[TI Interview] Matt Hu
In May 21, in the meeting of the Financial Stability and Development Committee of the State Council (hereinafter referred to as the FSDC), key tasks have been deployed in the financial sector in the next phase. It was pointed out that supervision of enterprises' financial activities should be strengthened, Bitcoin mining and trading should be cracked down, and the transmission of individual risks to the society should be resolutely prevented.
Due to the intense stance of regulators, in the past three weeks, the cryptocurrency market has undergone the biggest adjustment this year. The price of Bitcoin has almost been cut in half. The determination made by FSDC also made it silent about "coin" and "mining".
Under the pressure of the official statement, will China's Bitcoin mining industry repeat the situation of China's cryptocurrency exchanges collectively going overseas from 2017 to 2018 after China's withdrawal of ICO? How will the cryptocurrency market be affected? How do professional institutional investors participate in cryptocurrency investment? What other disruptive applications will be produced by the blockchain technology that supports cryptocurrency? The finance.ifeng.com interviewed Matt Hu, founder of TokenInsight and CEO of Blofin.
Matt Hu pointed out that a direct result of regulation is that the custody fees and electricity prices of overseas mines rise all the way, but the current price of Bitcoin can still cover the rising cost of “mining”. In addition, China's Bitcoin mining industry has already shown signs of seeking overseas compliant places for operation around the world.
As for the current market situation of Bitcoin and other cryptocurrency markets, Matt Hu believes that panic continues to exist. "Although the price has plummeted, market volatility shows that investors still keep great panic, and everyone is waiting for the implementation of regulatory policies."
With the continuous heatness in the cryptocurrency market trading, financial institutions such as Goldman Sachs and JPMorgan Chase have already deployed cryptocurrencies and launched related financial products. Matt Hu shared with finance.ifeng.com that mainstream institutions also focus on primary market investment, secondary market tradings (including subjetive tradings and quantitative tradings), and mining. Since the beginning of this year, liquidity mining based on Decentralized Finance (DeFi) has also become a new investment target for institutions.
As for the blockchain technology, Matt Hu's most optimistic application direction is finance.
The following is the interview record (excerpt):
finance.ifeng.com: How do you interpret the policy of FSDC this time? In response to the statement made by FSDC, how did the people in the circles of "mining" and "coin" react?
Matt Hu: The first thing to emphasize is that practitioners must respect national supervision. We recently participated in many mining industry conferences and found that most of the large computing power companies have been searching for countries and regions that can operate mines in compliance with regulations, including the United States (Texas and other states), Norway, Canada and Central Asian countries. Developed countries and regions basically have relatively compliant systems, and the costs are also relatively high.
A result of this supervision is that the custody fees and electricity prices of overseas mines have been rising recently. (Some mines in Central Asia raised prices for miners by 40% overnight). Overseas mine operators are also very aware that Chinese miners must begin to seriously consider transferring their mining machines to overseas.
finance.ifeng.com: Is China's Bitcoin mining industry already showing signs of going overseas?
Matt Hu: There are more than signs. Before the FSDC's statement this time, Inner Mongolia had already proposed in February this year that it would completely clean up the cryptocurrency "mining" project. The market itself has produced expectations of strong supervision. Some forward-looking companies and practitioners have found that "mining" is unsustainable under the framework of China's carbon neutral policy. Therefore, these companies and teams have already done a lot in advance to look for overseas mines. Even with high electricity prices and high operating costs in the United States, the current Bitcoin price can still cover their mining costs.
Since the end of last year, mining machines have been in great shortage. It is said that the spot of Bitmain's mining machines has long sold out. Constrained by the current shortage of chips, Bitmain's mining machine futures have even sold until the end of next year. At present, the main purchasers of mining machines are no longer individual investors and small miners. They are basically companies with large amounts of capital, especially American companies.
finance.ifeng.com: What do you think of the current cryptocurrency market?
Matt Hu: Regulatory policies will definitely have a huge impact on the market. Because in this industry, whether it is Bitcoin mining or trading, China is very important. Therefore, this regulatory policy directly caused the market to plummet. Bitcoin's biggest drop was nearly 50%, and some small currencies fell even more, which also reflected China's huge influence in this market.
The market is still in panic. Although prices have plummeted, market volatility shows that investors’ panic remains at a high level, and everyone is still waiting for the implementation of regulatory policies. The FSDC meeting made it clear that it is necessary to crack down on Bitcoin mining and trading while there is no clear conclusion on how to crack down and how to implement it.
In fact, many practitioners in China hope that the government will implement the supervision to the end and clear it all at once. In this way, everyone has a clear expectation and bottom line. It must be seen that the use of cryptocurrency for packaging, issuing air coins, and engaging in pyramid schemes still exist in large numbers. Our government takes the initiative to supervise and protect the interests of ordinary investors is a responsible performance. I believe that people with rational and conscience will firmly support the fight against these projects and teams that use concepts to engage in pyramid schemes and manipulate the market to deceive ordinary investors.
Of course, the cryptocurrency industry is certainly not worthless. If you look closely, there are also many truly valuable technology and product innovations in this industry that can improve the efficiency of the current financial system.
On the other hand, the cryptocurrency industry will not die out due to the supervision of a single country, because it is a global industry. The charm of cryptocurrency itself is precisely that it is like the Internet, born out of technological innovation, and is slowly infiltrating and changing the path of value storage and transmission on a global scale. Of course, cryptocurrencies will also encounter varying degrees of regulation around the world. Some countries have strict regulatory policies, and some countries are relatively tolerant or even actively embrace them in order to obtain the dividends of the new market. Some countries have very strong implementation of supervision, while others are relatively weak. The United States is currently gradually establishing its own regulatory system. Some developed countries such as Switzerland and Singapore are more tolerant of cryptocurrencies, and their regulatory systems are also more friendly. Previously, India had introduced laws that defined the possession of cryptocurrency as a crime, but it recently adjusted this policy and the government finally found out that it still needs to monitor it.
finance.ifeng.com: You have a very deep research on the cryptocurrency asset management industry. What stage is this industry in now?
Matt Hu: The cryptocurrency asset management industry is actually still at a very early stage. At the end of the last bull market (that is, 2018), the cryptocurrency industry generally did not have the concept of asset management. At that time, there was no third-party custody in the cryptocurrency market, and many investors needed to transfer their assets to the other party for management, causing many losses.
After more than two years of development, such problems have become fewer and fewer. The current cryptocurrency asset management industry is becoming more and more compliant. Many industry-leading institutions, including Blofin as a Cayman institution, pay great attention to compliance operations. They provide compliance services to overseas institutional clients who have passed strict KYC and AML in areas where there are legal frameworks and licenses.
finance.ifeng.com: Is there a lot of competitive pressure in the crypto asset management industry now?
Matt Hu: The current competition is already very fierce. 10 of the top 15 hedge funds in the United States have conducted large-scale transactions in this industry.
finance.ifeng.com: Is the mainstream investment target still in the field of quantitative trading?
Matt Hu: Before the end of 2020, if most of the funds in the cryptocurrency industry want to make money, they must either go for mining, or do quantitative trading, or do trend trading by themselves. The amount of funds that can be carried by mining is the largest, but mining is about assets and operations. The risk of trend trading is extremely high, and most people may not make money. In addition, I also remind everyone not to do any contract transactions lightly. Because from the exchange data obtained by TokenInsight, 94% of contract traders lose money, so individual investors should not participate in such transactions.
Now, for institutional investors, in addition to primary market investment, secondary market transactions (quantitative and subjective tradings), and mining, investment targets have added fixed income and liquid mining targets in the DeFi field. DeFi is an emerging field, and it has constructed some new models and paths. DeFi's total value locked (TVL) has reached $140 billion before the sharp drop on May 19, 2021 (hereinafter referred to as 519).
Of course, the 519 plummet also exposed the potential risks of DeFi. It comes more from technology and product mechanism design. The technical risk refers to: DeFi itself is a protocol, and the communication between people and the communication between funds are realized by protocols and codes. Therefore, once a hacker attack is encountered, the loss of funds cannot be recovered at all. In addition, some DeFi product design logic is problematic, and some people will use product vulnerabilities to carry out malicious attacks. Because DeFi is a decentralized mechanism without supervision, once the defects of the mechanism itself are maliciously exploited, it will be very troublesome to deal with.
finance.ifeng.com: The underlying technology of cryptocurrency is blockchain technology, and the development of blockchain technology has become a national strategy. What do you think the disruptive applications of blockchain technology will be in?
Matt Hu: My most optimistic direction is finance, but it will also have great value in other fields. The application of blockchain technology in finance will definitely bring about huge innovations, and will give birth to very large companies or organizations like Google. Blockchain technology also has a very large application space in other fields. For example, at the privacy and information level, that is, in the Web3.0 era, blockchain technology can support user behavior information storage and value exchange, and ultimately form a new Internet and value network. Now NFT (non-fungible Token) is only part of it.
At the point where the blockchain technology and the real and huge demand in the real world (worldwidely) are combined, there must be a very big opportunity.