers with A-share companies. However, we needed to prove many fundamental concepts, such as why there are 21 million bitcoins, and to demonstrate the now well-known technical principles and data. Even if all were proven, the mainland capital market still does not welcome such companies.
In 2018, we shifted to Hong Kong, where it was required to provide a large number of legal opinions, including the product lawyers' opinions from the dozens of sales countries worldwide. Even after meeting all regulatory requirements and providing all the answers and lawyer signatures, the waiting time was still long.
Ultimately, we sent our IPO prospectus to the US regulatory authorities before the US government shut down in 2019. The US regulatory agency reviewed it and found no issues but raised a key question: Does the listed company hold digital currencies? If so, it would require further study; if not, although our equipment is used for mining, they believed there were no obstacles. Therefore, we quickly submitted our listing application in the US. Within less than three months of review, we successfully landed on NASDAQ in November 2019, becoming the first listed company in the global industry. From 2016 to 2019, we worked continuously for four years to complete this and created two records on NASDAQ: the most on-site attendees and the most online viewers.
From this experience, we can see the differences between the capital markets in mainland China, Hong Kong, and the US. Now, all new investments, including mining stocks, cryptocurrency stocks, and US stocks on-chain, occur in US financial institutions or markets. "The US regulatory system ensures that financial innovation can happen in the US, while other places' regulations tend to be more conservative."
We experienced the previous capital market cycle, mainly mining stocks. Besides Canaan, such mining chip companies peaked at over 6 billion USD, and mining companies like Marathon Digital were also highly sought after. In this round, we see more mining companies viewed as traditional industries, while companies holding coins, including Microstrategy and others holding Bitcoin, Ethereum, Solana, BNB, and stablecoins, are also sought after.
The narratives and hotspots in the capital market have always been changing. Regulations have evolved from listed companies being unable to hold coins to gradually allowing listed companies' accounting statements to reflect them, leading to corresponding modifications in accounting standards. Now, many coins can be acquired by US-listed companies, and regulators have not raised significant doubts. "Overall, there has been a transition from being very conservative to gradually accepting, and now fully opening and supporting the industry."
1.2 From Canaan's "first stock in blockchain" to the current frequent interactions between listed companies and mainstream cryptocurrencies, do you think 'cryptocurrency and stock linkage' will become the next long-term trend? In this new structure, what opportunities are there for investors?
In 2018, mainstream institutions like BlackRock communicated with us because we planned to go public while Bitcoin was rising from over 10,000 USD to 20,000 USD. Many institutions showed immense enthusiasm for this industry for the first time in 2018. I had to meet 10 to 20 institutions a day, including major institutions managing over 100 billion USD in assets. Although they were already very FOMO, when Bitcoin fell from 20,000 USD to a low of 3,000 USD, they couldn't understand this industry anymore.
Many institutions experienced the transition from extreme FOMO to confusion about the industry from 2018 to 2019. From 2020 to 2021, as cryptocurrency prices rose to 60,000 USD, they regained confidence in the market. Even investors like Cathie Wood began to publicly support the market. Institutions have now experienced it for the second time, and now it may be the third time.
In participating in the cycle of the track, I think cryptocurrency and stock linkage will definitely be the mainstream narrative of this round. The reason is that many US stock investment institutions and investors, even global investors, cannot buy ETFs, including many coins without ETFs. "Therefore, this method of cryptocurrency and stock linkage solves the regulatory and investment needs of different investors who cannot buy ETFs or various coins. When you meet various needs of numerous investors and investment institutions, liquidity and premiums will become apparent."
Therefore, in the context of limited investment in ETFs and coins in global mainstream capital markets, the opportunities for cryptocurrency and stock linkage remain sustainable overall. For more ordinary investors, I believe purchasing Bitcoin is sufficient. "Based on my entrepreneurial experience over the past decade, the only thing that may be worth holding long-term is Bitcoin." We have many listed companies, with peak stock prices between 5-10 billion USD and dropping to only a few billion USD at their lowest. I personally also increased my holdings in Canaan and these listed companies at high prices, but the account may now only be 1/10 or even 1/30 of what it was at that time. At this time, many online KOLs criticized me for cutting leeks, but in reality, I was the one with the most losses.
Since we have always been optimistic about the track, we often did not sell our holdings at high prices and would buy more of these listed company stocks at high prices. I had also increased my holdings in Canaan and Jiucheng at high prices. Ultimately, you will find that no matter how skilled an investor you are, it is determined by the market. For example, when Bitcoin drops, your stock prices may fall even more, and when Bitcoin rises, your stock prices may rise more. The fluctuations of Bitcoin are not transferred by personal will; hence, I believe that for more conservative considerations, most people may only be suitable for holding Bitcoin. Cryptocurrency and stock linkage are more volatile; they could rise 10 times in one day, increase dozens of times in a month, but could also drop 90%-99% when they fall, which is more suitable for professional secondary market investors to participate.
1.3 Dr. Kong, as the first listed company to choose BNB as reserves, what is the core logic behind this? Is there a plan for further diversification of reserves?
Before reserving BNB, Nano Labs also held Bitcoin, but the Bitcoin sector has become strong enough with Microstrategy, and I believe Bitcoin is undoubtedly the best asset. I just suggested individuals hold Bitcoin, but in business operations, you will find it very difficult to compete with existing giants. Where is your differentiated opportunity?
"We have studied all mainstream cryptocurrencies and believe that besides Bitcoin, BNB is the highest quality, relatively stable asset with growth potential." Because of the entire BNB ecosystem, we believe that if CZ, Sister One, and many other ecosystem partners continue to build the BNB ecosystem, it may have more opportunities than any other cryptocurrency besides Bitcoin. We are willing to build together with a group of people, believing this is a very promising ecosystem.
We observed that Bitcoin's rise is because everyone sees it as digital gold, Ethereum's rise is due to the DeFi Summer, and Solana's meme narrative meets the demand for quick profits. We believe the entire track includes trends from DeFi to meme, as well as RWA stablecoins and on-chain US stock tokenization developing. We believe that ecosystems like BNB have the opportunity to seize new narrative hotspots, so we are willing to build this ecosystem.
During this process, we noticed that after the listed companies released announcements, CZ expressed support, which may lead more major participants from the BNB ecosystem to be willing to support such an ecosystem. In the future, if companies reserve more BNB, it will promote the rise of BNB prices, which will indirectly drive more opportunities in the BNB ecosystem, further promoting the rise of BNB prices. In short, the relationship among company holdings, stock prices, BNB prices, and the overall ecosystem development creates a virtuous cycle.
Second, based in Hong Kong, participate in the stablecoin wave.
2.1 Besides the BNB reserve plan, Nano Labs is preparing to apply for HKD and offshore RMB stablecoin licenses. Recently, we have also seen major domestic companies like JD and Alibaba gearing up to enter the market. What do you think about Hong Kong's positioning in the global stablecoin landscape? How will its role as a "bridge" be specifically reflected?
When we talk about stablecoins, we must introduce several mainstream opportunities for their development. Many people mistakenly believe that USD stablecoins represent USD hegemony; whether it is this term's Trump or the previous Biden, they had previously known nothing about stablecoins until Biden's election process or during Trump's term when they began to support stablecoins and Bitcoin enthusiastically. In Trump’s first term, he had little understanding of digital currencies, "When a country's president has little understanding, how can stablecoins be for USD hegemony?"
The first wave of real opportunities for stablecoins arose from China's regulation. At that time, there were ministerial documents stating that Bitcoin is a virtual commodity, and the public could freely buy and sell it, while financial institutions could not participate. This meant that the public could initially purchase Bitcoin directly with RMB, and the path to purchase Bitcoin directly through channels like Alipay was cut off. At that time, Chinese exchanges held a major share of the global trading volume, and since we could not directly use RMB and RMB stablecoins, the only one accepted was USD stablecoins, which created the first application scenario of USD stablecoins as trading pairs for stablecoins and cryptocurrencies, replacing fiat currency with USD stablecoins.
At that stage, due to the global regulatory community's lack of understanding of this matter, only a few exchanges had fiat deposit channels while more exchanges only had coin-to-coin trading pairs. Stablecoins gained greater trading volume and growth from the flourishing processes of various coin-to-coin trading pairs and exchanges, which is precisely the scenario for early native market trading of stablecoins.
Another scenario is after Ethereum's explosion, we saw the emergence of various iterative ecosystems. The DeFi ecosystem requires stablecoins even more. This wave further promoted the growth of stablecoins because various financial interactions and other applications in these ecosystems need to use stablecoins, leading Ethereum and DeFi to drive the entire market.
Cross-border payments, black, gray, and unbanked payment demands are important scenarios for stablecoins, whether for payments related to gambling, drugs, or the recent Yiwu small commodity market, where many merchants accept stablecoins. At that time, after accepting USD for RMB, they were often blocked by public security, making stablecoins a simpler option. Therefore, in various cross-border exchanges, stablecoins are indeed better payment tools and vehicles.
These three scenarios have contributed to the development of stablecoins worth two to three hundred billion USD in the past. In this process, we found that to develop stablecoins, in addition to scenarios, any scenario must meet three characteristics.
The first is to improve payment efficiency; for example, cross-border transfers take one, two, or three days, while stablecoins can arrive within a second, thus genuinely improving efficiency.
The second point is to reduce costs. Traditional bank transaction costs far exceed stablecoin transaction costs.
The third point is that it has a wealth effect. That is to say, why do you still want to hold stablecoins? Especially for people in the native market, why do they need to keep stablecoins? The reason is that they can purchase various memes and various coins for trading profits, quantitative trading, and TVL. Although these returns may seem like losses, the overall wealth effect is greater than using fiat currency for other investment methods. Therefore, I believe that past stablecoins met these three core points, allowing them to grow.
Currently, the legislation for stablecoins in Hong Kong was originally planned to be launched last year, but the entire process, whether regulatory or legislative, requires a lot of time. Although this round seems to have a similar timeline to the US, Hong Kong has the opportunity to be ahead of the US.
The second question is whether it meets the three conditions mentioned earlier. If the existing scenarios can be satisfied by a USD stablecoin, the HKD stablecoin needs to find more other scenarios. At the same time, the HKD stablecoin also needs to complete the three core points I just mentioned to truly develop.
Offshore RMB stablecoins have undergone significant changes in the past month, including many regulatory agencies in the mainland that were previously not very attuned to these innovations. Now, in addition to Internet giants like JD and Ant, many state-owned financial giants will also apply for stablecoin licenses, joining the wave. This indicates that China is further accelerating its position in the competitive landscape of RMB stablecoins.
In the long run, the USD stablecoins and the entire payment system are priced in USD within the global financial system. The second is the RMB stablecoin, which is now definitely the offshore RMB stablecoin because "domestic payments are particularly developed, and there is no need for RMB stablecoins."
"We believe that with China's global development in industrial manufacturing, offshore RMB stablecoins will welcome huge opportunities."
I believe that before offshore RMB stablecoins develop significantly, the opportunities may lie in USD stablecoins and HKD stablecoins. As offshore RMB stablecoins grow further, the global landscape for stablecoins may increasingly be a competition between USD stablecoins and offshore RMB stablecoins, while HKD stablecoins are more supplementary, including future Euro stablecoins, Middle Eastern Dirham stablecoins, or other stablecoins, all of which are regional supplements besides these two stablecoins.
2.2 As a director of Hong Kong Cyberport, how do you evaluate Cyberport's role in promoting Hong Kong's Web3 ecosystem and what are the key supports in attracting businesses?
Hong Kong Cyberport is a wholly-owned enterprise of the Hong Kong government, therefore it not only has corporate functions but also needs to support Hong Kong's government in fostering startup companies in the fintech sector.
In the first half of this year, we received nearly 20,000 applications for startup projects. Therefore, we can see that Hong Kong Cyberport has been supporting the entire financial and technology startup ecosystem in Hong Kong. As for Web3, no government in the world is giving real cash subsidies to Web3 entrepreneurs. After the policy declaration on October 30, 2020, in the February 2023 budget proposal, Secretary Chan Mo-po directly allocated 50 million to Cyberport for the development of Web3.
Today, the organizers also benefit from this policy, including Cobo and other public chains that have enjoyed the policy dividends of Cyberport, which is not just about money but represents the government's friendliness towards this industry. Recently, Cyberport provided a subsidy to quality projects to support typical Web3 projects.
Cyberport has done a lot in the entire Web3 field and has supported many projects. Besides the Web3 field, Cyberport has also made significant investments in AI over the past two years. We have invested tens of billions in building Hong Kong's AI infrastructure to provide more support for AI startups coming to Hong Kong and for local companies or institutions needing AI computing power and ecosystems.
Three, reflecting on the past, sharing experiences.
3.1 You have experienced multiple rises and falls of crypto cycles. Now in Hong Kong, Web3 entrepreneurs face different paths such as issuing coins and IPOs. How do you view these two models? What advice would you give to entrepreneurs?
I believe that throughout the entire crypto cycle, many people have experienced multiple iterations. During the iteration process, inertia thinking may lead to many who were already in positions A8, A9, or even A10 in the previous round returning to poverty in this cycle.
The characteristic of the first round cycle was the entire Web3 enlightenment era dominated by Bitcoin. In that industry, the things that could be accomplished may only be 5-10, such as mining chip, mining, mining farms, and cloud computing, and so on; these 5-10 industries were already the limit. However, we will find that Bitcoin, Litecoin, and other coins mentioned earliest seem to change their second position each year or every two years, with other coins before Litecoin and other coins after Ethereum. Therefore, you will find that while Bitcoin's position as gold has never changed, the position of silver has always been changing, which is a characteristic of that cycle.
The second cycle is the DeFi Summer, during which various financial applications based on smart contracts emerged, alongside the popularity of NFTs and DAO governance opportunities. In that wave, Bitcoin might double, while other coins could increase by 3, 5, or even 10 times; Bitcoin could increase by two or three times, while other mainstream altcoins might increase by 5-10 times. This is a characteristic of that cycle.
In this round, many investors believe that the exchange rate of Bitcoin and Ethereum has decoupled from the previous cycle when exchanging currencies, thinking they should switch to Ethereum, resulting in another prolonged decoupling. Other altcoins are similar; Bitcoin has risen 5 or 6 times in the past two years, while other altcoins may have dropped 99% from their peak.
Therefore, many investment methods operated in this cycle will actually bring significant problems, including ourselves as well. For example, at that time, the value of the Ethereum ecosystem was 300 billion USD, and when we saw the gradual rise of Bitcoin and inscription ecosystems, we believed that a 1 trillion USD Bitcoin should be able to grow a few hundred billion USD Bitcoin ecosystem. Thus, we worked hard to invest in inscription ecosystems and the entire Bitcoin ecosystem, and many coins were bought regardless of the lows and highs, and we have not sold them to this day. However, we found that this ecosystem is currently approaching a zero state. We also used inertia thinking, believing that at that time, both Ethereum and Bitcoin ecosystems would develop this way.
From a factual standpoint, our directional judgment was completely wrong. As the host mentioned, the same goes for issuing coins and IPOs. In the past, we saw a very ordinary project that could become a project worth hundreds of millions or even billions of USD due to investor endorsements, Binance, Upbit, or Coinbase listing.
This is what we observed in the previous cycle. "Due to the overall inflow of funds being greater than the growth rate of cryptocurrency projects in the previous cycle, most projects could enjoy the benefits of incremental funds."
In this round cycle, we observed that in the past six months to a year, most projects that issued coins might face price declines, and even without considering funding rates, all projects listed on Binance could be shorted, and from a price perspective, they had profit potential. Almost very few coins rise again after being listed, which is completely different from the previous cycle. "Recently, new listings are not hot, while cryptocurrency stocks are very popular because the stock market, whether shells or top-tier assets, only has a few thousand companies, which are closely monitored by audit firms, lawyers, and regulatory bodies, making the cost of fraud high. However, the overall incremental funds flowing in are larger than in the cryptocurrency circle."
Thus, we see more leading projects similar to cryptocurrency and stock linkage, such as Circle. If Circle issues coins, it cannot rise very high; after the IPO subscription, its peak market value approached the issued stablecoin. Because in this cycle, dozens of new coins appear daily, while the stock market generally holds scarce targets, combining leading Web3 projects can create better liquidity and attention. "Overall, it seems that leading projects are more suitable for issuing coins in the previous cycle, while this round may be more suitable for cryptocurrency and stock linkage."
3.2 What do you think about the current global compliance process for Web3? In the next two years, what are the most certain trends in Hong Kong's Web3 compliance direction? What areas still have uncertainties?
I believe the track undoubtedly transitions from being grassroots and primitive to a compliance phase, with the entire underlying blockchain infrastructure being decentralized, and DeFi always existing. "We believe that the future will definitely present opportunities for both decentralized DeFi and compliance. For grassroots participants, more opportunities lie in decentralized tracks."
For large institutions, their opportunities lie in the compliance track. Looking at Hong Kong's stablecoin applications, previously most applications were from native cryptocurrency institutions, but stablecoins are completely different, with more applications coming from internet giants and traditional financial giants. Therefore, it has become increasingly difficult for ordinary native cryptocurrency institutions to secure a place in Hong Kong's stablecoin market.
The compliance trend in Hong Kong is very clear, gradually advancing from licensed exchanges to stablecoins and OTC, having established a comprehensive regulatory framework and system, which will be further refined in the future.
Secondly, the friendliness of the Hong Kong government is the best globally. Over the past three years, we have emphasized that many people did not believe it, especially when compared to Singapore; at least in recent months, Asians have definitely believed it. Singapore's very strict regulatory policies officially took effect at the end of June, and many institutions are leaving Singapore. The reason is that Hong Kong is a small government but a relatively law-governed place. As long as you do not violate the national security law and do not affect China's politics, you are just an entrepreneur, and Hong Kong is indeed a very law-governed place.
Although the US has been very open in the past six months, based on the cooperation and disputes between Trump and Musk, I believe the policy environment in the US will definitely be very open in the long run. However, different periods with different political parties pose risks. In Hong Kong, under the maintenance of China's national unity, there is no need to align with any other party or regulatory interest group, as long as we focus on developing the Web3 business.
We believe that for Chinese individuals born in the mainland, Hong Kong is undoubtedly the best base for developing Web3. The reason Hong Kong did not develop web2 well in the past is that web2 is a barrel theory, where only by filling every shortcoming can it succeed.
When you only have a few strengths in Hong Kong, you cannot compensate for weaknesses and you definitely cannot develop web2. Web3 is a theory of strengths; Tether has over 160 employees and profits exceeding 14 billion USD; they only issue stablecoins and do not engage in direct development of chains, wallets, or other ecosystems. The number of users for stablecoins is global; they extended their strengths while other chains and wallets supplemented their strengths.
"Hong Kong happens to be a place that allows you to extend your strengths, especially suitable for Chinese individuals born in the mainland and Chinese individuals worldwide. In this context of competition and cooperation between China and the US, it is very suitable to serve as a bridge."
(This interview is for information sharing only; Biteye does not endorse the content of the interview. Investments carry risks, please invest cautiously.)