Editor's Note: Driven by the fluctuations in the global economic cycle and the disruptive technological waves, blockchain and digital currencies, as emerging fields, are reshaping the landscape of the financial market at an unprecedented pace. At the 2024 Blockchain and Web3 Innovation Roundtable Forum, Chris Chern, a partner of the Crypto Quantum Fund, delivered a profound and inspiring closed-door sharing session on the topic of "Monetary Speculation: Economic Cycles, Macro Hedging, and Value Investing".
Chris Chern, drawing on his professional experience and practical cases, delved into the cyclical nature of Bitcoin and analyzed the investment logic and market rules of digital currencies. He interpreted the evolution of monetary value from the perspective of "gold-silver standard, credit-based, and consensus-based", elucidated the profit paths of monetary speculation and arbitrage, and proposed strategic considerations for market participants to find a balance between speculation and value. He also pointed out the upcoming window of institutionalization, rationalization, and compliance in the development of the digital currency market. When discussing the risks and opportunities in the capital market, Chris Chern demonstrated a profound insight into the market cycle and a calm judgment of future development.
Next, we will share the full text of this closed-door lecture, hoping it can bring inspiration and reference to more industry practitioners.
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Good evening, friends. I am Chris Chern, a 2016 alumnus and a partner of the Crypto Quantum Fund. I am delighted to have this exchange with you, and I hope my content can be helpful to you.
We are a new capital firm, with an initial fund management scale of $21 million, providing currency and financial management services to ultra-high-net-worth clients and family offices. Our real-time Sharpe ratio is ***. Our asset management business has achieved industry-leading investment returns for our investors. We also maintain good relationships with the regulatory authorities, banks, and sovereign funds of some crypto-friendly countries, and have rich capital operation capabilities.
I will not introduce our business like a fund manager. Instead, let's do something a little cooler and more interesting.
Numbers speak for themselves. This chart I always mention presents the historical price curve of Bitcoin, its halving cycles, and bull markets. We can see the three clear black lines in the middle are the halving dates, from the low point of $2.05 in 2012 to the subsequent $1,226, which was the first bull market. This was followed by a bear market, reaching the bear market low of $167 in 2015. Subsequently, it experienced two waves of growth, reaching $19,700 in 2017-2018, and then correcting to the $3,100 bear market, and the current wave of growth, which is the one we are most familiar with, a series of wealth-creating effects and out-of-circle narratives, reaching a high of $69,040. During the long previous bear market, Bitcoin once fell to $15,450, and it was at this time that our fund was launched. The cyclical dividends we have ridden are the several major upward waves we have captured, but we have not taken full profits, which I will discuss later in our thinking.
We will see that historically, each bull market rally has generally taken the form of two waves. The first wave of the rally is from the bear market turning point to the breakthrough of the previous historical high. The second wave of the rally is a rapid and violent surge after a correction. In 2013, after breaking the high, the rapid and violent surge saw a 40-fold increase. The entire cycle from the low point in 2012 to 2014 saw a 102-fold increase. This pattern, we will see in the upcoming bull market cycles. The second wave of the rally, from the low point to the high point, saw a 117-fold increase. After breaking the previous high, it saw a 16-fold increase. This pattern was 22-fold and 3.5-fold in the third wave, the bull market that most of the students and friends present today have experienced. Until now, we are facing the fourth halving and cycle of Bitcoin, and the structure of this bull market is quite different from the previous ones. With the influence of traditional capital, we will see differences in the price structure between futures and spot. The spot is powerfully pulling the entire market direction, but overall, Bitcoin is a very cyclical asset, and each wave of the bull market will see opportunities becoming smaller and smaller, becoming more regularized and rationalized, which is also a core direction of future price development.
At last year's forum, I blew the whistle here, telling you that we were in the early stage of a bull market, and we were about to face the early upward wave of the bull market, and breaking the previous high was a historical inevitability. To this day, this has been verified.
Our views constitute investment advice, and we are responsible for each macroeconomic judgment. We don't like the phrase "not constituting investment advice". When others believe in you, you need to provide operational direction, even if it's just the big picture. A light-hearted "no financial advice" is not responsible enough to provide convincing arguments. We don't like that. The market is always right, and if you're wrong, you have to stand up straight. But in terms of style, we are sincere, logical, and straightforward.
This is the overall historical evolution. But the question that concerns our teachers and fellow students the most, whether as institutional investors or weak traders, is: where do we make money?
The issue of how currency speculators make money can be divided into three categories. The first is speculation. Smart money is made from historical cycles. They make money from trend. In contrast, there is also gambling. Many traders we often see are using indicators that are gambling tools.
Making money from labor. This includes trading systems, including manpower, such as equipment, computing power, and servers. For example, high-performance. For example, refining and extracting better factors, this is to compete in the market, making money from labor creating value. Of course, making money from labor and making money from smart money can be complementary and not contradictory.
Making money from use value. Bitcoin's inherent characteristics of anonymity, liquidity, inalterability, and decentralization have inherently strong use value, which is an important support for its strong vitality. We must first figure out which part of the money we are making.
Regarding gambling, I need to emphasize that the essence of trading is gambling, dancing with uncertainty. Of course, gambling has its own techniques. Price is not just a movement, behind the price, the gambling techniques dig out why the price moves this way, why this form is formed, what energy changes the signal combination represents, and what kind of game is going on behind the market.
We believe that any judgment on the price, no matter how strong, is a delusion and fantasy. Even if a long position has seven or eight strong investment logics, one should not believe it too much. What brings profits is not the small cleverness of the fund manager or the fighting ability of the execution team, but the long-term mathematical advantage and strict trading discipline. Recently, I re-read Abu's "Price Action: Candlestick Chart Analysis for Serious Traders", and a point of view in the reversal section is very inspiring and in line with our view: "No matter how firmly you believe in your own judgment, in the market, there are always people who are just as intelligent as you and who are equally firmly convinced of the opposite judgment." Any judgment on the price, no matter how strong, is a delusion and fantasy. There are no absolutely smart institutions, only lucky ones who have ridden the wave of the cycle and steadfastly adhered to discipline to bring mathematical advantages.
If you want to make smart money, you need to have a thorough understanding of the essence of the target. When the Bitcoin ETF was approved, our trading analysis recorded that the crypto industry is moving forward in the rolling historical tide. I will share our understanding in the most concise and general four points. First, the essence of the coin is a kind of quasi-securities (no matter how many people deny it, the essence of the coin is securities that can raise funds); second, the dividend of the coin comes from the early securities market. The popular drama "Fenhong" was very helpful for our fundraising, and many of the LP objects we fundraised were watching the hot drama "Fenhong", which educated the market on how the opportunities and chaos of the early imperfect and asymmetric securities market were; third, the reason for the dividend is that technological progress is faster than the establishment of rules; fourth, the direction of the coin must be regularization, institutionalization, stockization, and even strategic reserve, and this can be seen in the emerging policies of many regions.
'MEME' must be translated into 'MEME'. 'TRON' must be translated into 'TRON'. 'meme' must be translated into 'meme'. 'RON' must be translated into 'RON'. 'ONG' must be translated into 'ONG'. 'CHR' must be translated into 'CHR'.
So, what virtual currencies reveal more is the basis of the value of currency. What is it exactly? Or, does currency have a value basis? We have experienced the transformation of currency from a gold and silver standard to a credit standard. In the earliest times, currency was based on gold and silver, you used silver notes, and you could actually exchange them for a tael or two of silver, the value of currency was linked to gold and silver.
But now, in this era, who among you students can tell me, what is the most valuable thing you can buy with a 50-pound banknote in your hand, or in your mobile payment account? No one can answer this question, and if someone could answer this question precisely, he would undoubtedly be the greatest currency speculator of our time.
We find that the foundation of the value of currency has undergone a profound change. In this process of transformation, the extreme instability of the value of modern currency has emerged, from the ruble, lira, to the yen, this is very obvious in the macroscopic view recently. The source of the value of currency comes from real power and imaginary imagination. If you take a realist stance: the credit basis of currency is the comprehensive strength of the issuing sovereign state in politics, economy, culture, and military; if you take a non-realist stance: the value basis of currency comes from the collective, cluster-like false belief of the community. So there is also a saying that holding currency is essentially holding an option on the state. The money in your hand and the balance on your card have never been stable and secure. To this day, in our field, currencies present the perception of the value basis of currency in a more pure and consensual way. From the gold and silver standard, to the credit standard, to the consensus standard. So the question we should further consider is, how to profit from consensus-based currencies.
We see the economic cycle of consensus-based coins, but what constitutes a cycle? What gives birth to a bull market? You can think of a lively casino or occasion, first you need people to come with money, secondly you need a fun mechanism, whether it's Texas Hold'em or Baccarat. Where does the money come from? In the traditional world, the channels are deposits or RWA, but they are not mature, or rate cuts and liquidity flooding have generally pushed up. Then where do the people come from? You need fresh people who can attract a large number of retail and institutional investors to join, to expand the pie. Finally, the game, the narrative, needs to be sexy enough, fun enough, and provocative enough to arouse the fear and greed of a wider range of people, and the current candidates are technology, new protocols, protocols that truly solve problems; culture, such as inspired by Richard Dawkins, to really break through the circle. Currently, the circle is mainly increasingly competitive and savvy traders, no one is willing to take the other side, and the Ponzi game can't get started. But as people, money, and gameplay mature, when the situation becomes clear, that is when the main bull market wave comes. Uncertainty can only create a suspicious situation that is neither bull nor bear, but what we can do is actively seek out and layout new opportunities as they emerge.
Finally, let's talk about our value investment in . Perhaps it will be of reference to everyone. First, since it is a value game based on consensus, if you want to profit from speculation, you have to accept that it has an inherent Ponzi and bubble nature. But Ponzi itself is deeply rooted in the human heart, imprinted in the social mechanisms and human nature of mankind. Over the years, from real estate speculation, sneaker speculation, star card speculation, trend toy speculation, digital collection speculation, futures speculation, foreign exchange speculation, they all share the same essence, the speculative market has eternal vitality. Human nature never changes, what changes is the container that carries people's fear and greed over the years. "What happens in the stock market today has happened before, and will happen again; Wall Street never changes, the money bag will change, the speculator will change, the stocks will change, but Wall Street never changes, because human nature never changes." Let go of prejudice and embrace Ponzi.
Second, to judge whether to participate. In the Ponzi game, the long-term saying is "if you believe, believe early, and you can make more money if you believe early. If you don't believe, then you completely don't believe, so at least you won't lose money." If you enter the Ponzi casino, the key is to embrace Ponzi, fully understand the subject, understand the rules of Ponzi, understand the cycle, and profit from this unique financial form and price deviation, indicators and research related to cycle timing are an important basis for our institutional macro investment decisions.
Third, currencies have eternal vitality, and are an inevitable product of capital development to a certain stage. Capital has always been seeking a channel of privacy, liquidity, and non-sovereignty throughout the long historical process. I will not elaborate on this point here.
Fourth, finally, it's an experience on the stop-profit and stop-loss point, which I call the breathing theory. The cycle and regularity of things are breathing, we can see the rise and fall pattern of on the chart is breathing, the macro economic rhythm is breathing. The profit and loss of your orders is breathing. We cannot just inhale without exhaling, or just exhale without inhaling. Good trading does not try to eat every wave of dividends, every wave of profits, and occupy every strong target. We are not greedy, in this cycle, our entry and exit points have been in the previous few waves, from 25,000~43,000 and from 43,000~66,000, as well as the recent wave, we have not eaten all the profits. Good trading sometimes needs to actively return some profits to the market, just like human breathing. The extreme of trying to occupy all the profits will only lead to another extreme.
Finally, a small advertisement for my junior and senior schoolmates, our recruitment philosophy, we only recruit geniuses. We have trading rooms in London and Beijing, and the team comes only from Tsinghua, Peking University, and the top 20 QS universities, including Olympic gold and silver medalists in mathematics and physics, members of the national computer team overseas, and members of the Olympiad training team. It is the fastest growing trading team organization for the new generation, if you are interested in this emerging market full of opportunities, please feel free to contact me. I also wish everyone to have gains in each economic cycle, and together create long-term, stable value growth.
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About the Crypto Quantum Fund
The Crypto Quantum Fund is a crypto-native venture capital fund focused on disruptive emerging technologies, aiming to become a bridge connecting traditional capital to enter the crypto finance sector. The fund was established in Cambridge, UK/Hong Kong, China, focusing on investments in the primary and secondary blockchain markets. The team comes from Cambridge, MIT, Tsinghua, and Peking University, all of whom are seasoned crypto investors and entrepreneurs, with an average of over 5 years of industry experience, and have rich investment experience and operational capabilities in Europe, Southeast Asia, and the United States, focusing on the world's most active regions and crypto sectors.
The Crypto Quantum Fund is actively exploring a global high-quality investment portfolio, committed to empowering outstanding talents in the fields of mathematics, physics, cryptography, and computer science to explore and break through the boundaries of science, and apply frontier research to the global financial market.
