Wu Junfeng | Encrypted Asset Investment Trends: The Future Has Arrived, It’s Just Not Popular Yet
Huobi University Huobi Education
When it comes to encrypted assets such as Bitcoin in the past, many people think that this is just a game played by a small circle of crypto geeks. In fact, the entire encrypted asset market has undergone earth-shaking changes in 2020 and has become a new mainstream asset.
In his 2021 "Riding the Wind" New Year's Eve speech, Yu Jianing shared about the future trends in the encryption field. He believes: "Be in awe of digital assets and not blindly. It takes at least six months before investing or joining this field. Study hard and observe carefully."
To this end, Huobi University invited Wu Junfeng, the founder and CEO of Qianfeng Capital, to share on the theme of "Cryptocurrency Investment Trends". Wu Junfeng shared with you the future investment trends and directions in the encryption field from the perspective of blockchain investment funds in the cutting-edge class of famous teachers.
Wu Junfeng said that global flooding in the future is a high-probability event. The depreciation of US dollar assets will trigger a large amount of US dollar liquidity overflow, which will flow to fixed assets, gold, stocks, and the encrypted asset market benchmarked by Bitcoin. We have reason to believe that encrypted assets will undertake a certain amount of dollar liquidity and become one of the long-term future portfolios of a large number of investment institutions.
Faculty Profile
Wu Junfeng, founder and CEO of Chain Hill Capital, won awards such as the most influential investor of the year. He has been an entrepreneur in the field of industrial automation for many years, and entered the blockchain industry for investment in 2015, focusing on early venture capital in the blockchain industry. Founded Chain Hill Capital in 2017, led the team to build a professional and international blockchain-specific investment institution, which has USD funds (primary market), index funds (secondary market), and subjective management funds ( Secondary market).
The following is the essence of Wu Junfeng’s speech, organized by Huobi University:
Hello, students and teachers of Huobi, thank you very much for the invitation of Huobi and Huobi University President Yu. I am the founder and CEO of Qianfeng Capital. It is a great honor to share with you here today.
Today's topic is the investment trend of encrypted assets. From the perspective of blockchain investment funds, I will share with you the future investment trends and directions in the encrypted field. Next, I will start from an overview of Bitcoin, global macro trends, encrypted market cycles, institutions The entrance layout is expanded from four angles.
Before sharing, let me briefly introduce myself. I was engaged in personal investment in the blockchain industry from 2015 to 2017. At the end of 2017, I established Qianfeng Capital, an investment institution, mainly engaged in digital asset management and investment in the blockchain industry, as a traditional capital and digital asset market. As a bridge, Qianfeng Capital is committed to providing compliant, safe and professional one-stop services to investment institutions, family offices and high-net-worth individuals.
At present, Qianfeng Capital mainly has three investment matrices, including risky blockchain early project equity, theme Alpha strategic investment, passive investment (index fund strategy)
1. Bitcoin Overview
Because Bitcoin has the attributes of currency, it is necessary for us to understand the evolution of the entire currency before talking about the overview of Bitcoin.
The earliest human barter exchanges were mainly in kind, such as livestock such as cattle and sheep, and crops such as wheat. However, there are various defects in the exchange of physical objects, such as not easy to store, not easy to divide, not easy to carry, etc.
Therefore, on the basis of ensuring a certain scarcity and use value, human currency gradually develops in several directions such as scarcity, easy storage, easy division, easy measurement, and easy inspection. The entire human currency has transitioned to the age of metal currency, which is the era of metal currency dominated by gold, silver, copper and other major metal currencies.
With the birth of papermaking and printing, human beings used paper money in the Northern Song Dynasty, and after the disintegration of the Bretton Woods system, the dollar was linked to gold, and human beings entered the era of paper money in an all-round way.
The rapid development of the Internet and mobile Internet has brought mankind into the era of electronic currency. The emergence of Bitcoin in 2008 has made it the first time in human history that the point-to-point transfer of value can be realized without the need for a central bank and intermediary agencies.
From this process of change, we can see that the evolution of currency for the entire human race follows the evolution of a bookkeeping method, slowly transitioning from physical currency to digital currency. We believe that the essence of currency is a consensus.
Back to the topic of Bitcoin, let's take a look at the five attributes and characteristics of Bitcoin.
l Bitcoin has a fixed total amount, its issuance and plan are consistent, deterministic, and cannot be tampered with;
l The Bitcoin network is the most powerful computing network in the world today from many perspectives, it has never been hacked or service interruption;
l Bitcoin has the only ledger in the world, and it is open, transparent, and decentralized;
l The Bitcoin network relies on a high degree of encryption algorithm and market incentives, rather than relying on the central bank or a commercial banking institution;
l The underlying blockchain operating system of Bitcoin is verified and maintained by the Bitcoin network composed of globally interconnected servers, computers and globally distributed mining machines.
Bitcoin has the classic properties of money, including scarcity, highly programmable, fungible, and divisible.
In addition to the classic attributes of currency, Bitcoin also has differentiated features, such as Bitcoin is a digital form, with programmable, universal, and distributed features. To sum it up in one sentence: Bitcoin can be the first time in human history to use technical means to realize the irreplaceability of smart property.
We all know that gold is a scarce product with elastic supply. In the last century, the supply of gold has increased by 10 times. The entire supply of Bitcoin is fixed at 21 million pieces. Currently, there are more than 18.5 million pieces in circulation, nearly 88.5% of which have been mined. The remaining 2.85 million pieces will be distributed over the next 100 years, according to known and impossible The schedule of changes begins to be released. It is the world's first value composition whose supply is completely unaffected by the increase in demand, which is a better attribute than gold.
In the process of Bitcoin’s compliance development, at the end of 2017, the world’s largest futures exchange, CME (Chicago Options Exchange), launched Bitcoin options trading. In 2019, Fidelity Investments launched Bitcoin’s institutional-level custody business. In the same year, New York Bakkt, a new offshoot of the stock exchange's parent company, has begun offering futures trading in physically delivered bitcoin. By 2020, the U.S. Office of the Comptroller of the Currency authorized national banks and federal savings associations to provide customers with cryptocurrency custody services, while payment giant PayPal opened up bitcoin transactions to its 238 million users.
Bitcoin is an upgraded version of gold 2.0. The figure below compares Bitcoin and gold in terms of scarcity, portability, storage, decentralization, and durability.
2. Global macro trends
More and more investment institutions are gradually allocating gold risk exposure to Bitcoin, which is more and more among related funds in the United States. Next, let's talk about global macro trends.
In the era of credit currency, everyone knows that currency will depreciate. But how terrifying the property of currency depreciation is, in fact, many people do not have an intuitive concept.
We can take a look at this picture. From the birth of the Federal Reserve in 1913 to the present, in the past 100 years, the US dollar with a face value of 100 US dollars has depreciated to 3 yuan and 8 cents.
In the century-old history, every time a crisis occurs, the problem is basically solved through additional issuance. In 2020, the Federal Reserve has invested 21% of the current total Fed volume, and the trend of over-disbursement is difficult to change in a short period of time.
As the global new crown epidemic continues to worsen, from March to June 2020, the Fed's entire balance sheet has 80% of its liabilities, and its money supply has also increased by 25%. On the other hand, if we look at the price of Bitcoin, we can see that it is negatively correlated with the entire balance sheet.
Millennials, including Generation X, have a far higher acceptance of digital assets and high technology than baby boomers.
The monetary easing stimulus environment will last for quite a long time, the traditional 60/40 portfolio is no longer applicable, and encrypted assets will become an important part of the "millennial portfolio".
Many people take the stability of the dollar for granted, yet many countries are experiencing, or have experienced, massive currency collapses. Global flooding in the future is a high-probability event. The depreciation of US dollar assets will trigger a large amount of US dollar liquidity overflow, which will flow to fixed assets, gold, stocks, and the cryptocurrency market with Bitcoin as the benchmark. We have reason to believe that it will It will undertake a certain amount of US dollar liquidity and become one of the long-term investment portfolios prepared by a large number of investment institutions in the future.
3. Crypto Market Cycles
The figure below is a cycle diagram of Bitcoin history. We use different colors to distinguish three different development cycles.
Since the birth of Bitcoin, it has been halved every four years, from the earliest reward of 50 bitcoins every ten minutes to the current 6.25 bitcoins. In the development process of just a dozen years, Bitcoin has gone through decades of development of traditional finance, and the trading pattern in the trading market is constantly changing.
Friends often ask me, what is the difference between the current bull market and previous bull markets? We can take a look at the trend chart. The last bull market was around the end of 2017 to the beginning of 2018. After reaching the top, it began to plummet. In this round of bear market, Bitcoin experienced about 85% of the correction, which was very tragic. A large number of projects were terminated in this stage, and investors' funds were wiped out in the bear market cycle.
From the end of 2018 to the beginning of 2019, there were two bottoms. I think that in this round of cycle, there was no technological innovation of smart contracts like Ethereum, and there were no innovative landing applications at the blockchain landing level. . In this round of bull market, we have a high probability of judging that it is driven by institutions, not by technology.
As the price continues to rise, the outflow of bitcoin on the exchange is getting bigger and bigger, and the inflow is getting less and less. More and more people see the future price increase and transfer the bitcoin stored in the exchange to their personal in the wallet.
Let's analyze the future trend from the supply and demand of Bitcoin. The left side is the supply of Bitcoin. After May 12, 2020, the daily output is 900, about 27,000 per month, and 82,800 in the first quarter. indivual. The biggest dumping on the market is mainly from Bitcoin miners, because they require a lot of operating expenses and energy costs.
Let’s look at the demand sector: from the perspective of the North American market, Square, which represents individual investors, buys nearly 300 million U.S. dollars in Bitcoin every month on behalf of users; $1.1 billion in Bitcoin. This does not include many listed companies, American insurance companies, and some corresponding asset management companies. We see that after the halving of Bitcoin, the entire supply is directly halved, but the demand side continues to grow.
4. Institution admission layout
Fidelity is one of the top 10 traditional financial asset management companies in the world, and the current assets under management are about 7.8 trillion US dollars. Fidelity Digital Assets is a subsidiary of Fidelity Assets. Currently, it is mainly engaged in two businesses, one is the digital asset management business of cryptocurrency for institutions and institutional-level custody business of digital assets; the other is the launch of cryptocurrency index funds.
Fidelity Digital Assets conducted a survey of 774 institutions in the United States and Europe, of which 11% held Ethereum and 25% held Bitcoin.
Looking ahead to the next few years, 91% of investment institutions believe that at least 3% of their portfolios will be allocated to cryptocurrency assets.
I think that traditional financial funds must meet three main basic conditions when entering the market on a large scale:
l There must be a compliant institutional-level custody solution, which is conducive to smoothing out the problem that many investment institutions have bought encrypted currency assets and cannot be managed in the early stage
l Compliant spot and derivatives exchanges
l Robust data provider at institutional level
We can see that Wall Street is increasingly embracing Bitcoin, such as JP Morgan, Blackstone, etc., and they have continuously changed their views on Bitcoin in the past few years.
I just mentioned the payment channel for individual investors in the United States to enter the mainstream cryptocurrency: Squarecash. Looking at the capital flow of this project, from Q2 in 2018 to Q3 in 2020, the overall capital inflow of individual investors has continued to grow.
From the perspective of institutional investors, the proportion of Grayscale’s total purchases in new Bitcoin output continues to increase, and we can see that the purchases behind it are very large. The demand for bitcoin from the three major demand portals has far exceeded the new output volume, and the new output volume of bitcoin in a day is simply not enough to meet the purchase volume of these three demand intersections.
One of the more important companies shared today is the Grayscale Trust Fund, which is currently the only Bitcoin and Ethereum trust licensed by the US Securities Regulatory Commission in the world.
From this picture, we can see that 88% of investors are institutional investors, and only a small number are qualified investors.
Institutional investors generally enter the market at an early stage and exit when the market is frenzied. The latest data from Grayscale shows that a large number of institutional investors are entering the market. Therefore, we have reason to judge that the current cryptocurrency market with Bitcoin as the benchmark has not reached a very fanatical and very frothy level.
Grayscale Trust Fund was born in 2013, but the real inflow of funds began in Q3 of 2018, and the real inflow of large funds is from 2019 to 2020. Compared with the whole year of 2020 in 2019, the overall capital inflow ratio reached 9.5 times, and these two years happened to be two years of macroeconomic downturn.
Based on the unique attributes of Bitcoin, the maturity of the asset class, and extensive discussions with large asset allocation institutions, we have reason to judge that in the future, compliant products such as Bitcoin and ETF will also be launched slowly.
The current market is still in a very early stage. In 2016, Ethereum launched the blockchain 1.0 era. Smart contract technology detonated the entire cryptocurrency market. The People's Bank of China also established the Digital Currency Research Institute in 2016. By the end of 2017, the Chicago Board Options Exchange and the Chicago Mercantile Exchange also launched Bitcoin futures.
By 2020, the entire Wall Street financial institutions are accelerating their deployment. Cryptocurrency trust products represented by Grayscale will continue to inflow the entire funds. Mainstream financial institutions represented by quality control agencies of listed companies on Wall Street are also accelerating their deployment.
In the context of the macroeconomic downturn, the low correlation between encrypted digital assets and traditional financial assets and the attributes of hedging and anti-inflation will undertake the entry of funds from many traditional financial institutions. We have reasons to believe that a new round of unstoppable upward trend will start in 2021-2023.
That's all for today's sharing, thank you very much.
