Host: CC, Product Head of RootData
Guest: Raymond Huang, Co-founder and Managing Partner of Mossfire Capital
Rootdata: Welcome to our space. I am your host tonight, CC, the product head of RootData. Our special guest for this episode is Raymond, the co-founder of Mossfire Capital.
Raymond: My name is Raymond, and I am the CEO and co-founder of Mossfire Capital. I really entered the crypto space and started buying coins around 2017 and 2018. However, I would say I became more deeply involved and spent more time during the 2021 cycle, so my experience is somewhat unique, transitioning from a deeply engaged participant in traditional Web2 to gradually becoming an investor in Web3. This is part of my historical background.
Mossfire Capital is a newly established liquid token firm that was just founded 24 years ago. We mainly focus on secondary market liquid token strategies. Mossfire Capital primarily seeks investment opportunities in the market that have good fundamentals but have not yet been discovered by the market, which may generate greater alpha. We mainly look at the secondary market, do not engage in primary investments, and do not do any VC investments; we simply trade digital currencies long and short.
Unlike many other investors, we completely avoid primary investments. Strategically, the crypto world is still more inclined towards the secondary market, where the depth is much greater than in the primary market, so we choose to pursue this direction.
Rootdata: Thank you, Raymond, for the detailed introduction. I just heard you mention that you have had quite a long time in both Web2 and Web3. I would like to ask, since you joined the fund sector until now, how do you perceive the pace of changes in the entire market? Are there any moments that made you feel this is a turning point in the market?
Raymond: Looking back at the history of crypto over the past few years, it can be observed that the market has become more stable and mature, with decreasing volatility. This is evident from the decline in quantitative strategy returns; the market is expanding while volatility is decreasing.
I believe the current market is in the latter half of a bull market. The four-year cycle is not only related to Bitcoin's halving but is also closely tied to the tightening and loosening of the Federal Reserve's macro policies. We are currently in the early stages of a rate-cutting cycle, and we can refer to trends from previous cycles to see some signs.
As for specific events, the collapse of FTX was undoubtedly a significant event in the industry. I consider myself relatively lucky because I mainly focused on DeFi and did not have much capital in centralized exchanges, so I suffered almost no losses. However, I have many friends in investment banking or trading who used FTX as their primary trading platform, and many suffered heavy losses in this incident.
Rootdata: This can be considered an act of God.
Raymond: There are two things that left a deep impression on me. The first was shortly after the collapse of FTX in November 2022, when Curve (CRV) was shorted. At that time, the price of CRV was close to the liquidation line, and the founder borrowed a large amount of funds using the tokens as collateral. Due to the low liquidity of CRV, the market began to operate and attacked him in a manner similar to "shorting the founder" in traditional finance. What surprised me was that despite the liquidation scale reaching hundreds of millions of dollars, the entire process was completed transparently on-chain without causing greater panic. This incident made me start to believe more in the resilience and transparency of DeFi, as traditional financial systems often lack transparency and can easily trigger systemic crises.
The second event was in March 2023, when the Federal Reserve's interest rate hike process made me realize how highly the crypto space relies on macro liquidity. At that time, everyone began to anticipate the end of rate hikes and speculated on future rate cuts. This expectation boosted market sentiment, leading to a significant rise in October. Although the actual rate cuts only occurred recently, the crypto space, as a high-risk asset, is very sensitive to changes in liquidity. This made me more aware that the trends in the crypto space are closely tied to the Federal Reserve's policy environment.
Rootdata: Thank you, Raymond, for your wonderful sharing! Considering the low price performance of BTC last night, how do you view the current stage of the market? Everyone is saying the bull market has returned, but is this truly the return of a bull market? Or is it just a pullback or a tentative rebound in the market?
Raymond: When defining a bull market, I think the term "bull return" is not very valuable. This year on WeChat, the term "bull return" has appeared at least 50 times; every time the market rises slightly, it is considered a bull return. However, what everyone truly expects is a one-sided upward trend like from last October to this March, where operations are simple and everything you buy makes money. However, such trends are not common in historical cycles. The reason the bull market of 2021 lasted so long was mainly due to the unprecedented liquidity provided by the Federal Reserve. Therefore, many people who came through from 2021 hope this round of market can also rise to 150,000, but this linear extrapolation is more of an optimistic fantasy, as the current liquidity environment is far from that of 2021.
To judge the market stage, we still need to start from liquidity. We have now entered a rate-cutting cycle, and I expect there will not be a major policy shift in the next year to year and a half. The key issue is not whether rates will be cut, but how much they will be cut. Previously, the market's predictions for rate cuts in November fluctuated between 50 and 25 basis points, but with changes in economic data, there is now a general expectation of a 25 basis point cut in both November and December.
The impact of rate cuts usually first affects debt products, then transmits to stocks, and finally impacts high-risk assets like the crypto space. Therefore, from a cyclical perspective, we may not have reached the peak moment for the crypto space yet.
Another core variable in the fourth quarter is the U.S. presidential election. Some polls indicate that if Trump is elected, the crypto market could rise by 10-20%; whereas if Harris is elected, the market could drop by 10-20%. This has a huge impact on the short-term market trends and entry timing. Personally, I believe Trump has a high probability of being elected. On Polymarket, his support rate is close to 60%. In contrast, Harris's chances of re-election seem slim.
Trump has even started issuing tokens, which indicates he is more crypto-friendly, and he also favors a weak dollar policy, which is beneficial for the dollar-denominated crypto market. Overall, I believe his election would have a positive impact on the market. Once the election dust settles, the focus of the market next year will shift to expectations of rate cuts and stock market performance, driving the arrival of a trend-driven bull market. Therefore, I hold an optimistic view for the end of this year and the beginning of next year.
Rootdata: Thank you, Raymond, for enlightening us about the election system and the impact of rate cuts and which party's election on the market. Overall, it seems we should maintain an optimistic attitude moving forward. Now, if we look at the broader perspective and then from the secondary market's angle, are there any sectors or tracks that you think are worth paying attention to recently?
Raymond: I believe the popular tracks in the market this year are very clear. First, the memecoin sector is worth watching. Although many VC-backed tokens have been criticized for poor performance, these memecoins lacking fundamentals have performed well, reflecting the market's thoughts on the crypto ecosystem and user choices.
Secondly, the AI sector. Although many AI-related tokens currently have more meme attributes, in the long run, these projects have potential in terms of narrative and market externalities, with significant room for development in the future.
Thirdly, old DeFi projects. These projects have withstood the test of time, with teams continuously iterating, and both TVL and trading volume are growing, indicating solid fundamentals. Especially after the Trump family launched a lending protocol, the market's regulatory expectations for DeFi have become more optimistic, further enhancing the attractiveness of old DeFi projects.
In contrast, the market space and potential of other trends are clearly inferior, so they may not be worth discussing in depth.
Rootdata: Understood, it seems that the former president's actions may bring a wave of new user attention to DeFi projects.
Recently, the Sui ecosystem has also been quite popular. Apart from memecoins, Sui has shown a promising growth trend. Some believe Sui is being heavily promoted by capital globally. What is your attitude towards this viewpoint? Are there any targets in the Sui ecosystem worth investing in?
Raymond:
To be honest, I have been slow to react to Sui. I have always leaned towards the EVM ecosystem and have not been very interested in Move-based Sui and Aptos, as they issued tokens early and have not many projects in their ecosystems, so I have always found them rather average. Recently, Sui has risen, but it is still people looking for the next Solana.
The discussions around Sui are more due to disappointment with Ethereum and the search for alternatives, rather than simply saying it is "capital accumulation." I also do not believe the notion of "capital accumulation" holds; for example, some say Solana is the result of Western capital operations, but it once dropped to a few dollars—where was the capital then?
The price fluctuations in the crypto space do not always have a direct relationship with improvements in fundamentals. Significant price fluctuations often occur because of prolonged declines and large drops, where market chips complete a handover at the bottom, and after light positions exit, what remains are more committed investors. This optimization of the shareholder structure actually increases the chances of a price rebound. When the timing is right, it does not matter who ignites the "fire" for the price increase.
Outside of EVM, we are more optimistic about Solana. Although Sui is currently cheaper, Solana has performed outstandingly this year in various fields such as meme, DePIN, and DeFi, and many established EVM protocols are migrating to Solana. These trends indicate its potential. Additionally, Solana has not dropped much in the past six months and has performed well when it rises, indicating that its chip structure has stabilized. Therefore, I believe Solana is still worth focusing on.
Rootdata:
Indeed, Solana has gone through a cycle of bull and bear markets. Do you think there will be the emergence of the next similar innovative technology or project like NFTs or DeFi in this market?
Raymond: The core of blockchain is to believe in its potential. Key concepts such as "permissionless," "censorship-resistant," and "composability" are very important, as these ideas can provide certainty and technological revolution in the future. Although many people are currently pessimistic about the Ethereum ecosystem, its scale, market value, increased TPS, and decreased transaction fees indicate that it still has future potential. The explosion of Ethereum may not happen now, but in the next cycle, perhaps in 2028.
The innovations of the past two years have been quite mediocre; projects like Starknet, zkSync, and Scroll are not considered true breakthroughs in user scenarios. Users cannot perceive the technological advancements and only care about how much they can get from airdrops. Therefore, discussions about innovation should focus on the application level—products that truly change user experiences, similar to innovations like Didi or Meituan.
Currently, I think there are a few innovations worth paying attention to:
- Polymarket: I use it every day. Although the technology is not complex, its application in the crypto world is extensive, and the user experience is better than previous products.
- Ethena: As a project that quantifies funds into DeFi, it is one of the important innovations of this cycle.
- FriendTech: Although its execution is poor, the idea is good. If the team had stronger front-end support, the product could be more outstanding.
Overall, while there are some bright projects in this cycle, their quantity and influence are far less than the iconic innovations like Uniswap or GMX that appeared in the previous cycle.
Rootdata: Let's delve deeper. Previously, it was mentioned that 2021 was the DeFi summer, and in this cycle, everyone seems to be playing with memecoins. Memecoins have also produced a relatively innovative product called Pump.fun. It feels like the narrative has become somewhat exhausted, and at the application level, users find it hard to perceive any significant changes, unlike DeFi or NFTs, which brought obvious changes in trading methods. People are more focused on accumulating memes. Compared to before, it might be due to some meme images or similar factors. However, I think Pump.fun is also an innovation in this cycle.
Raymond: Yes, I think it's a great example. I honestly didn't expect Pump.fun to become so popular; it seems like there have been many rounds of launchpads. The last cycle saw launchpads fail, but this one dedicated to memecoins is doing quite well, which I completely did not anticipate.
Rootdata: Yes, it has indeed sparked a small climax, allowing people to have a brief consensus and a place to engage during a relatively sluggish market. Previously, this cycle experienced a long period of market stagnation. As a secondary market investor, how do you seize opportunities during market downturns? Does your fund have any specific cases to share?
Raymond: I do not entirely agree with the view that one should actively seek opportunities during downturns. I believe the best strategy during a downturn is to rest and not trade frequently. Many losses actually stem from frequent trading—trying something today, moving again tomorrow, and as a result, the money keeps diminishing. Therefore, one should not force opportunities during a downturn.
I often use an example: Are we grazers or carnivores? Cows and sheep graze for over ten hours a day, while lions and tigers wait for the right moment and occasionally hunt for a big meal. Thus, frequent trading is like "grazing," while "carnivores" may only operate once or twice a year.
If one must make progress during a downturn, it should focus on learning and research: analyzing which sectors have dropped too much, determining where the bottom is, and how different coins react to specific events. The key at this time is knowledge accumulation, not blind trading. Otherwise, when the bull market truly arrives, you may find you have no capital left.
Rootdata: So, it’s essential to learn more during a bear market. Alright, as we approach the end of today's space, do you have any advice for new investors entering the market? What indicators should they focus on?
Raymond: I believe new investors need to lower their expectations; money in the crypto space is not easily earned. If someone tells you that making money is easy, they are likely a scammer. Therefore, the first step is to avoid being deceived.
For newcomers, I recommend first studying the top 300 coins, understanding their functions, valuations, and histories. This will provide a deeper understanding of the entire crypto space. Although quantitative indicators are important, ultimately, you need to develop an intuition, especially when trading opportunities arise; feelings are often more reliable than quantitative analysis. Therefore, learn more and enhance your abilities.
Whether for institutions or retail investors, paying attention to the macro economy is also essential, including the Federal Reserve's policies, non-farm payroll data, and CPI, among others. These are all important macro indicators.
For new investors, there are three important questions to consider: first, decide whether to enter the market; second, determine how much to invest, such as how to allocate from 1 million; and finally, choose what to buy. The first two questions carry more weight, perhaps in a 7:2:1 ratio. Choosing the timing of entry and allocation ratio is more important than what to buy. If the timing is right, anything you buy could rise, but if you buy the wrong thing, it may take an entire bull market to break even.
Rootdata: Alright, what is your overall view of the future of the crypto market? This question might be relatively broad, so you can answer it from a macro perspective.
Raymond: I am very optimistic about the overall market outlook. For example, looking at a three to five-year cycle, let’s not talk about the long term; in the short term, I am definitely very optimistic about the next three to five years.
First, we have just come out of the highest interest rates set by the Federal Reserve in history. We have been accustomed to the Federal Reserve's interest rates being below 2 for a long time. We rarely encounter such high interest rates, so after coming down from this high point, it will lead to a long period of liquidity easing. Therefore, I believe this period is very good; money will gradually increase, which is beneficial for all risk assets, including stocks, not to mention our currencies.
- I believe we can visibly see more countries, more governments, and more individual institutions around the world gaining better confidence and understanding of cryptocurrencies, beginning to show enthusiasm for institutional or personal involvement. I think its prospects are becoming clearer and increasingly absorbed and digested by society. The spot ETF is just a result; many Americans are secretly buying Bitcoin, so why not let them do this business themselves?
Third, we must clearly understand that in the world of crypto, it actually creates a different order or different infrastructure for our society. In many countries, sanctions may prevent them from using dollar accounts. Many countries have very poor banking systems, so they need to use alternative systems to replace their original banking systems. Such issues are occurring in many countries. If you look at over 100 other countries worldwide, they have a clear demand for crypto and clear application scenarios. Therefore, I believe this is a system that helps us find better certainty and order in an increasingly chaotic or disordered world, which I think is extremely valuable.
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