Exclusive Interview with ZX Squared Capital's CK Zheng: How a Wall Street Risk Management Expert Precisely Navigates Market Trends, Doubling Bitcoin's Returns

In November 2022, FTX collapsed in a matter of days. On the worst single day, the crypto market lost hundreds of billions of dollars in market value in one fell swoop, leaving coin holders panicked and industry participants wailing in despair.

Yet outside this storm, a Wall Street veteran who once managed a 150-person global risk team was staring at on-chain data, remarkably calm.

"Not worried at all," CK Zheng recalled of that night. "Because architecturally, we were far removed from counterparty risk."

CK Zheng is now co-founder and Chief Investment Officer of crypto hedge fund ZX Squared Capital (hereafter ZXSQ). Before that, he spent 17 years at Credit Suisse as Global Head of Valuation Risk; before that, he was an Executive Director of Valuation Risk Management at Morgan Stanley, and even earlier, he worked on the interest rate derivatives trading desk at SIG and Bank of America. For three decades, he has been dealing with the word "risk."

In 2021, he left TradFi and founded ZXSQ with the idea of bringing options hedging into the Bitcoin market, armed with extensive hands-on experience. Five years later, the fund's track record is: cumulative returns of 229.18% since inception, versus 136.94% for Bitcoin over the same period, with an average annualized return of approximately 30%.

He sums up the strategy in one plain sentence: "What we want to do is halve Bitcoin's risk. At the same time, over a four-year cycle, our net returns after fees far exceed Bitcoin's."

1. Chicago, New York, Credit Suisse: Three Decades of a "Risk Expert"

CK Zheng's story begins with a taxi license.

In 1988, he came to the United States to pursue a PhD at the University of Chicago Booth School of Business, writing his dissertation on options market pricing and risk management. His first summer in Chicago, he drove a taxi—not just to earn money, but to "understand American culture." Years later, he still remembers some details: downtown Chicago was beautiful, but there were certain neighborhoods you shouldn't go to; at the time, taxi drivers were murdered every year.

It was an era when "theory surged with vitality and its practical impact shaped reality." The economic DNA of the Chicago School gave rise to a generation of quantitative funds like AQR and Dimensional Fund that pushed risk and return calculations to the extreme; it was also during this time that he built the foundation for a lifetime of options pricing. "From the day I graduated with my PhD, my deepest desire has been to take the profound theories from books and truly apply them in real investment markets."

After leaving Chicago, he first spent a few years as a trader at SIG. The firm had a culture that seemed rather unconventional to outsiders: the founder encouraged employees to play poker. "Texas Hold'em thinking" later became part of his trading decisions: calculate probabilities, assess odds, manage your chips, and always keep something in reserve.

In 1999, he joined Morgan Stanley, where he stayed for five years. In 2004, he followed the then-CEO to Credit Suisse, and over the next 17 years, he led a global team of over 100 people, responsible for one of the most challenging tasks after the financial crisis: figuring out what complex, "illiquid and hard-to-price" assets were actually worth.

At Credit Suisse, he saw too many cases where "the model looked beautiful, but reality shattered it on contact." This also explains his underlying preference when he later ran a fund: don't chase the hype, ask about risk first.

From 2011 to 2012, academia and the financial world were still debating whether Bitcoin was a bubble; a Nobel laureate and founding father of market efficiency theory predicted it would go to zero a decade ago and remained bearish a decade later. "Academia doesn't necessarily keep pace with the times." CK's judgment was that rather than listening to conclusions, look at the data: "More and more people are using it, grassroots culture and young people are embracing it—this adoption process is unstoppable."

In July 2021, he felt the time was right. That year, Bitcoin had entered the mainstream American media's field of vision, and the options market was beginning to take off. ZXSQ was founded just like that.

2. Halving Bitcoin's Risk: A Math Problem About Compounding

If CK Zheng were to explain what ZXSQ does to an LP who knows nothing about derivatives, he would start with an arithmetic problem.

  "Imagine two assets: one drops 50% first, then rises 100%, ending with a 0% return; the other uses hedging to limit the decline to 25%, then rises 50%, ending with a 12.5% return. What ZXSQ does is eliminate the tail-end crashes, letting assets slowly compound over time."

Behind this problem is his lifelong trade—options. In the 1970s, options became popular in the stock market and later became the standard tool for hedging interest rates, commodities, and oil prices in aviation and industry; one of Wall Street's most profitable businesses is concentrated in this area. CK's intuition was: Bitcoin is so volatile, why not use options to "buy insurance" for it?

Thus ZXSQ's four pillars emerged: long-term holding of Bitcoin spot, using options to hedge and reduce volatility, prudent custody, and zero leverage.

The actual results can be measured by two numbers. Bitcoin's realized volatility is roughly 55% to 70%, while ZXSQ brings it down to about 37%. That level is already close to high-tech blue-chip stocks. During the 2022 bear market, Bitcoin's maximum drawdown was about 65%, while ZXSQ limited its drawdown to around 35%. That's what "halving the risk" means.

But CK repeatedly emphasizes that the hardest part of this strategy is not "what to buy," but "when to buy and with what structure."

  "The framework of a strategy can be replicated, but the precision of execution cannot be copied," he says. "Knowing you need to buy options is easy, but knowing when and with what structure to buy them—so that they don't erode returns in normal times and provide precise defense during crashes—requires decades of hands-on expertise."

In other words, what ZXSQ sells is not a copy-and-paste formula, but a continuous command of cycles and costs. This is also what makes it most attractive to institutional capital: engineering Bitcoin's price into a significantly flattened volatility curve.

3. The Night of FTX, and a Mistake Narrowly Avoided

2022 was crypto's "Lehman moment." Luna's collapse, Three Arrows Capital's blowup, FTX's implosion—a cascade of chain reactions dragged the industry into the abyss. Midway through that year, some investors ZXSQ approached thought it was "too conservative." Meanwhile, many leveraged peers didn't make it.

"The Luna event was the crypto world's Lehman Brothers," CK says. "It was actually very hard to predict at the time, but we did foresee the subsequent chain reactions."

On July 14, 2022, when Bitcoin was priced at $20,000, CK Zheng predicted on CNBC: "The deleveraging process is not yet complete; the market is still in a phase of flushing out weak participants; Bitcoin could very well fall to $15,000." Bitcoin bottomed in November 2022, touching a low of $15,500.

On the night of FTX's collapse, the ZXSQ team remained remarkably calm. Because architecturally, their assets were not held on centralized exchanges. "After ensuring the safety of our funds, we closely monitored on-chain and market indicators, patiently waiting for deleveraging to end and looking for definitive signals of a bear market bottom."

After FTX's collapse, on November 17, 2022, CK Zheng predicted on CoinTelegraph: "FTX's collapse will be the last wave of negative news in this crypto bear market."

Sure enough, Bitcoin's price began to rebound from the cycle bottom of $15,500. CK became one of the earliest investors to predict Bitcoin's bottom in the last cycle.

In public news outlets like Coindesk, we found that CK and the ZXSQ team, through increasingly rich on-chain data analysis plus macro trend research, anticipated BTC price peaks and pullback lows at multiple points during 2023-2025, successfully steering the fund away from risk.

But in an interview with Odaily, he proactively shared a mistake he nearly made.

  "At the end of 2025, we once theorized that a massive influx of traditional institutional capital might break crypto's traditional 'four-year halving cycle' and produce an extended rally," he says. "But by Q1 2026, based on deeper data tracking and macro liquidity analysis, we quickly corrected course and returned to the cycle's defensive rhythm."

He takes this matter seriously: "Staying humble in the market and being willing to quickly correct mistakes is the core of risk management."

How is this judgment made? CK says five or six people on the team gather intelligence together and form judgments collectively, with a data-driven approach: "Data provides objective facts, while the human fear and greed within market cycles require experience to see through the surface." He looks at three types of signals: crypto's own risks (internal perspective), the magnitude and speed of institutional capital and macro policy (where the money comes from), and Bitcoin's progress toward "becoming digital gold."

For this reason, he remains cautious about whether "the four-year cycle has already failed": institutional capital currently accounts for only 10%, retail investors remain the dominant force, and the cycle has been weakened but not broken. "It may take institutions reaching 30% to 50% before the rules are truly rewritten."

4. The Tug-of-War Between Traditional Financial Institutions and BTC

"Where is the dimensional wall between BTC and traditional financial institutions right now?" he explains. "Bitcoin is still in the early stages of adoption, and risk committee members who have actually read the Bitcoin whitepaper word by word are extremely rare." More realistically, in the current AI boom, risk committee members are more inclined to vote for visible, tangible AI infrastructure; a pure spot exposure with no downside protection exceeds the psychological tolerance of most traditional institutions.

CK's proposal for family office CIOs is a 5% allocation, plus precise downside hedging.

  "From a risk-reward perspective, this is the optimal balance point for a family office portfolio," he says. "It captures the asymmetric upside of digital assets without jeopardizing the safety of the overall portfolio—or your sleep—during extreme drawdowns."

From a compliance perspective, Bitcoin's 70% to 80% drawdowns make large allocations nearly impossible under Fiduciary Duty frameworks; while ZXSQ, with volatility compressed to near blue-chip levels, can be placed in the "Alternatives" bucket.

Furthermore, according to the "denominator effect," dollar-cost averaging into spot may appear to lower costs, but it still bears full Beta risk; during macro downturns, the total portfolio shrinks dramatically. A hedge fund uses options to build a protective cushion, preserving the safety net for the entire portfolio.

In the interview, CK also rarely discussed "what not to do." ZXSQ does not invest in meme coins, its core allocation is Bitcoin and mainstream assets, with strict asset custody and zero leverage.

"As staunch BTC believers, we take a positive view of BTC's long-term returns while being cautious about short-term volatility. We forgo short-term windfalls and high-leverage arbitrage." He draws the boundary clearly.

5. There Is No Free Lunch

Any story that sounds too good should be interrogated for its costs.

My first question was direct: options hedging has costs. If Bitcoin triples again over the next two years, will ZXSQ significantly underperform pure spot?

"No." CK's answer is crisp. "Our strategy is dynamically adjusted. In a confirmed bull market, we significantly reduce hedging intensity to minimize premium erosion; at the same time, we allocate a small portion to high-quality mainstream coins with more asymmetric upside. This allows us to keep pace with the broader market in bull markets, or even outperform it."

The second question, about the return ceiling of "zero leverage"—is this a deliberate sacrifice?

  "There is no free lunch in the market, ever." He says, "Leverage appears to raise the return ceiling, but the cost is that you're extremely vulnerable to liquidation and going to zero in extreme conditions. What we want is to achieve 30% to 40% annualized net returns without leverage. Giving up inflated and fragile leverage buys us certainty through cycles."

The third question: when does this hedging strategy fail?

CK says the biggest black swan in crypto is large-scale systemic failures and counterparty defaults in the industry. This is exactly what he seeks to avoid at the architectural level. "We don't rely on a Prime Broker and resolutely do not take on counterparty risk." Custody is placed with Copper in Switzerland, also to isolate settlement risk "outside the model."

The last question, one that virtually every actively managed fund gets asked: "Crypto hedge funds are a false need—just buy an ETF. What do you think?"

CK believes: "For many ordinary investors, buying stock and bond ETFs is indeed enough. But that doesn't prevent global traditional hedge funds from managing over $5 trillion in assets. The logic is the same." He offers a comparison: ETFs can only passively bear 100% of volatility and crashes, while a fund like ZXSQ has halved Bitcoin's maximum drawdown over the past five years, with net returns after management fees still exceeding pure Bitcoin spot by 100%.

"That is the value of active management."

6. The Next Bull Market: Legislation, Stablecoins, and a Wealth Paradigm Shift

Speaking of the industry's stage, CK Zheng believes that traditional capital flowing into crypto is one of the most important wealth paradigm shifts of the next decade, and the path is already clear.

"Three main threads: crypto ETFs and Crypto Treasury Companies, the infrastructuralization of stablecoins, and RWA integrating into traditional finance's clearing and liquidity layers."

In his view, stablecoins are the most underappreciated piece. "They look simple, but they will have a major impact on the payments and credit card industries. The U.S. is pushing hard, and behind it is dollar hegemony." For Wall Street's truly large capital, what they're waiting for isn't narrative—it's legislation.

"All financial activities require compliance. The Genius Act is effective, and the Clarity Act may be the final threshold—once legislation is clear, Wall Street will feel comfortable doing crypto."

When I asked for advice for retail investors, CK said: "Crypto is hard to time, and it's difficult to say whether now is the best short-term entry point. Ordinary people find it even harder to grasp the rhythm, so what's needed is the discipline to hold, a strategy to reduce risk, and a long-term mindset."

He also discussed the ongoing capital competition between AI and crypto. "AI is good technology, but not necessarily a good investment," he says. "The market's attention on AI even exceeds its attention on economic risks. Whether finance has already overextended its imagination about AI, and how revenue will be recouped, all remain unknown." His judgment is that as some capital rotates from AI back to crypto,