Guests of this issue: Rocky, Co-founder of Blue Ocean Capital, Twitter@Rocky_Bitcoin

All text is for sharing only and does not constitute any investment advice.

TL;DR

I. About Trader Rocky

The core of trading is "people". A person's experience, background, personality, and capital attributes determine the formation of their trading strategy.

• What is Rocky's trading strategy?

1) Trading logic

• The secondary fund adopts a subjective strategy, using a combination of Alpha and Beta models, with Alpha seeking high returns and Beta seeking to anchor the trend of BTC.

• Top-down (from macro to micro) research and analysis framework: macro analysis to judge trends and manage positions, industry analysis to select betting tracks, and project fundamental analysis to select projects and manage investment portfolios.

2) Capital scale

• The capital scale is determined by the tolerable risk drawdown. For an alternative investment market like cryptocurrency, the capital scale should be such that even if all is lost, it does not affect one's livelihood, ensuring a long-term holding period.

• The capital scale needs to match the number of investment targets. For 0-200,000 USD, around 5; for 200,000 to 1,000,000 USD, around 10; for 1,000,000 to 5,000,000 USD, around 15; for 5,000,000 to 20,000,000 USD, around 20; for over 20,000,000 USD, not exceeding 30.

• Currently managing fund AUM is 45 million USD.

3) Expected returns and capital cycle

• As Zhou Jintao said, getting rich in life depends on the Kondratieff wave, and the cycle often determines the core element of returns. When studying expected returns, the key is actually studying the dollar cycle, because any asset in a risk market is strongly correlated with the dollar cycle, and so is the capital cycle.

• Generally, the dollar has a 4.5-year cycle, with a two-year contraction period being a rate hike cycle, and a 2.5-year expansion period being a rate cut cycle, forming a dollar tide of ebb and flow. Currently, it is the end of the rate hike cycle, and the time point for the rate cut cycle is approaching.

• Rocky made a tweet on May 25, 2022, stating that the judgment of the cycle is: the first quarter of 2023 is the bottom of the Kondratieff cycle, and the real outbreak will occur after the end of the rate cut and the start of QE, continuing until the end of the third quarter of 2025, which is the end of the expansion period of the Kondratieff cycle, and at that time, there is a high probability that the US stock market and cryptocurrencies will peak.

4) Risk control

Risk control mainly consists of position risk control, portfolio risk control, and baseline risk control.

The first point, position risk control, refers to position management. Position directly determines the drawdown line and the space for holding U. In a downturn, holding U provides more room for operation. Position management mainly relies on grasping macro data, with different data having corresponding weight scores, and the comprehensive score corresponding to specific position recommendations. Currently, in Rocky's active position management, the macro data with a relatively heavy weight are: the US dollar index, the 10-year US Treasury yield, and M2 data.

The second point, portfolio risk control, refers to the management of held projects. The so-called "raise, invest, manage, and withdraw," "manage" is a very important link, being able to judge the stage of the project, having confidence and basis for replenishing the position when the project falls, or early warning and profit-taking when the project shows signs of decline. The management of held projects is done through the establishment of a project dashboard for data tracking, including user growth, daily activity, TVL, income, and so on.

The third point, baseline risk control. Rocky's fund currently follows the 340 principle, that is, a 30% risk warning, a 40% liquidation line, with other internal data as support.

• Why did Rocky form such a trading strategy?

1) Trading experience:

Rocky went all in on Web3 in 2016, obtained his first bucket of gold during the ICO era in 2016 and 2017, and worked on blockchain vertical media and investment incubation from 2018 to 2021. In 2022, he established the Blue Ocean Capital fund, and the current net asset value of the fund is 45 million USD. The two experiences that had the greatest impact on Rocky's trading strategy were one that led him to establish faith in the industry and another that made him develop awe for the market.

The first experience, high returns upon entering the market

• When Rocky first encountered cryptocurrencies, he thought it was a very ethereal thing because in his understanding, any asset needs a physical entity as an endorsement and support to have a relatively reasonable pricing. But out of trust in a friend, he handed over 200,000 to his friend to invest in the cryptocurrency market and reaped four times the returns in 2 months, which was in stark contrast to the A-share market.

• The high returns greatly shocked Rocky, so he began reading various materials, such as the Bitcoin white paper, Hayek's "The Denationalization of Money," "The Road to Serfdom," and other theories leaning towards liberal economics, which led to a certain faith. Then in 2016, he went all in on the industry and made close to 20 million RMB during the ICO era.

The second time, losing 100 BTC on "3.12"

• At the end of 2019 to the beginning of 2020, Rocky believed that BTC had bottomed out from a cyclical perspective, so he opened a leveraged long position on BTC near 7,000, based on the judgment that "BTC cannot fall by more than 50% no matter what," thinking it was a very safe and stable strategy. However, the extreme market conditions of "3.12" directly led to a loss of 100 BTC, and Rocky locked himself in a room for two months to review and reflect.

• This event led to three changes for Rocky: first, he formed his own "three no principles": do not touch leverage, do not touch contracts, do not borrow money to speculate on coins; second, he began to establish his own investment risk control system and build a team, because separating operations (research and investment) from madness is the real way to reduce the risk coefficient; third, he transitioned from being a "technician" to a "value investor," where technical indicators can guide timing for buying or selling at certain points, but cannot guarantee returns over a long period.

2) Professional background:

Before entering the cryptocurrency market, Rocky worked as a researcher at the Yangtze Securities Research Institute. The brokerage experience brought two advantages to Rocky: the first is a complete macro strategy, and the second is a top-down research and analysis framework, from macro to track and then to specific projects. This systematic way of thinking has been guiding Rocky's investments in the cryptocurrency market.

• Who is Rocky's trading strategy suitable for?

Rocky's trading strategy, or rather, systematic thinking, is actually suitable for all those who hope to "earn money sustainably." Buy and Hold may not be difficult, but what is difficult is how to judge one's capital cycle based on the market cycle; finding an Alpha may not be difficult, but what is difficult is how to discover potential tracks and continuously capture Alpha.

II. Rocky's Trading Story

Real knowledge is verified through practice, and reviewing and reflecting on specific trades can provide a more intuitive understanding and learning of the application of trading strategies.

• How to capture Render $RNDR and Kaspa $KAS?

1) About Render

Because Multicoin's investment attention was on Render

In 2021, Multicoin invested 30 million USD in Render, which led to attention to the project and long-term tracking. There are two reasons why Rocky is so sensitive to Multicoin's investments:

• Rocky's investment strategy in 2021 was to follow Multicoin, including SOL, GRT, AR, LPT, and the returns were very good.

• Multicoin is driven by papers (research) for investments, and each investment has a detailed report, which has greatly helped Rocky's investment thinking.

Judging that Render is investable through fundamental analysis

• Render's business model: has a positive cash flow cycle

In the bear market at the time, Rocky pondered what kind of projects could survive in a bear market, and the answer was: projects that generate income to cover expenses and create a positive cash flow cycle. At the time, apart from DeFi projects, there were few projects that met these requirements, and Render was one of them. Render's parent company is OTOR, and its product Octane provides rendering services to Hollywood, Disney, and other film and television companies, making it very profitable. The core issue for OTOR at the time was the high cost of computing power. Therefore, the founder of OTOR created the Render project to address the pain point of insufficient computing power, rather than creating a token for the sake of it.

• Founder of Render: Extremely hardworking and geeky

Rocky believes that when judging early-stage projects, the founder is very important because the founder determines the long-term development path of the project. The founder of Render has several characteristics: firstly, OTOR was already very successful and not short of money; secondly, from the founding of OTOR in 2008 to the founding of Render in 2017, for a period of 9 years, he was in charge at OTOR, showing that he is a "doer"; finally, he works more than 50 hours a week year-round, is extremely hardworking and geeky, and carries a 10kg modified laptop to demonstrate the software's development in the rendering field to others.

Identifying additional potential through communication with the project team to confirm investment

In 2017, Rocky was a miner of Ethereum with a lot of GPU computing power. At the time, he had discussions with the project about computing power cooperation. Although the cooperation was not successful in the end, he obtained information that Render might release the C-end GPU interface. Rocky believed this was a significant demand because after Ethereum transitions to POS, a new project will definitely be needed to take over computing power. Although it has not been implemented yet, seeing the potential of the project, he began to build a position around November 2022, with a cost of around $0.5, making it a heavy position at the time.

2) About Kaspa

For the story of Kaspa, you can refer to Rocky's tweet here: https://x.com/Rocky_Bitcoin/status/1641064973748277248. Here is a brief recap:

• After Ethereum transitioned to POS, Rocky looked for a new project for the mining machines in his possession, so he had the research team explore and found Y's project Kaspa.

• Y is the inventor of DAG, the earliest inventor of Directed Acyclic Graph technology. Many projects that use this technology, including IOTA and Avalanche, have drawn from the content of Y's papers.

• The entire team comes from professors at the Hebrew University, making it a purely Israeli project. One characteristic of Israeli projects is that they do not give up halfway, which is a team type that Rocky's team likes.

• Kaspa's mining model is 100% mining, with no pre-mining, no team reservation, and no VC. Based on the founding and team situation, they decided to try mining.

• Because the price of KAS is not high, mining incurs a monthly loss of 30,000 coins in electricity costs, but the mining output is good, resulting in a return of approximately close to 200 times. They sold a portion and still hold a portion.

The common characteristic of these two projects, Render and Kaspa, is that decision-making is not based on candlestick charts or technical indicators, but rather on focusing on research. This is a reflection of Rocky's investment methodology shift after the "3.12" event.

• Which tracks does Rocky favor in the second half of the bull market? Why?

This question will be divided into two parts: first, when is the second half of the bull market likely to occur? Second, which tracks does Rocky favor in the second half of the bull market?

1) Rocky believes that the second half of the bull market is likely to occur after the rate cut.

Summarizing the impact of the past three rate cuts, the rate cut has had a significant impact on the market, especially the US stock market, which may experience significant retracements during the rate cut period. The data for the three main rate cuts in the past 30 years is as follows:

The first time, during the dot-com bubble in 2000, the Federal Reserve's federal funds rate dropped from 6.5 points in 2001 to 1 point in 2003, and the S&P 500 fell by 49% from March 2000 to October 2002.

The second time, during the 2007-2008 financial crisis, the federal funds rate dropped from 5.25 to 0.25, and the US stock market fell from October 2007 to March 2009, dropping by 57%.

The third time, during the COVID-19 pandemic from 2019 to 2020, the federal funds rate dropped from 2.25 to 0, and the US stock market fell by approximately 34%.

The next cycle is expected to drop from 5.5 to 2%, lasting for two and a half years.

2) Rocky favors 5 tracks, namely AI, RWA, DePIN, BTC ecosystem, and GameFi.

In the current market cycle, there will be a wave of altcoins around October 2023 and another wave around February 2024. Through these two waves, it is already possible to determine the core narrative of this cycle. There are no projects or tracks that have not emerged in these two cycles, so they do not need much attention. Below are detailed reasons for favoring the 5 major tracks.

The first one is AI. Top VCs are betting on it, and the investment heat in the primary market in Q2 is close to $1 billion.

The second one is RWA. The RWA track is equivalent to the DeFi track in 2020. Previously, the US strategy was to nationalize dollar assets, and many countries allocated US bonds. However, in recent years, the superior returns have not been good, and many countries that allocated US bonds are selling them. As a result, the US is also changing its strategy to globalize dollar assets for the people worldwide, allowing global users to allocate dollar assets. This strategy has been very successful in this round of the dollar tide because in the tide background, many developing countries' currencies have sharply devalued, such as the Argentine peso and the Turkish lira, leading to strong demand for the US dollar. However, due to strong national control, this part of the demand has shifted to "online dollars," namely USDT and USDC. In fact, the "US public chain" Solana is already clearly entering the RWA, which is a very politically correct path.

The third one is DePIN. A user base of 1 billion is a turning point from quantitative to qualitative change. The Internet track also quickly showed exponential growth after reaching 1 billion users. Therefore, 1 billion users are a key indicator for Web3, and the DePIN track is a huge scenario that is most easily able to introduce Web2 users into Web3.

The fourth one is the Bitcoin ecosystem. Despite its huge scale of $1.2 trillion, Bitcoin has not brought any income-generating assets. Once this area is opened up, it will release more liquid assets for secondary allocation, thereby bringing a very strong incremental market. With more top VCs' layouts and the emergence of ETFs and other derivatives, there will be more gameplay in the future.

The fifth one is GameFi, the gaming market. The main source of early Internet user growth was games, and GameFi serves the same purpose in Web3, which is to attract users. Although many people currently criticize economic models, sustainability, playability, and so on, when the big logic is correct, these things will gradually be filled in because the development cycle of GameFi is still too short. Compared to Web2, GameFi has only developed to the period of Tetris, playing Famicom, and Red Alert, and it needs time and space to grow.

• When will the trading strategy become ineffective? What is your Stop Doing List?

Rocky believes that this cycle is likely the last cycle for ordinary people and small and medium-sized institutions. The next stage may be the play of professional financial institutions represented by Wall Street, such as all-weather hedging, high-frequency trading, AI robots, and so on. Before this stage arrives, Rocky believes that his strategies are effective, but he is also actively deploying AI+, such as AI+ event-driven, AI+ indicators, AI+ on-chain data, investing in research and funds.

As for the Stop Doing List, Rocky believes it is about doing the right things and not doing the wrong things. What are the wrong things? There are a total of 5.

The first one is not to touch leverage, not to touch contracts, and not to borrow money to speculate on coins. If you have the ability, spot trading can slowly make you wealthy; if you don't have the ability, leverage will only accelerate your demise.

The second one is not to engage in high-frequency trading, but to devote more time and energy to research macro, tracks, and projects.

The third one is not to work in isolation, but to broaden your horizons, communicate more with friends, communicate more with industry predecessors or experts, and attend more conferences.

The fourth one is not to invest in what you are not familiar with or do not understand. After gaining a certain understanding of the project, you will have more confidence in your investment decisions.

Fifth, don't try to take shortcuts or attempt to overtake on the inside track. The development of social media can cause a lot of anxiety, and in such anxious situations, FOMO can arise, but FOMO often does not lead to profits. Staying true to the fundamentals can lead to extraordinary results. It's important to find projects in the market that truly contribute to Web3 or have a narrative logic. This is the only way to bring real value, even though value is sometimes elusive. However, as Web3 has developed to this day, there is still value driving its core.

III. Rocky's "Must Read"

The growth of an excellent trader is inseparable from continuous external input, learning from other outstanding individuals, and exploring content that is worth referencing. We can also continuously accumulate and grow through other people's "Must Read" lists.

Rocky's recommended content is divided into three categories:

The first category is macro. Rocky strongly recommends that ordinary investors understand some knowledge related to "cycles."

Recommended books include:

• Tao Jing's "Tao Dynamic Cycle Theory" (Rocky has personally read this book more than 10 times. He believes that Tao Jing's grasp and understanding of cycles should currently rank first in China.)
• Hong Hao's "Cycles" (Rocky believes that Mr. Hong Hao is one of the few chief economists in China who dares to speak the truth.)
• Kindleberger's "Manias, Panics, and Crashes: A History of Financial Crises"
• Roth's "The Great Depression: A Diary"
• Shiller's "Irrational Exuberance"
• Mankiw's "Theoretical Evidence Analysis of Economic Cycles," which uses a lot of cases and papers to explain the reasons and situations that lead to economic cycles.

Recommended Twitter accounts to follow:

• Bianco @biancoresearch, an institution that has been doing macro analysis for over 20 years
• Bloomberg analysts: @matt_levine @elerianm @ritholtz

The second category is industry.

Mainly tracking top VC Twitter accounts. For example, in the AI field, Rocky mainly follows Sequoia Capital, Multicoin, and a16z.

The third category is specific projects.

Mainly following reports from Messari @MessariCrypto, Smart Money data from Nansen, market sentiment observation from @LunarCrush, AI-driven Web3 market heat tracking from @TrendXofficial, and early-stage Alpha project capture from @alphascanxyz.

For more tools recommended by Rocky, you can check out his tweet here 👉 https://x.com/Rocky_Bitcoin/status/1789986481945161850

Conversation Record

FC

I got to know Rocky because we started mapping projects in the second half of last year, trying to trace back which projects had a tenfold or hundredfold increase in the last cycle, and if there were any patterns. When I was searching, I saw Rocky's pinned tweet, which was a detailed review of the characteristics of the last hundredfold projects. We could basically use it directly. That was the first connection I had with him. The second was that Rocky has a membership that provides a list of coins they recommend. I remember that at the time, there were $Render, $KAS, as well as AI and game-related projects. Later, when we were preparing to launch Space, I carefully studied all of Rocky's content. I found that he has a formal military background, so his entire system setup, including how to select coins, how to analyze tracks and cycles, is very comprehensive. So I said we must invite him to chat with everyone, and I myself am very interested in understanding, especially at this stage, where Bitcoin has risen from 55,000 to 65,000 and then another 10,000. After our discussions with Murphy and Ni Da about bottom fishing and timing, the next part is what the alpha of the entire bull market will be. I hope Rocky can tell us about the possible trends in the second half in a very systematic way, and how to think about this issue rather than just telling us which coins to buy.

Our entire content is actually divided into several parts: the first part is Rocky's self-introduction; the second part is Rocky's trading growth experience, including other trading strategies, his personality, and how his current trading strategy was formed, hoping that everyone can recognize what kind of personality is suitable for what kind of strategy; the third part is a detailed explanation of the current trading strategy; and the last part is about personal continuous growth.

So first, could you please introduce how you entered this industry and what your background is?

Rocky

I am currently the Co-founder of Blue Ocean Capital, focusing on the secondary market of Web3. I used to work as a researcher at Changjiang Securities Research Institute. At the end of 2016, I went all in on the coin circle. My first bucket of gold was probably obtained during the ICOs in 2016 and 2017. At that time, I also experienced a roller coaster ride. From 2018 to 2021, we were actually doing vertical media in the blockchain industry and some investment and incubation-related businesses. In 2022, we established the Blue Ocean Capital fund, and the current net asset value of the entire fund is 4.5, which is actually quite good in terms of returns. This is a brief overview of my background.

FC

Let's talk about your trading strategy. You just mentioned that your current return is 4.5 times. I just pulled the data today, and Bitcoin has probably tripled from 15,000 to now. In fact, you have outperformed Bitcoin, so I want to know about some of your past trades, such as the one where I saw you had a 40x ROI, and then a drawdown, which laid the foundation for your current trading strategy, as well as what your current trading strategy is like.

Rocky

During the period from 2020 to 2021, I was more of a lone wolf. The main source of the 40x return was betting on some core narratives. The first one was DeFi. At that time, there were two tokens, one was Sushi and the other was AAVE. Because I have a certain advantage in traditional finance, I am relatively good at observing data and using data to speak. Therefore, for data growth in areas such as decentralized exchanges and lending, we were quite sensitive and followed this data growth to grasp the valuation at that point. We basically obtained returns from the beginning to the end. Another area that yielded high returns in the last cycle was public chains. We mainly bet on Polkadot at the time, which was invested in the primary market, and there was also MATIC, now Polygon. These two, combined with BNB's IEO at the time, actually accounted for a relatively high portion of the investment returns. I remember that we bought BNB around 2019, and the first IEO was the project that is currently popular, FET, which is also an AI project. Then the second or third IEO was MATIC. So at the time, the returns from BNB combined with the IEO returns were actually quite good.

Why was the drawdown so severe? The core reason was that I made a mistake in cycle judgment in the last cycle. From the drawdown in the wave starting from May 19, 2021, it led to a relatively light position in the second half of 2021. The position was not as heavy because the shadow of May 19 led to a significant setback in the next round of Bitcoin's new high, causing a relatively weaker cognition in the later drawdown cycle. Another important reason at the time was the lack of a team. In any investment market, risk control actually requires an independent department or individual to operate. When you execute completely subjectively, your operations, research, and risk control, if done by one person or two people, actually carry a relatively high risk factor. This led to a situation where we basically retreated after the drawdown, especially during the drawdown process after Bitcoin dropped from 69,000 to around 50,000, we basically retreated, which was a situation of drawdown profit-taking.

FC

What is your current trading strategy? For example, what is the scale, expected returns, and risk control?

Rocky

In terms of trading strategy, the two experiences that have had the greatest impact on me are what I will share with everyone.

First Experience

Anyone entering this market is bound to have a period of great expansion. My period of expansion was in 2016, when I first entered this industry, which was a matter of coincidence. When I was at the securities firm in the second half of 2015, there was a stock market crash in the A-share market, which was later said to be a result of collusion between domestic and foreign financial institutions, leading to malicious short selling and futures contracts causing the situation in the A-share market. In 2016 and 2017, if you were in the A-share market or at a securities firm, the overall sentiment was not very optimistic. My entry into this industry was actually quite coincidental. At a dinner with colleagues from the securities firm, they were discussing ICOs. At the time, I didn't understand much about it. In the traditional financial mindset, I believed that cryptocurrencies were quite ethereal because, in my understanding, any asset or pricing must have a physical entity as a backing to make a relatively reasonable valuation. Cryptocurrencies are essentially a string of code, which I couldn't understand at the time within my cognitive framework. During the fervor of ICOs, some projects had whitepapers, while others didn't. Once they were listed, they brought returns of 10x, 20x, and possibly even 100x, which was quite exaggerated at the time. My friend was in the financial group, and I was in the materials and chemical group. He said that ICOs were similar to stock IPOs and mentioned a concept to me: the future would be driven by code, software, and hardware. Looking back now, I realize that his judgment was correct. We now indeed have virtual assets driven by software, such as AI driving our world forward. At the time, I didn't understand anything, but because we had been colleagues for many years, I trusted him. I gave him 200,000 RMB. Approximately two months later, he asked to settle up with me again. At that time, he returned around 800,000 RMB to me. This was quite shocking to me because a 4x return in two months, even after deducting his "fee," was a significant impact for me personally. After all, in the A-share market, achieving an annualized return of 20% to 30% is already quite good. Achieving a 4x return in two months was a big shock for me personally. This was my period of expansion because after ICOs, by the peak of 2017, I had made my first bucket of gold, close to over 20 million RMB. This had a significant impact on me because I was still relatively young at the time. This period of expansion led to a significant problem: in the first bull and bear cycle, you often cannot hold onto wealth. In the second bull and bear cycle, you may be able to settle down, and if you're lucky, you may be able to accumulate a relatively large amount of wealth. Real wealth may only be obtained in the third cycle.

My biggest setback was when the period of expansion led to a misjudgment of my cognition. The drawdown on March 12, 2020, had the most significant impact on my trading system. My current risk control strategies and systems are actually based on the logic of March 12. I remember that I had accumulated Bitcoin around the end of 2018 and the beginning of 2019, with a cost of around $4,000 per Bitcoin. I had accumulated close to 200 of them, and at the time, the exchange rate was probably still in the sixes. At that time, 100 Bitcoins were worth around 2 million RMB. At the time, I was in Guangzhou, so 2 million RMB was about half a house in Guangzhou. Looking back now, it doesn't seem too expensive because at the time, the economic environment was relatively good, and everyone was making money. At the end of 2019 and the beginning of 2020, for a long time, Bitcoin was a bit like it is now at the end of 2022 and the beginning of 2023, with the price ranging from 15,000 to 20,000. At the time, I thought that from a cyclical perspective, Bitcoin was probably close to its peak. I was very confident at the time and opened a leveraged long position on BTC at around 7,000. I thought that 7,000 was a relatively safe price, and I only opened a 1x leverage because Bitcoin couldn't possibly drop by more than 50%. So I was very confident and basically had a logic of stable winning. But everyone should know what happened on March 12. At the time, there wasn't even time to add margin, and the entire market crashed. I probably lost over 100 Bitcoins directly. This experience was quite painful, and 100 Bitcoins would now be close to half a small target. I basically didn't leave the house for over two months and was just in a room, in a daze. At the same time, I did some reflection. In this situation, I realized the risks of the entire cryptocurrency market and gained new insights into leverage and a sense of awe for the market. So from that time, I implemented some risk control systems. The biggest element in this is the three principles that I often share on Twitter: don't touch leverage, don't touch contracts, and don't borrow money to speculate on coins. If you have the ability, spot trading can also gradually make you wealthy. If you don't have the ability, leverage will only accelerate your demise.

So these are two events: a period of expansion and a great awe for the market, which had a significant impact on my entire cryptocurrency trading and cognitive system.

FC

I understand. I feel that for those who entered in 2017, the stories are probably quite similar if they played with contracts. But I think you're quite impressive because even after your wealth expanded so quickly, you were able to come back and manage your emotions, and then build up the team again. So I want to know, when you mentioned a 4.5x return, what is your fund's investment strategy? For example, is it Buy and Hold, or what kind of strategy is it? Including your expected returns and stop-loss, how are these managed?

Rocky

Actually, our secondary market mainly involves subjective strategies, using a combination of alpha and beta models. Alpha seeks high returns, while beta seeks to anchor the market to the trend of BTC.

Firstly, the scale of the funds. Each person's scale and volume of funds may be different. In fact, when investing in cryptocurrencies, the decision of how much capital to enter the market with is not based on the desire for high returns. I often tell our LPs that your capital scale is actually related to the risk drawdown you can bear. So we are very honest about it. Cryptocurrencies are an alternative investment market with high risk and high returns. We recommend that you invest an amount that you can afford to lose entirely. I think anyone entering this market should be mentally prepared for this. The capital scale should not affect your quality of life; it should be an amount that you can bear the risk of and hold for the long term to ensure security. Because any market actually moves in the form of fluctuations. For example, when the price dropped to around 54,000 recently, many people said that the market might have entered a bear market. The main reason the market is considered a bear market is actually controlled by the pressure of the funds you can bear. Even when looking at macro data or other aspects, we are still in a bull market. But why do many people think this way? It's because of fear. The root of fear is investing in a high-risk and uncertain market beyond the range of funds you can bear, which leads to your fear. This is a key point. The scale of funds is controlled by the pressure of what you can bear (in terms of risk drawdown).

I also want to mention one more thing about the scale of funds, which is matching the investment targets. From the perspective of traditional financial investment, the scale of funds should normally be divided into five levels. The first level is from 0 to 200,000 USD, the second level is from 200,000 to 1 million USD, the third level is from 1 million to 5 million USD, the fourth level is from 5 million to 20 million USD, and above 20 million USD is the fifth level. In the cryptocurrency market, the distribution is currently more like a spindle shape, with close to 60% of the funds falling within the 0-200,000 USD range, according to an evaluation by a third-party institution. Within the 0-200,000 USD range, we recommend having around 5 investment targets. For investments of 200,000 to 1 million USD, there should be approximately 10 targets. For investments of 1 million to 5 million USD, there should be around 15 targets. For investments of 5 million to 20 million USD, there should be around 20 targets. For investments above 20 million USD, there should be no more than 30 targets.

Expected Returns and Risk Control

When it comes to expected returns, what are they related to? They are related to the cycle to which BTC belongs. In the long term, the price of BTC shows correlation with the US dollar cycle and the US bond yield. Therefore, when studying expected returns, our core focus is on studying the US dollar cycle because any asset in a risk market is strongly tied to the US dollar cycle, with a correlation of close to 80-90%. The US dollar cycle generally has a 4.5-year period, with a two-year contraction period of interest rate hikes and a 2.5-year expansion period of interest rate cuts. Under the background of the US dollar cycle, each phase of the US dollar cycle has a significant impact on the risk asset market. Looking at the history of traditional financial markets, we can see that crises such as the Mexican peso and Argentine peso crises in 1994-1995, as well as the Asian financial crisis in 1997-1998, were all formed under the influence of the US dollar cycle. Therefore, to achieve expected returns, it is essential to grasp the timing of the US dollar cycle, as the cycle often determines our returns.

As Zhou Jintao said, wealth in life is achieved through waves, not just through your efforts. Effort is useful, but its proportion is not particularly large. Therefore, for the vast majority of ordinary investors, it is important to understand the theory of the currency cycle, including relevant books. I can recommend a few books, such as Zhou Jintao's "Tao Movement Cycle Theory," Goldberger's "Manias, Panics, and Crashes," "A History of Financial Crises," Ross's "The Great Depression Diary," Shiller's "Irrational Exuberance," and Mankiw's "Theoretical Evidence Analysis of Economic Cycles." These books use a lot of cases and papers to explain the reasons and situations behind economic cycles.

To achieve expected returns, it is important to track the US dollar cycle and follow the current timing of the US dollar cycle. For example, we are currently at the end of a rate hike cycle, and the rate cut cycle is about to come. Recently, we have seen that the US stock market is not very optimistic, mainly due to issues in the US banking system and commercial loans for real estate. Many foreign scholars and economists are calling for an early rate cut, which was originally expected to happen in September or October but may now occur in August. This is an important influence of the US dollar cycle.

Next is risk control. We have several points.

First is position risk control, which is directly linked to macroeconomic data. When tracking macroeconomics, there are certain weighted indicators that are proportionally linked to position allocation. For example, the US dollar index, the 10-year US bond yield, and M2 data are currently the main indicators for active position management. These indicators have different weight scores, and the scores provide real-time position recommendations to our fund. We then take corresponding measures because position directly determines your drawdown line and your holding space. When your position is freed up, it means you are holding cash. Holding cash in a declining environment gives you more room to maneuver. Many people, when Bitcoin dropped to 54,000, had full positions and saw a good opportunity at 54,000 but had no positions to add or replenish, which was quite painful. Therefore, position management, which is mainly based on grasping macroeconomic data, is crucial.

The second point is the Dashboard for held projects. After buying a project, many people may occasionally check its Twitter but then ignore it. After it rises, they sell, and when it falls, they also sell. Or they rush in based on the call of a certain KOL. This approach is quite irresponsible for your own investment. The so-called "raise, invest, manage, and withdraw" management is actually a very important timing. We basically connect APIs to each held project to build a Dashboard to track the corresponding data of the project, such as user growth, daily activity, TVL, fees, revenue, etc. These data help us observe whether a project is in a steep growth phase, encountering a bottleneck in a smooth curve, or experiencing a decline at the end of the curve. This data plays a crucial role in our held projects. In each period, we hope to invest in a project that is in an upward curve phase, with all its data continuously increasing. We aim to hold such a project for the long term and to be able to profitably exit during bottleneck or decline periods. If you have such a Dashboard and observe your held projects daily, you will have enough confidence in your projects, especially during a decline, to add or replenish positions with confidence.

The last point is basic line risk control. In the stock market, private equity funds, and sunshine private equity, there is the 2-3-0 principle, with a 20% risk control warning and a 30% liquidation line. We currently use the 3-4-0 principle, with a 30% risk control warning and a 40% liquidation line. In addition to the liquidation and risk control warnings, we have other internal data to support this, which I won't go into detail about here.

Finally, let's talk about the capital cycle. The capital cycle is actually centered around observing the US dollar cycle. In my tweet on May 25, 2022, I mentioned the judgment of this cycle, and our assessment was that the first quarter of 2023 would be the bottom of the 23-year cycle, and the high probability would be until the third quarter of 2025. At that time, equity products were at their bottom, including the stock market and the coin market. If you had invested in the first quarter of 2023, in companies like NVIDIA and Microsoft, the heavyweight stocks of the US stock market, your investment return would have been quite good. Similarly, in the first quarter of 2023 for cryptocurrencies, we mentioned that the cycle was contracting, with a median of 14 months, meaning the market would bottom out after a 14-month decline. Looking at the previous cycle, Bitcoin peaked on October 1, 2021, and bottomed out on December 1, 2022, exactly after 14 months. Therefore, our judgment of the economic cycle and the market determines the judgment of our held capital cycle. Why do we believe that the bull market has not ended in this cycle? Because the real outbreak will only occur after the end of the rate cut and the start of the entire QE, probably around the end of the third quarter of 2025, the end of the expansion period of the capital cycle. At that time, it is highly likely that the US stock market and cryptocurrencies will reach their peak, which is also an important key point for our long-term optimism about Web3.

FC

Impressive, Rocky. You've basically answered most of the questions I had, and I've taken some notes. Let's just break it down and discuss. The first question is, how did you invest in KAS and Render? You also emphasized data and valuation, including the system you learned at the securities firm. Can you combine the cases of Render and KAS to explain your entire judgment logic to everyone?

Rocky

The advantage brought to me by the securities firm is what? The first is a comprehensive macro strategy, and the second is the investment research system framework. Because the securities firm nurtures you more in terms of thinking and mindset, that is, how to view a company or project. The most typical approach in a securities firm is the top-down investment research analysis framework. The team leader assigns you to analyze a listed company or a corresponding competitor of a listed company. You cannot start by delving into the micro aspects. In many cases, when we look at the research reports of securities firms, we will find that the first thing they write about is definitely the macro aspect, that is, the impact of macroeconomics on the micro market. Macroeconomics includes some monetary policies, such as inflation, unemployment rate, fiscal policy, and so on. Next, it moves on to the industry, which is essentially what we now call the track. The track needs to have a sufficiently large and imaginative space. When our team was working on chemical materials, the biggest imaginative space in the industry from 2015 to 2017 was new energy vehicles. Therefore, the focus of the materials category was on the lithium battery upstream and downstream. (In the context of Web3), in this cycle, the imaginative space within the track is sufficiently large, such as AI, RWA, and DePin. This has been covered in numerous reports by research institutions such as Messari, Goldman Sachs, Citibank, and Boston Consulting, which talk about this track and its vast space. For example, RWA has a scale of 10 trillion, AI is expected to exceed 2 trillion by 2028, and DePin is close to a scale of nearly 2.5 trillion. The imagination and scale must be sufficiently large, and only then can you probably find the right investment targets within this space. How is the industry prosperity of this track? What is the scale of the track? Market demand and supply, the views of investment institutions, because the linkage between the first and second levels is an important observation indicator, as well as policies, technological trends, and so on.

After the track, what's next? Then we move on to the project. In this area, we look at some data, teams, valuations, competitors, risk analysis, and so on. If you are not a sell-side researcher, this is where it ends. But because we need to make investments ourselves, we will add the following points. First, the construction of the investment portfolio. After our analysis, it may directly affect how we make decisions to buy and sell. Therefore, the construction of the investment portfolio needs to have a certain weak correlation. For example, if we invest in AI, I cannot invest in many projects in the computing power category. Although the computing power track is crowded, projects like IO, NOS, and ATH are all in the computing power field, but I cannot invest in all of them. Investing in one or two of them is enough. Apart from computing power, AI also includes intelligent agents, applications for video rendering, such as RNDR and LPT, as well as data ownership and privacy security. There are many categories within this track, and you may only need to invest in one company in each category. Otherwise, strong correlation will lead to a problem. Once a track encounters a black swan event or some issues, the impact on your position will be particularly significant. Weak correlation allows you to be a leader in different tracks, shielding the impact of market correlation and achieving reasonable risk control of the position portfolio, which involves the risk of drawdown and the expected return on investment. Next is the management of held data, which means you need to conduct regular evaluations and dynamic tracking of projects. This is a key part of our 5-step process, which is brought to us by the securities firm in the investment research system, a relatively systematic framework and architecture.

Now, let's talk about how we found Render and Kasper.

First, Render, also known as RNDR. For this project, we need to mention an investment company called Multicoin. In fact, we had an early strategy at that time, which was to invest in whatever they invested in, which was quite simple. Basically, in my investments in 2021, I followed them in the previous cycle, investing in projects like Solana, GRT, AR, and LPT. Let me share some data. In the primary investment market, Multicoin is said to be number one, and no one dares to claim the second spot. From its establishment in 2017 to the entire investment return in 2024, it reached 93 times, which is quite terrifying given its substantial capital size. Even in the context of the FTX incident and the significant retracement of Solana in 2022 (which resulted in a 91% loss), at the lowest point in 2022, the fund still had nearly 20 times the investment return. I have mentioned this VC institution in my tweets more than once. It was crucial for us to catch Render because this company is characterized by being driven by research-oriented investments. They write a report for every project they invest in and publish it on their official website, openly sharing it with everyone. Their reports are quite detailed, and their investment thinking is very helpful for us. We have basically printed and bound all of Multicoin's investment reports, which are a must-read for everyone who joins the team. If you want to achieve a good return in the investment market, I recommend reading all the past reports on "why invest" by Multicoin on their official website. Multicoin's investment was a key point because at that time, our focus on this project was mainly due to Multicoin's $30 million investment in Render in 2021. We have been tracking this project for a long time.

The second point is that, against the backdrop of the entire bear market, we have been thinking about what kind of projects can survive bull and bear markets, that is, survive in bear markets. First, the income it generates should be long-term and positive. At that time, we found that there were actually very few projects in the entire market that could cover the entire development or employee salaries with their income. There are projects like Axie in the gaming category, MakerDAO, which used to do lending in the US bond market and is now a stable earner, and projects like Aave, which can cover their income. Apart from these traditional DeFi projects, we saw Render, which could also cover its income. We need to know that it has a parent company called OTOY. This company has a core product called Octane, which provides rendering services to Hollywood and Disney in the film and television industry. The founder, Wobbe, founded OTOY in 2008 and then founded Render in 2017. For a period of 9 years, he was in charge at OTOY. The core issue at OTOY was that the cost of computing power was relatively high because the leased computing power machines, i.e., GPU computing power, were expensive. To address the issue of insufficient computing power in the rendering field, he started Render. First, the parent company OTOY itself is very profitable, so the founder did not create this project just to issue tokens; he did it to solve the parent company's pain points. Second, when we look at a project, the founder is very important, especially for some early projects, as the founder determines the long-term development path of the project. Render is actually a very old project from 2017. With the $30 million financing in 2021, the project itself is not short of money. The founder of OTOY has already been very successful, and the founder can be found online or on YouTube, where you can find some reports on his entrepreneurial history. He is an extreme workaholic and geek. What can I say? First, he works more than 50 hours a week on average. Secondly, what left a deep impression on me was seeing a report where he modified his own laptop, a 10 kg laptop, and installed two 1080 graphics cards, i.e., overclocked super graphics cards, to demonstrate the development of his software in the rendering field. So, with such a workaholic and geek, I believe this project will definitely be outstanding.

We have also actively contacted the project team because their rendering network's GPU mining logic is in cooperation with the B-end. In 2017, I was an Ethereum miner, and we actually had quite a bit of GPU computing power. We were very optimistic about this project at the time and wanted to collaborate with them. However, they later mentioned that their rendering had very high stability and bandwidth requirements for computing power. They are now basically cooperating with large computing power data centers like Microsoft and Google and do not have resources for C-end cooperation. However, they did provide us with a piece of information at the time, which is that they may release the C-end GPU interface in the future. This is actually a very large demand market. In the current situation, Ethereum has a path to transition to proof of stake (POS). Just think about it, Ethereum has such a large GPU computing power market. Once it stagnates, there will definitely be a need for a new project to take over, at least to take over its computing power logic. This computing power logic actually has a very large market size. Although the information they gave us at the time was that it might come out soon, and although it hasn't come out yet, it had a certain impact on our investment decision at the time. Our mutual communication, including continuous tracking of data and its transition to the Solana public chain, became a key factor in our investment in it. At the time, the investment should have been around $0.5, probably around November 2022. It was a project that we were relatively heavily invested in.

As for the project Kaspa, I should have written about it before, https://x.com/Rocky_Bitcoin/status/1641064973748277248. At the time, I was mining Ethereum and actually had a lot of 1660S mining machines. As most miners should know, the 1660S is a cost-effective model. After Ethereum transitions to POS, it will be wasted. I felt it was a pity and had the research team explore it, and that's when we found Y's project. Y is a cryptography Ph.D. from Harvard University, and it is a purely Israeli project. We quite like Israeli projects because Israeli startups have a characteristic of not giving up midway, but once they grow to a certain stage, they choose to sell and then start a new venture. In their new ventures, they have this spirit of not giving up easily, unlike some European projects. Many European projects may have good benefits, or for some other reasons, the update speed is particularly slow, and they may not be able to continue because they are out of touch with the market. But Israeli projects are different; they generally do not give up easily. Also, the entire team of Kaspa comes from Hebrew University. Another core point is that this project is 100% mined, with no pre-mining, no team reserves, and no VCs. It is purely based on mining. We also found a lot of literature. Y is the inventor of DAG, which is the directed acyclic graph technology. Kaspa is essentially an improved version of the directed acyclic graph. In the entire cryptocurrency field, especially in the Ethereum killer field, there were two solutions at the time, one was sharding, and the other was the logic of DAG's directed acyclic graph. Currently, many projects also use the directed acyclic graph technology. I have mentioned IOTA and Avalanche, which have adopted Y's corresponding paper system and some references.

So, at the time, we tried mining. In fact, we didn't buy much in the secondary market; it was mainly mining. At the time, we were basically losing money every month because the price of KAS was really low. When it was listed on Matcha, the price was so low, I remember there were several zeros. At the time, we were losing nearly 30,000 RMB in electricity bills every month. We didn't use 1660S; we had switched to all 3080 graphics cards. Later, professional mining machines like Glacier and Antminer came out. Mining with graphics cards actually has relatively low returns, but in the early stages of mining, the output was quite good. If you hold onto it until today, the earliest return was probably close to 200 times. But we sold some, and we still have some of this coin.

So, these two projects are more about discovering them not by looking at the candlestick charts or some indicators, but by putting more effort into research. This is also why I say that 312 had a particularly significant impact on us because before 312, I was purely a technician, and I was very familiar with all the technical indicators. Technical indicators can guide you to make timing decisions to buy or sell at certain points, but they cannot guarantee your return on investment over a long period. They may give you a good judgment for buying or selling at a certain point under the macro background, at the most basic level, and at the final decision, but they cannot determine the investment return of the entire market. Doing such detailed analysis and research can bring you truly substantial returns, and this is the huge impact that 312 had on me. Now, I basically look at the candlestick charts once a week or every two to three days. I don't look at the daily charts, 15-minute charts, or hourly or four-hour charts.

FC

I have two additional questions. First, when you mentioned data, such as the reports written by Messari and Delphi about the market space, how do you ensure that it is accurate? Or do you believe that as long as everyone writes about it, there will be a consensus? Second, through data, you can judge whether a project is going up or down, but it actually has a lag. This will affect your timing for buying and exiting. I don't know how you think about this?

Rocky

I think all data is lagging. Our mentor previously told us that A-shares are auction-based. In the last second of the auction, if you bring out a large order of 10 million to hit the market, can you directly determine the trend of the candlestick or technical indicators? Originally, it was a golden cross, but can it be smashed into a death cross? It's just that there was a 10 million sell order in the auction. So, I think any indicator, especially technical indicators, has a relatively serious lag. This is why data is very important because it includes long-term, medium-term, and short-term data. Long-term data can determine the trend. For example, when doing macroeconomic analysis, it actually supports long-term data. For example, interest rate hikes and cuts cannot happen today and be reversed tomorrow. It's not possible to cut interest rates this quarter and raise them next quarter. There is often a cycle for interest rate hikes and cuts, and this kind of cycle has a certain trend, extension, and sustainability. This determines the basis for your judgment in long-term, medium-term, and short-term periods, which is why I say that from macro to track and then to project, there is actually such a ranking.

In this ranking, what we focus on is actually that long-term data determines your judgment in the medium term and provides you with position management and real-time control in the short term. Position management is determined by the macro cycle, and project risk control is based on project data, dashboards, such as StepN, whose data growth should have been tracked by many people, after all, it's a hundredfold coin. For projects like these games, once they start an upward cycle, they will have a very smooth or steep upward curve. When it starts to gradually flatten out, and the steep upward curve starts to decrease in slope, you can perceive this trend, and it doesn't change immediately. I don't know if everyone can understand what I mean, but any curve has a trend extension, and you can use this trend and data to provide a key point for your investment decision. This is actually very important. The trend of the data is the basis for your judgment, and through long-term data, it forms a system for your investment strategy, complemented by medium-term and short-term data.

FC

Understood. Let's talk about the second half. Do you think the second half will continue to focus on these Alpha tracks, such as AI, DePin, Game, RWA, and SOLANA? If so, why? And if we are looking for Alpha in the second half, what logic should we follow? To be honest, I'm quite confused now, and we can't participate in Meme, so what should we do about the others?

Rocky

I believe that in the second half, the focus can be positioned after interest rate cuts, as there may be relatively significant retracements during the interest rate cut period. In the past three interest rate cuts, the impact on the market was quite significant, especially in the U.S. stock market, as there wasn't much data on the crypto market at the time. I'll briefly explain the data. In the past 30 years, there have been three major interest rate cuts. The first interest rate cut was during the 2000 internet bubble. The interest rate cut started in 2001, and the Federal Reserve's federal funds rate dropped from 6.5 to 1% by 2003. During this time, the S&P 500 fell by 49% from March 2000 to October 2002. During the 2007-2008 financial crisis, the federal funds rate dropped from 5.25 to 0.25, and the U.S. stock market fell from October 2007 to March 2009, with a decline of 57%. The next interest rate cut was during the 2019-2020 COVID-19 pandemic, with a drop of approximately 34% because the federal funds rate didn't drop much, going from 2.25 to 0. Therefore, the decline wasn't significant. We are currently decreasing from 5.5, and if we anticipate the percentage, we should expect it to drop to around 2%. This interest rate cut is expected to last for approximately two and a half years, and it will bring a certain impact to the market, especially the U.S. stock market, in terms of the impact of recession expectations. Therefore, in this situation, we actually believe that the second half is more likely to be a strategy of first decline and then rise after the interest rate cut.

The core direction of our Alpha path remains the same because the narrative of this cycle has already emerged. For example, there was a Shanzhai cycle in October 2023, and another wave of Shanzhai cycle in February 2024. From these two Shanzhai cycles, we can already determine the core narrative and direction of this cycle. If there are no projects or tracks that have emerged from these two cycles, you basically don't need to pay much attention because currently, capital has already determined the dynamics of the market. The first narrative is still AI, as seen from the investment heat in the primary market in Q2, which was close to $1 billion.

The second track is RWA, which is actually a necessity. Whether it's BlackRock or the recent Solana, if you look at Solana's recent official announcements, you will find that Solana is now directly entering the RWA sector with great fanfare. You can think of "American public chain" Solana as determining the dynamics of future U.S. financial development, with a strategy to allow global users to allocate U.S. assets. When we were communicating with some U.S. teams, because the influence of the U.S. dollar is currently declining, they have a strategic plan for U.S. assets. Previously, many countries would allocate U.S. bonds, but you will find that countries that allocate U.S. bonds are constantly selling because they also realize that the return on the U.S. dollar is not very good at the moment. In this situation, the U.S. has a new strategy, which is the global popularization of U.S. assets. This strategy has been very successful in this round of the U.S. dollar tide. In many places, such as Dubai, Southeast Asia, or Mexico, you will find that your USDT is very useful. The main reason is that after this round of the U.S. dollar tide, the currencies of many developing countries have depreciated significantly, including the typical examples of the Argentine peso and the Turkish lira, whose currencies have depreciated by 70% to 80%. Therefore, there is a strong demand for the U.S. dollar, but there is also strong government control. Therefore, there is a great demand for online U.S. dollars, such as USDT and USDC, and this is a very core part of the current U.S. strategy. Solana actually determines U.S. assets, which is the investment of U.S. assets, and it is a very core strategy to enter the general public. The recent official announcements from Solana are mostly heading in the direction of RWA, and I think this is a completely politically correct path. Therefore, the RWA track is equivalent to the DEFI track of 2020. RWA is actually an upgraded version of DEFI, which we call DEFI 3.0.

The third track is the DePIN track. I believe that this track is actually the easiest way to introduce Web2 users into a huge Web3 scenario. Because the DePIN track is our mining track, you buy hardware, put it at home or in a certain place, mine its coins, and how long it takes to recoup the investment. This scenario may have some demand, such as 5G, maps, and so on. But it's not important whether there is this demand specifically; what's important is to introduce Web2 users into Web3. Web3 has a demand point, which is to reach a user base of 1 billion. A user base of 1 billion is a turning point from quantity to quality because the internet track also showed exponential growth after reaching 1 billion users. Therefore, a user base of 1 billion is a key indicator, and DePIN will bring about such a scenario. In the future, the entire market, especially the data market, is very important, whether it's our health data or various other data. It will achieve sharing and connection through the DePIN method, especially in the future development path of AI. I think this is very easy to expand.

The fourth is the Bitcoin ecosystem. Bitcoin now has a huge scale of $1.2 trillion, and people just keep their coins in wallets, which actually doesn't bring any income-generating assets or any ecosystem. It's actually dormant assets, and it will bring about a huge ferment. Many developers, users, project teams, and VC investment institutions will see this market. Multicoin recently invested in several projects in the Bitcoin ecosystem. Once this area is opened up, it will bring a very strong incremental market and incremental capital. The reason why the DeFi boom in Ethereum brought about a booming bull market is that it released more stable coins through staking and other methods, or released more liquid assets for secondary allocation. If the total market value of Bitcoin in the entire bull market can reach $5 trillion, and only 10% of it has such DeFi functionality for staking, there will be an incremental capital of $500 billion. Although there is leverage and potential future liquidation risks, this will bring a huge incremental component to the market and drive a larger bubble. With the emergence of ETFs and other derivatives, this direction will definitely come in the future because the play of U.S. financial derivatives is too fancy. ETFs are just the first step, and there will be corresponding derivatives for ETFs in the future, 100% guaranteed. This is actually an incremental market generated by BTC logic, and it's just a matter of whether this incremental market will be placed in a traditional financial market or in a Web3 DeFi financial market. Wall Street actually wants to control assets because the asset volume is still very large.

The fifth is GameFi, the gaming market. We know that the development of the entire internet is a history of game development. The main source of user growth in the early days of the internet was through games. Therefore, GameFi is actually the same in the Web3 mindset, which is to attract users. I think this demand can be compared to the Web2 internet market, and it is still very important. Although many people are currently criticizing its economic model, sustainability, playability, and so on, when the big logic is correct, these things will gradually be filled in because the development cycle of GameFi is still too short. It has only developed to the period where we were playing Tetris in the internet era, or playing Nintendo, Red Alert, and other games. You can't deny it the time to grow because by the time we were playing Fortnite and League of Legends, it had already been more than ten or twenty years. Therefore, it needs a certain amount of time and space to grow.

The above is why I believe that the five major tracks are the key logical points for our focus in the next second half.

FC

Thank you, Rocky. You are really well-prepared, and you have explained everything in detail. So, you don't invest in MEME at all? You completely avoid investing in MEME, is that right?

Rocky

We currently only have one PEPE from MEME. You will find that many of my Twitter posters are PEPE because PEPE is still very popular in North American culture. Other than that, we basically don't have much investment in MEME.

FC

Understood. Now, for the last two questions. First, do you have a "Stop doing" list in your trading strategy? Or do you have a time when you think your strategy will become ineffective? And how do you prevent this from happening?

Rocky

I think this cycle should be the last one for ordinary people, or for small and medium-sized institutions like us. The next stage may be the strategy of Wall Street derivatives, whether it's all-weather hedging, high-frequency trading, AI robots, and so on. There won't be much for us regular folks to do. I believe that for the majority of us, the trading strategies in this cycle will come to an end, and the previous trading strategies will actually become a huge gap and watershed for the later ones. The strategies for the later stage may be combined with many paths of AI. We are currently investing in and researching AI, such as AI + event-driven, AI + corresponding indicators, AI + funds, AI + on-chain data, and so on. We are making some investments and research in these areas, and we have also invested quite a bit of funds in them. This may be the focus of the next cycle, and the trading strategies in this cycle should still be effective.

Regarding the "Stop Doing List," many times, it's about doing the right things, which means not doing the wrong things. What are the wrong things?

The first one is what I have been emphasizing, which is not to touch leverage, contracts, or borrow money for trading. The reason why most people leave the Web3 market is because of these three points. In Web3, you won't lose much, but once you open these three things, there's no turning back.

The second is not to engage in high-frequency trading. Instead, spend more time and energy on macro research, tracks, and projects. It's about gaining more understanding, especially in the North American market, including the primary market, and their latest investment trends and paths. For example, Paradigm and A16Z have already added AI to their official websites. Sequoia Capital has already sniffed out a market direction. By investing and thinking in this direction, you can consider your U.S. stocks and cryptocurrencies. When you see such dynamics in the primary market, you can start paying attention to the AI track and these projects. Your investment returns should be quite good. So, spend more time and energy on these aspects, not for the dopamine rush of high-frequency trading, which is meaningless.

The third is not to confine yourself to your own scope. Open up your perspective, communicate more with friends, attend more conferences, and communicate with industry veterans or experts. Because many times, a single sentence from someone else may enlighten you. Many times, people who trade cryptocurrencies may be confined to a space and not come out, constantly playing games in front of their screens. This is a very closed scenario, and sometimes it can lead to a situation of working in isolation, which is not good.

The fourth is not to invest in things you are not familiar with or don't understand, similar to what Duan Yongping said. If you are not familiar with or don't understand something, don't invest in it. Because many times, when people enter a community, if a certain KOL or someone else shouts about a project, it may just be one or two sentences, and you rush in without knowing what the project is about, the background of the investment, or the risks of the project. It's best to have a systematic structure. When you hear such news, spend one or two hours, because AI is very convenient now. Ask GPT-4 to analyze the investors, background, team, competitive advantages of the project, and relevant data. GPT-4 can provide you with a pretty good analysis. After making a subjective judgment, if you feel that you understand the project or have a certain understanding of the track, then you can invest. You may be a few hours late compared to the person shouting in the group, but it won't have much impact on you. First, you gain knowledge, and second, after understanding the project, you will have more confidence in your investment.

The fifth point is to never try to take shortcuts in the Web3 market, or try to overtake on the inside track, or think that if someone else has gained 100 times or more, you should rush in and buy a certain coin. Social media is very developed now and can make people very anxious. In such anxious situations, there can be a herd effect. Often, following the herd rarely leads to profits, especially in the case of the Mingwen market at the time. Mingwen was indeed very FOMO, but looking back, very few people actually made money. Maybe you invested in ORDI or some top projects, which may have been slightly better, but very few people actually made a profit from the later Mingwen projects. So, never think about taking shortcuts. We believe in sticking to the basics and being extraordinary. You still need to find projects in the market that can truly contribute to Web3 or have some narrative logic. Only in this way can you bring real value. We still lean towards value, even though this value is sometimes elusive and many people deny it. But I think that Web3 has developed to this stage today, and there is still a certain value-driven force behind it, which is the core that we have always firmly believed in.

FC

Thank you. The last question is, for the next episode, which trader would you like to invite to talk about what kind of content?

Rocky

Actually, I don't follow many traders. In my Twitter follow list, I mainly focus on three categories:

The first category is institutions. For example, in the AI field, the Twitter accounts of popular institutions like Sequoia Capital, Multicoin, and A16Z. We always track their latest movements.

The second category is macro. For example, Hong Hao, who has written a very good book called "Cycles." He is probably one of the few chief economists in China who dares to speak the truth. Many of the things he writes are quite good, although they are more focused on stocks. There is also a macro analyst from Bianco Research, which has been doing macro analysis for over 20 years. Their Twitter account is also worth following. And there are analysts from Bloomberg that you can also follow.

The third category is specific projects, which I actually follow less. Because for specific projects, we rely more on software and reports. For example, we like to read reports from Messari and Nansen's Smart Money data. Many early alpha projects were mostly bought by Smart Money, and the market only reacted after they bought. The market's reaction is because it went up, but the actual funds were in the market even earlier than the market's reaction. The Smart Money data on Nansen is actually very interesting. Another is to insert AI-driven software in the market sentiment observation station, and there is also Alphascan, which is a very good software for early projects. So, we generally capture through these software tools, and we rely less on Twitter. Personally, I focus more on institutions and macro.

FC

Thank you very much. I didn't expect the content to be so rich. We will organize this content into a written version. My questions are basically done here. Thank you all for listening.

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