From Nov 28th to Nov 30th, the highly anticipated MiamiWeb3 Summit was successfully hosted by the City of Miami, CTH Group, and Atlas. With over 100 speakers including web3 leaders, policymakers, and investors, and more than 1,500 attendees, MiamiWeb3, themed “Going Beyond Crypto to Embrace Web3”, has made its mark as one the largest institutionally focused Web3 events.
It's been a great honor for CTH group to build up MiamiWeb3 Summit as a platform to bring together the most influential leaders, bridge the Web3 community, and progress the evolution of Web3. Founded in 2016, CTH Group is a multi-national company in the blockchain and digital asset ecosystem. The company adopts a triangular business strategy, focusing on high-performance Web3 infrastructure (Atlas Technology), digital asset management (IDEG), and venture capital investment (Fundamental Labs).
As the Founder and Chairman of CTH group, I feel so proud and am very grateful that we survive after experiencing the ups and downs of this industry in the last 6 years. At MiamiWeb3 Summit, I made a welcome keynote speech sharing the 6 key points we have learned during the turbulent years. Hope it could help those who’re in the industry as well as who’re observing the industry.
With 10 years of development, Web3 is still a young industry. We are embracing the second decade of Web3, a decade of infinite possibilities and profound impact. Let’s focus on core values and keep building.
1. Never overreact to a cyclical event, including being over-optimistic and over-pessimistic.
When I was very young, I used to hate going to bed, especially if it was a wonderful day. It’s because I had little experience and I didn't want it to end so soon. Now I can still see my children experience similar feelings. When we grow up, we know that every day the sun sets and rises again, and tomorrow is another fresh day, you don't overreact to the end or the start of the day.
It's the same with our industry. When you see the price of bitcoin skyrocket and the price of many digital assets go up almost every month, you have to understand that there will come a day when the music stops. And when you see the price of bitcoin plummet and the price of many digital assets stands at less than 10% of ATH, you have to understand that there may be a day when our little music train is going to start all over again.
Don't be over-optimistic, when you're still enjoying the day. Also, don't be over-pessimistic, when you're just about to give up. Trust yourself to be mature enough to understand that this cycle is no different from your wife’s need to replace her sunglasses and handbags every year. Some things are changing, but some things stay the same.
2. While bitcoin still dominates the market, the halving cycle effect is still valid, except that we need to pay more attention to the macro interest rate cycle than before.
Many people are questioning whether bitcoin is still important and whether the output of bitcoin miners and their selling pressure still have an impact on the market. My answer is that the halving cycle is still valid until the day bitcoin no longer has the largest market share and until we see a lower or even negative correlation between bitcoin price and other digital assets. The reason is that bitcoin remains the most influential asset in the market, and the market cap of the entire digital asset market is an amplification of bitcoin’s market cap. This amplification comes from the fact that bitcoin is the most important underlying asset, and its trading volume and liquidity are the most important indicator in the overall digital asset market.
We need to pay more attention to the macro interest rate cycle than before because the interest rate cycle determines liquidity and the pricing of risky assets. Bitcoin is undoubtedly a risky asset. But it may bring up another question: why do many people emphasize bitcoin as a risk-averse asset? Although we say the same word "risk", we are pointing to a different meaning. When we say bitcoin is a risky asset, it means that the price of bitcoin is highly volatile against fiat currencies or against the US dollar. We’ve seen turbulence since bitcoin was created.
We have a different definition of “risk” when we say bitcoin is a risk-averse asset. We value bitcoin as a hedge against fiat currencies and other risks coming with the system behind them. For example, we all know that there are 197 sovereigns in the world, and there are about 180 fiat currencies in circulation. However, all fiat currencies have the limitation that their purchasing power is highly correlated with the economy behind them and the exchange rate mechanism. When we choose a fiat currency, we need to take the risk that we may have to pay for the mistakes or failures of the government and central bank. Yes, we need to recognize that the competition between countries affects the competition between fiat currencies. It’s no news that only a few will win, and most will lose out. Also, all our fiat money is held in various commercial banks, but no one can assure you they will not fail. Therefore, instead of blaming the younger generation for embracing bitcoin, maybe it's time to take a different perspective on our planet. What kind of dignity and freedom should people have?
Bitcoin is a risk asset and a risk-averse asset at the same time. We need to pay attention to the macro interest rate cycle because it is the rising and ebbing tide in the economic world, and we are all on the beach.
3. We are still in a very young industry. Don't set false expectations, and don't underestimate the potential of this industry.
While I remain very passionate about the Web3 industry, many people have expressed disappointment with what has happened over the past year, which I totally understand. Don’t misjudge the maturity of the industry. The industry is still young. There are still a lot of consensuses that have not been widely shared. There are still a lot of infrastructures that have not been built. And there are still a lot of regulatory gaps that need to be filled.
But these are by no means reasons to be bearish about the industry. All above could represent risks, especially for those who are used to old-school thinking or the ways of established financial markets. It could also mean opportunities for many companies and entrepreneurs who are committed to building the next generation of financial infrastructure. The process of value creation is about creating innovative solutions to meet new needs, or better solutions to meet existing needs. Currently, we see both opportunities in this industry.
Too often, we are disappointed because we set unrealistic expectations. I am sure that we still have a long way to go before we can meet the expectations that many people have today. Maybe it will take 1-2 more cycles, maybe it will take 5-10 more years. But I'm also confident in saying that we will get to the day when many of the technology paradigms, infrastructures, and solutions created by this industry will have a profound impact. It will make applications more secure, will give people more freedom to allocate their assets, and will make globalization more sustainable. Let’s work on this together!
4. We need to evaluate large companies more prudently. The risk of a company is not originated from its valuation or market share but from its risk source and resilience mechanisms.
Many people don't understand how a crypto company valued at over $10 billion collapsed within a week, while many more large companies are under threat of bankruptcy. My observation is that in many industries, the largest businesses are not the least risky It's just that in many industries, the size of a company is not based on its underlying short-term liquidity, so large companies will not appear to collapse so fast.
In the crypto industry, a company can easily build up rapidly over a cycle, especially if it uses leverage very aggressively in an upcycle. All businesses benefit from the multiplier effect and leverage in a growth market. But the key is whether a company can go through the down cycle unscathed. Very often the answer is no. If a company’s lifespan is shorter than one cycle, then it often means it has not been stress tested at all.
All crises are, essentially, crises of liquidity, and the spark that sets off the bomb is volatility. As the crypto market is a highly correlated market, it is easy for us to miscalculate. Don't blindly believe in a big name, valuation, or AUM of a business. Talk to the people, try to understand the business model and risk management model, make your decisions based on a proper understanding, and don't get fooled by the billboards.
At CTH, we realized right at the start that as a company you can't put all your eggs in the basket of bitcoin performance. We remain very focused on the industry and we have a clear business model and sound risk management to build a solid foundation for the next stage of growth. We spent a lot of time refining our risk control mechanisms and building up our cash reserves. This ensures that we can stay with the industry for the long term.
I often advise our colleagues to set the right goal, which doesn’t focus on short-term profits The right goal is to take a long-term view and survive in more than one cycle, then to survive in more and more following cycles.
5. Distinguish between early-stage investment and early-stage speculation. Spend more time understanding the development of technology and businesses instead of being a blind follower of the mainstream.
We all know that the failure rate of early-stage investment is very high. It is interesting to dig out the reasons. There are only two kinds of investment failures, investing in a bad one and missing a good one. We tend to stagger between these two kinds of mistakes. In an upcycle, investors are inclined to minimize the risk of missing a good start-up and are willing to take more risk on the mistake of investing in a bad one. In a down cycle, the opposite happens. Investors tend to avoid the risk of investing in a bad start-up, and would be more willing to make the mistake of missing a good one.
There is only one way to reduce the failure rate, to distinguish between early-stage investment and early-stage speculation. The fundamental difference between the two is the logic behind the decisions. An early-stage investor understands the trends of technology and business and what breakthroughs the market needs. An early-stage speculator focuses on who is next in line to pay a higher price, so they can flip their investments. Unfortunately, these speculators end up holding the bag.
We need to go back to the origins of this industry. We need to rediscover the inspiration that got us into the industry in the first place. We are here to support technological innovation and better solutions.
Many mainstream investors often made similar investment mistakes mainly because of similar blind spots. They flocked toward the hottest sectors because they don't understand the fundamentals of target companies and the implications of investing through different cycles. Unless you're sure someone else will pay for your losses, don’t “borrow their brains”. So to speak, always do your own homework.
6. Is there substance behind the web3 conception? What is its core value, and what is still missing?
If we look back at the history of technology development, the skepticism of new technologies and new industries is not new. All skeptics share a common trait: lack of patience. They do not participate in the creation but want to enjoy the convenience of technology. They hate the setbacks in the process of innovation and expect progress to be linear and predication. They want to skip all the gameplay and go straight to “touch down”. Yes, they lack patience.
People with more confidence are usually more patient. We have faith in the grand vision of web3, so we have more patience in paving the road. It’s meaningless to get into whether Web3 is a marketing buzzword or not. We want to focus on the core values of web3.
1) Build trust on transparent consensus and verification, not on anything else, which means the next generation of infrastructure.
2) Build applications in a decentralized infrastructure and grant people permissionless access, that's the next generation of applications.
3) Enable people to own their data and asset, and people can exchange their value in a peer-to-peer network, no matter who you are, no matter where you are, and when you are, that's the next generation of assets.
We've seen a rough outline of the future for the above points, but the details are spotty. We need more secure and efficient infrastructures, we need more reliable and user-friendly applications, and we need a wider range of user portals. More importantly, we need better solutions, and we need to combine the technological innovations and tools we have achieved to create a more practical solution.
Overall, we are on the right track. We need more smart and capable entrepreneurs. The best players have not picked a team yet.