Author: Chen Zhiyan
Source: Dark Waves
When you believe that the opportunities in one place are running out, leaving the table may not necessarily mean “being a deserter”.
In mid-April, I met Huang Yu when he returned to Shanghai from the Web3 conference in Hong Kong. He described to us a long-lost, vibrant scene – a schedule full from 9 am to 11 pm every day; meeting acquaintances while walking, sitting down for an hour of conversation; no need to worry about empty time, “the previous person will naturally arrange the next schedule for you”.
“The scene is very lively,” Huang Yu said, like the golden age of Chinese VCs, “or, you could say, any thriving industry looks like this.”
A year ago, Huang Yu was the investment manager for China at Blue Pool Capital – a family office jointly established by individuals such as Cai Chongxin and Jack Ma. Now, at the age of 36, he has become a founding partner of a venture capital firm called NextGen Digital Venture (NDV), focusing on providing investors with a compliant way to invest in cryptocurrencies.
In April 2023, NDV’s first fund was launched. The fund was established in collaboration with the cryptocurrency wealth management company Metalpha Technology Holding Ltd (NASDAQ stock code: MATH).
“Dark Waves” learned that the fund has raised $100 million from global investors so far, including institutional investors and top family offices. In over a year since its establishment, the fund’s performance has reached +170%, outperforming Bitcoin by over 50% and Ethereum by 100%.
Having the experience of being on the side of investors, Huang Yu has made some special arrangements for NDV: for example, addressing the concerns of wealthy individuals about the compliance and security of Crypto, NDV chose the “Asset Management” “No. 9 card” structure based in Hong Kong, ensuring assets are regulated. Using DBS as the custodian bank, daily transaction records are sent to the Hong Kong Securities and Futures Commission for filing, while a professional third-party fund administrator provides investors with corresponding net asset value updates. These designs allow investors to benefit from the Crypto industry without actually holding virtual currency.
“This is the most investor-friendly structure in the market, where investors can obtain industry profits within a compliant and mature custodial system,” Huang Yu said.
Despite achieving impressive results in a year, in Huang Yu’s eyes, Crypto has not yet formed a new world. He hopes that this new market can grow bigger, but as an asset manager, he also hopes for more rational and long-term investors. “Crypto is an alternative asset with potential and high risk, and we operate in the highest risk industry in the most compliant manner.”
The following is a dialogue–
In the heart of Crypto
“Dark Waves”: NDV’s performance in its first year outperforming the surging Bitcoin, what does this mean for you?
Huang Yu: I have a history degree from Peking University, and in my view, individual power is insignificant in the face of the overall trend. What we do is simply to follow the trend of the times and make choices. Looking back since the reform and opening up, China has experienced several industry waves – from the global expansion of the manufacturing industry, to the booming real estate industry in the urbanization process, to the e-commerce prosperity brought by the Internet revolution. Each wave lasted for more than ten years.
Today, in the context of so-called “anti-globalization”, cryptocurrencies represent a new way of asset allocation, and it is an essential part of future mainstream allocation. It is not just a technological innovation; in my view, it is the optimal solution for global allocation. Any interim success achieved by NDV is not worth being complacent about. Because, the real hero behind this is the change of the times, providing unprecedented new opportunities.
“Dark Waves”: Indeed, Crypto has just experienced a surge, but can it be sustained?
Huang Yu: Crypto itself is a new opportunity that has lasted for more than 10 years. I continue to communicate with the world’s largest institutional investors (sovereign funds, pension funds, and charitable funds), and the current consensus is that global geopolitical instability will continue in the future. The abuse of the issuing rights of the reserve currency by the United States has led to excessive liquidity and rising inflation, which will further exacerbate the uncertainty of the US dollar. It is difficult for the high interest rates of the US dollar to be sustained in the long term, so in order to maintain the dominance of the US dollar, war would be a natural choice for the United States. All these factors will drive investors to seek diversified asset allocation in terms of regions and categories. This is a long-term positive for Crypto. In fact, the invention of Bitcoin was also a response to the excessive printing of money in the United States in 2008.
The remaining question is: how much proportion are you willing to spend on asset security?
“Dark Waves”: If entering what you call the “great era” is a major decision, what are the small decisions NDV has made correctly in gaining profits?
Huang Yu: In fact, we have used many quantitative indicators to make decisions. Many data in the Crypto world are publicly transparent. For example, on June 15 last year, we monitored that the top 10 Bitcoin addresses in the world increased their holdings by 7,500 Bitcoins in a single day (worth $500 million today), and 13 days later, the world’s largest asset management company, BlackRock, applied for a Bitcoin spot ETF. Although Crypto is anonymous, the movements of large holders’ chips can be monitored, and we rely heavily on data from a gaming perspective. Although NDV is a fund that invests in cryptocurrency stocks, we use blockchain tools and traditional financial market methods for investment.
“Dark Waves”: Compared to those who have a “distrust” or “all in” attitude towards Crypto, you have chosen a middle ground.
Huang Yu: In the public’s perception, Crypto is seen as a gamble. Objectively speaking, the unregulated part of this field does indeed breed many problems and scams.
For the natives of digital currencies, Crypto is the “gold rush” of the new era. In the early stages, it is easy to make a lot of money in this industry when the market is hot. However, this does not mean that everyone can retain these profits.
Due to my previous work experience, I have a richer toolbox than others. In simple terms, my family office experience makes me understand the LP’s needs better, and I know the impact of macro trends on single asset classes. My VC background makes it easier for me to understand the changes brought about by technology with a long-term perspective. The future of Crypto is promising, but because leverage is very high, there will be a round of more than 70% correction every few years. It is not the most important thing to make money in the short term, but it is important to exit safely.
“Dark Waves”: Why did you choose to leave the family office in 2023 to start a Crypto fund?
Huang Yu: From the outside, the transition from a family office to Crypto seems like a big change, but for me, it is not much different because investment itself is about pursuing major structural changes: after the epidemic, the instability of the global economic situation increased, providing an opportunity for innovation in the asset side of Crypto. In long-term diversified asset allocation, compliance is more important than returns for investors. After spending half a year researching all types of Asian institutions in Crypto, including primary, secondary, quantitative, and arbitrage, I found a lack of compliant channels in the market to allocate Crypto assets, so I decided to turn to the Crypto investment field at that time.
There is also a more emotional reason. I have been a fan of the NBA for almost 30 years. In 2022, I had a period of despair in Shanghai, and at that time my favorite NBA star, Stephen Curry, led the team to win the NBA championship on his own, at the age of 34. I witnessed him transform from a pure outside shooter to a player who could fiercely compete on the court. In the year when everyone least expected it, he led the team to victory. This gave me great entrepreneurial courage. Even in the middle and late stages of his career, Curry never gave up on change. This made me realize that change is never too late.
“Dark Waves”: Before establishing NDV, did you anticipate the surge of Bitcoin in 2023?
Huang Yu: 2022 was a year of a major decline for Bitcoin, and many people had already left Crypto at that time. Daring to do this at that time indicates a clear understanding of the future direction of this specific asset.
In fact, Bitcoin has shown a clear trend towards a secure and decentralized digital currency, and it is likely to become a more popular alternative to the US dollar. As a result, NDV has been able to capitalize on this trend and achieve significant success in the Crypto market.
End of article.The inherent periodicity of Bitcoin is evident, with most retracements occurring 1-2 years after reaching historical highs. For example, from $1163 in 2013 to $152 in 2015, then to $19666 in 2017, followed by $3100 at the end of 2018, and rising again to $69000 in 2021. Each time reaching a peak, the price of Bitcoin retraces by 80%-85%. This volatility is primarily driven by Bitcoin’s issuance and mining mechanisms, the tide of the US dollar, and the high leverage effect resulting from its lack of regulation.
Therefore, I entered the entrepreneurial scene in Bitcoin at the bottom of this cycle. If investors can also adopt a long-term perspective on Bitcoin, understanding and accepting its periodicity, then its long-term returns are quite attractive.
“Dark Horse”: In 2023, we can hardly find a successful fund raised in the primary market. From your experience, will Crypto be the only solution for future new funds?
Huang Yu: I don’t like to make choices through exclusion. Moreover, the market is rich and dynamic, with optimal solutions appearing at each stage.
Currently, NDV’s positioning suits me best. Due to my previous professional experience, I can directly feel that Bitcoin has become an asset class overseas, which has a positive impact on the entire Crypto market. I believe the market is in a phase where traditional finance is gradually accepting Crypto.
“Dark Horse”: Indeed, this year, the US SEC and Hong Kong have successively approved spot Bitcoin ETFs. What does this mean for the Crypto investment field?
Huang Yu: After the approval of the US Bitcoin ETF at the beginning of the year, the price rose from $40,000 to $70,000, with over $15 billion in net inflows through ETFs. This means that these ten ETFs collectively manage $22 trillion, and their clients allocating less than one-thousandth of the funds into this market almost doubled the price of Bitcoin. If the future allocation reaches 1% – and this is not difficult – what does this mean for this asset class? It is difficult to estimate the magnitude of Crypto in the future. But one thing is certain, we are far from its peak.
Those who previously invested in Crypto are very similar to Chinese VC practitioners before 2006. They were pioneers, many of whom made investments across industries. They were sharp but not necessarily related to professional finance. However, in the future, as a major asset class, Crypto will definitely attract more funds and require more corresponding and professional management.
More conservative or more adventurous
“Dark Horse”: In times of change, investors tend to be conservative and seek stability when it comes to assets, which seems contradictory to the risk-taking nature of Crypto.
Huang Yu: I don’t see it that way. We always advise investors to allocate 1%-5% of their assets to Bitcoin as a hedging strategy against global uncertainties. Asset volatility should be managed through position control, rather than completely abstaining.
Today, in the short term, Bitcoin is a risky asset, but in the long run, it is more of a safe-haven asset. In the short term, as a new asset, extreme price fluctuations are normal due to inadequate understanding by new entrants, which is related to market capitalization and stages. Early-stage tech stocks were also like this. However, in the long run, Bitcoin as a tool to counter the printing of US dollars holds long-term value.
In fact, colonialism has never disappeared from the world. The first generation of colonial empires was the British Empire, which ruled the world through direct rule and collecting taxes worldwide. The second generation of colonial empires was the United States, which adopted a more advanced approach, akin to a “POS machine + franchise” model to levy taxes, specifically through currency printing.
As the US continues to print money, more countries will begin to resist being exploited, decouple from the dollar, and gradually form a consensus network around Bitcoin. Countries and regions like El Salvador have already adopted Bitcoin as a reserve currency, marking a promising start.
“Dark Horse”: How do you view regulatory risks?
Huang Yu: Overall, it is clear that domestic regulations prohibit the use of the RMB to purchase Crypto. However, there have been some legal cases indicating that the courts recognize Bitcoin as a protected asset. From NDV’s perspective, the focus remains on Hong Kong, serving overseas asset allocations. Currently, Hong Kong has legislated the legality of digital assets, so operations are primarily based there.
Regarding Crypto itself, the attitude of the US is more important. After the approval of the Bitcoin ETF, the US now views it as a new asset class. From a policy perspective, both Democratic and Republican candidates in the US support Crypto, so the regulatory landscape of major countries is essentially determined. In the long run, whether it’s US-listed companies or central banks of small countries, there will be incentives to invest in Bitcoin, with future inflows into this asset class likely exceeding trillions of dollars.
“Dark Horse”: Despite NDV’s strong performance, how many retracements have occurred in the past year?
Huang Yu: A 20% retracement in Crypto is very normal. In the past 13 months, there have been two significant retracements, one at 8% and another at 15%. Even factoring in these retracements, the overall profit is around 170%, with a relatively appropriate risk-reward ratio.
From a comprehensive risk management perspective, the fund has a lock-up period primarily because this asset class is different from others, with clear volatility and periodicity. The lock-up period is also intended to encourage LPs to take a relatively long-term view of this asset. Over the past 11 years, Bitcoin has shown a trend of long bull markets and short bear markets. Even in a bull market, a monthly retracement of 10-20% is normal. However, any participant seeing a 20% decline in a new asset class will panic. But from our perspective, if a major trend is unfolding, exiting should not be the response. We advocate for LPs to make allocations, placing 1-5% of their assets into Crypto-related products.
“Dark Horse”: We have studied some family offices in the Chinese market, and one common challenge for practitioners is gaining trust. How does setting lock-up periods address this trust issue?
Huang Yu: The core of all asset management industries is making money from trends, and under the trend, it is important to align your interests with those of investors through a reasonable incentive mechanism.
On one hand, NDV’s partners invested $6 million on the first day, demonstrating a strong alignment of interests with all investors. On the other hand, apart from a subscription fee paid for fund daily expenses, NDV currently does not charge a management fee. This means that as the manager, profit-sharing is only collected upon exit. We don’t want to secure risk-free returns for ourselves during the early stages.
“Dark Horse”: What value does your experience working in top billionaire family offices bring to you?
Huang Yu: Besides having a larger financial toolbox than ordinary investors, I look at global capital flows and the movement of major capital. I enjoy analyzing issues from a historical trend perspective. Compared to the past, the world today leans more towards confrontation, so capital flows are very unstable. In uncertain times, assets like Bitcoin, which are relatively neutral third-party assets, are easily preferred.
“Dark Horse”: What kind of understanding do you hope people have about Crypto?
Huang Yu: It is still a new alternative asset. In the future global asset allocation, Crypto is a nationality-less asset, and in terms of returns, it can partially replace USD VC as a category. A qualified asset portfolio always requires a high-risk, high-return allocation.
“Dark Horse”: Is Crypto the only choice for high-risk, high-return investments in the future?
Huang Yu: AI is also a choice. However, the opportunity for AI to directly participate in assets in the primary and secondary markets is still limited. In the long run, I believe AI will also be integrated with Crypto at some point in the future. AI itself is an advanced productive force, but it would be dangerous for any country or individual to control AI, which would hamper its dissemination. Crypto is a production relationship that no one can control, making it compatible with AI.
(Note: This translation has been creatively rephrased while maintaining the original meaning and context of the article.)
