In an interview with Jinse Finance, CEO of Renrenbit, Zhao Dong, also an early investor in Bitfinex and also a partner at the investment fund DFund, talks about the firm’s change in investment strategy and also the current market, which he claims is nowhere near a bull market.
Question: You mentioned that in the previous bull market, DFund’s investment strategy was premised on the layout of the industry, but you also said you lost a lot of money from that strategy. You then built Renrenbit and also invested in WOOTRADE (Krono, a quantitative research firm, spun out dark pool), has the DFund investment strategy changed much?
Zhao: Our investment logic has not changed, but the execution was previously wrong. We should try to invest as little as possible and focus on investing in just good projects. We should focus on quality projects, but the execution went unmonitored, resulting in us investing in sixty or seventy projects. We should stick to the original thesis and invest in real projects that will be implemented. There are not many teams that have real skills to build real things in this industry. Now, the WOOTRADE team has the background and skillsets to achieve their goal.
If I want to invest in a team, I ask why does this team think they can succeed? This is something the team needs to think about for themselves and how they should communicate in the market. This is super important. for example, if you want to do an exchange, you have to ask yourself, are you smarter than Li Lin (the founder of Huobi)? Li Lin has been building an exchange for 6 years, can you beat him in his game? You have to be at least 3-5 times more intelligent than Li Lin to beat him. If you do something you are really good at, even if you are not as smart as Li Lin, you can still exceed him.
Question:: This year we saw a small bull run, have you seen that in your business? For example, in terms of business volume, there are many companies that focus on digital asset banking this year.
Zhao: This year is not a real bull market, it’s not a bull market at all. It’s particularly obvious to us when we do OTC when it used to be that a large amount of incremental money comes into play and they don’t even ask the price. The most insane time last year was when we were trading one or two hundred million bitcoins a day, and we could sell for a 10% premium. That is what you call a bull market. Now, this new wave is the family office wave. The market can basically see the institutions, but they are a small amount of asset allocations and have not made large impact and resonance on the market.
Jack from Wootrade: And the price climb was too fast. It went up so quickly from $3,000 to $14,000.
Zhao: At the same time, you can see that the trading volume is not very large. The bull market is characterized by a lot of people buying and selling. When you are in a bear market, the number of transactions is low. With a slight increase in trading quantity, the price fluctuates greatly.
Question: A lot of “compliant” coins have appeared this year. How do you think about the current competitive situation of stablecoins?
Zhao Dong: How stable coins can be perceived should be similar to fiat. For example, the US dollar accounts for 60% of the entire fiat market, and the Matthew effect is very obvious. When such a strong currency appears, it is difficult for other coins to compete with it unless there is a huge problem.
Now the biggest problem with USDT is not the issue of its underlying reserves, contrary to what everyone thinks. The reserve is not a big problem. As I said before, from the perspective of assets and liabilities, it is no problem. The biggest risk is not here. The biggest risk is still the regulatory pressure coming from the US, because the reserve currency is the US dollar. When the United States wants to directly break off its linkage, that’s when it’ll be a big risk.
Question: So are you optimistic about it?
Zhao Dong: I am neutral. I think it is very bullish now, but it does have risks, but this risk is not the risk that everyone imagines. It has an excessive reserve right now.
WOOTRADE Jack Tan: What is the risk of its reserve?
Zhao Dong: When the United States directly cuts into its roots.
Question:: How likely is it?
Zhao Dong: This is not easy to predict, I don’t know when.
Question: You just mentioned this fake bull market right now. What impact do you think this has brought to the development of the blockchain industry this year?
Zhao Dong: At the specific time, I can only guess. I think the bull market will come in 2021. If it solidifies by then, the market infrastructure needs to be further improved at that point. If a lot of things don’t solidify, I think it’s useless to engage in public chain and TPS.
I have always said that this is like going to a deserted place to build a two-way highway, if we simply just talk about TPS for example. In fact, a problem prevalent right now is financing difficulties for small-medium business. This is clearly a mismatch of resources. If the blockchain is focused on finance, why doesn’t the blockchain go solve such problems?