Dialogue with a 100x Crypto Investor: What is Arthur’s secret to success?

Author: FC_0x0 Source: X, @FC_0X0

Perhaps it is his integrity that has made him what he is today.

@Arthur_0x is one of the most legendary DeFi investors, achieving 100X in less than 3 years. Now that he has transformed into a secondary company, his performance is still outstanding.

Here are all the trading tips he has never shared with the public:

Arthur entered the crypto field in 2017 when he was 20 years old.

When he was studying at Nanyang Technological University, he majored in economics and minored in entrepreneurship. To this end, he actively participated in extracurricular activities, served as the vice president of the investment club, and was reported by Channel News Asia as one of the young investors.

After graduation, Arthur joined BP as a trader, one of the world's largest oil commodity traders, taking turns in shipping, analysis and trading functions, working closely with traders and charterers to increase trading volume for the company. Arthur became more and more interested in blockchain, so he resigned from the international oil trading company he was working for at the time. This experience in commodities helped him establish a set of stricter standards in crypto investment, allowing DeFiance to minimize losses in the FTX explosion. Later, he became a fundamentals-based investor and focused on the potential use cases of cryptocurrencies beyond speculation. This led him to delve into DeFi in early 2019 and take advantage of the opportunities brought by DeFi Summer. Today, he is the founder of @DeFianceCapital. He used to do both primary and secondary investments. His current fund focuses mainly on the secondary market. He is also a kol with more than 100,000 followers.

Arthur said: " As I grew as an investor, I gradually figured out my own investment philosophy. Every investor has his or her own investment philosophy, such as Buffett, who represents the concept of long-term value investing. Once your investment philosophy is formed, you will begin to look for investment strategies that suit you. These strategies will be adjusted according to changes in market conditions, but the core concepts are usually not easily changed."

Through these experiences, he realized that successful investing requires not only a keen eye, but also the ability to keep learning and adapting to the market.

How did Arthur grow up?

In the process of growing up as an investor, he found that everyone had similarities in their exploration of investment concepts.

Usually, everyone first comes into contact with stock investment, starting from the perspective of fundamentals. But in the past 10-15 years, he has observed that the importance of the US stock market has been growing, becoming the only market in the world with a long-term surge. Other markets, such as Europe and Asia, do not have similar surges. So not all markets will have long-term surges. The key lies in the fundamentals of the entire market.

The second is that the popularity of value investing is declining. Narrowly defined value investing, i.e. stocks with a high PE, has performed poorly in the last 10-15 years. The better performers are those that invest in some growth stocks, such as technology stocks. He also tends to invest in such growth projects.

If you want to get returns that exceed the market, the key is to discover projects that can exceed the market growth rate earlier than the market. This is the key to obtaining alpha returns.

Arthur believes that cryptocurrency is very suitable for this global investment strategy because it is a global asset. If a crypto project finds the right market positioning, its growth can be exerted globally.

This is also one of the reasons why American and Chinese companies can succeed. They can expand rapidly in large markets. In Southeast Asia and other regions, due to the complexity of the market, expansion is more difficult. So Arthur gradually formed his own investment philosophy.

DeFiance Capital’s investment strategy revealed

Arthur said, “Our size is probably between eight and nine figures.”

Then the strategy is very typical, which is to select coins for investment based on fundamentals. "Of course, we will mainly choose the relatively small and medium-sized coins. Bitcoin and Ethereum are not our main investment directions, because our investment goal is to outperform beta, beta refers to Bitcoin and Ethereum. When we were founded in 2020, we started with DeFi. After that, as long as we think the track has the potential for growth, we will invest. Last year, we also invested a lot in AI, and we have been investing in games." Someone asked Arthur: "Then how can you guarantee that you understand it all?" He said frankly: "I think this can only be done by spending time. This is actually a threshold. As long as you are willing to spend this time, everyone can still reach the level of investment in a not too long period of time. Of course, you can't say that you understand it as deeply as technical personnel. But I think as a good investor, you don't need to have that knowledge to invest, you only need to have a basic understanding to start investing." Advice for newcomers How to quickly understand a new track, his answer is unique. Arthur said his method is three steps. The first step is whether the track is integrated with the Crypto. He thinks this is what he learned in 2017. Sometimes people are reluctant to put this application on the blockchain, but in fact the integration of the two may be very low. The second step is whether there is a possibility of rapid growth. Because we are all a little impetuous, if some tracks take a long time to run, everyone may not have so much patience. The last step is data. Do you have data to support your opinion? If you are optimistic about this track, then you should prepare some data to support it, and you need to give yourself some time to make a judgment.

You said I am optimistic about this track, then I may see some data in three to six months to support my optimistic view of this track. If this data has not been reflected after six months, then you have to re-examine your opinion.

What are the investment lessons of DeFiance Capital?

It is wisdom to learn from the mistakes of others, and it is smart to learn from your own mistakes.

During the operation of its previous fund, due to some force majeure, the fund launched a new fund between 2020 and 2023.

Many LPs who supported Arthur before expressed strong support for the establishment of the new fund and invested in it. This has made the latest fund perform quite well.

During this process, Arthur reflected on his experience and believed that there are many useful lessons for people doing business. He pointed out that in the investment industry, there are many opportunities and the threshold is relatively low. However, this industry also has its difficulties because many things are still immature and easy for everyone to guess.

Arthur mentioned that in the past 5 to 7 years of industry history, the key to success is to "survive", as long as you don't fail, you are considered a relatively successful investor.

During the investment process, in addition to market risks, there are two main risks to pay attention to:

The first is custody risk (Custody Risk). He believes that when managing other people's funds now, it is necessary to have a good custody operation. Recently, some exchanges have been hacked and lost hundreds of millions of funds, which is unacceptable in 2024. Investors should not spend too much energy on custody, but should use the industry's top custody services to solve this problem.

The second is counterparty risk (Counterparty Risk), including exchanges and investment projects themselves. Some people lack imagination about these risks because everyone is usually optimistic about the future. However, once a problem occurs, such as the borrower does not repay the money, or the exchange goes bankrupt, investors will face great losses. He reminded everyone to do a good job of risk assessment and not to easily believe the promises of the project party.

Arthur said that he had lost money in both custody and counterparty risk. Starting in 2022, they found an imbalance in the market: too many venture capital (VC) funds emerged, and the market did not have enough liquidity to take over these funds. Especially in the United States, the size of some large VC funds far exceeds what the market can bear.

This in turn provides opportunities for the secondary market, which is volatile and many LPs are unwilling to participate.

More and more high-quality projects are ignored after the issuance of coins, because VCs often only focus on early-stage investments and ignore subsequent operations. Therefore, Arthur wants to fill this market gap and provide support for projects that need help.

The functions of VCs are more diversified.

As the industry matures, how should retail investors respond?

Talking about the events that marked the market changes in this cycle compared with the previous cycle, Arthur felt that there were many "watersheds", such as the FTX liquidation, and then the settlement between Binance and the US government, which he felt were all milestones.

"Of course, in our industry, there will still be more wild ways of playing, but I think it will become more and more difficult, of course, it is not completely impossible.

How to accurately judge the entry and exit time of the target?

A VC friend asked: "I often read your LP report. First of all, the performance is very good. Then in this process, there are actually many targets that you see but others may not see. You also have a heavy position in tokens. In fact, the market liquidity is not that good, so how do you judge the entry and exit time of some specific targets? ” Arthur said that this is actually the most difficult to control accurately. Market timing is still very important for our circle. He thinks there is no completely correct answer, and you also need to make relative adjustments according to different market conditions, and they have been making adjustments. So he thinks the biggest difference between this cycle and the previous cycles is: When you see a project with good fundamentals, you have to be more active in profit taking. "For this cycle, I think the opportunity to take really good profits is actually no more than two months. In fact, it is from the second half of March to the first half of April, this short month, which is the best time to exit profits. If you don't exit, it is actually very easy to be far away from that price.

So, I think you need to look at the market from a macro perspective, including liquidity, trading volume, sentiment, funding rate, positive and negative. In fact, we will continue to increase the data that can be analyzed to reach a time point that is better for macroeconomic configuration. ”

In terms of fundamentals, Arthur will also look at the transaction volume on the chain, that is, whether there are most buys and sells.

It is also necessary to look at the growth of fundamentals. Because sometimes he thinks that from a more fundamental perspective, many blockchain projects go from very low to very high in a very short period of time. The AI ​​track is the best example.

Arthur thinks that the AI ​​track was relatively underestimated last year. Because at that time, everyone was still relatively conservative about Crypto AI. But when the bull market came, everyone started to speculate fiercely. Many things have risen more than ten times.

For example, this year's performance is why Bitcoin is all time high, but many friends feel that they don't seem to make any money. Because our various first-level and small-coin positions are usually larger than Bitcoin.

left;">The biggest change is that the market is indeed moving in a more institutional direction.Then the largest exchanges in the industry have reached a settlement with the US government. So they may have more restrictions on their operations in the future."

DeFiance Capital's experience of making a lot of money

According to Arthur's recollection, his project with the highest peak return rate was @AxieInfinity, with a peak return rate of nearly 2,000 times, an investment cost price of around 8 cents, and a maximum price of over $160. Of course, it is impossible to sell all at the highest point, because some tokens are still locked, and although the return rate is high, the investment is very small.

When Axie raised its first round of financing, it is believed that there were very few investors in this track, and in addition, it was in a bear market at the time, and the total financing in that round was less than $1 million, so they did not invest a lot of money. But judging from the rate of return alone, this project is the highest.

From the track point of view, the most successful investment is DeFi. We entered this track very early, so basically all the successful blue-chip DeFi projects have been invested in it, such as dYdX, Sushiswap, AAVE, YFI, Synthetix, etc.

DeFiance Capital also invested well in the secondary market. Because many DeFi projects did not have the so-called seed round in the early days, if you want to invest, you can only buy tokens or participate in liquidity mining. YFI, Synthetix, Sushi mentioned just now are many investments in the secondary market.

Experiences gained from the Terra and FTX incidents

After these incidents, Arthur will have a higher requirement for the team's ethics, which is called integrity in English. If a person has personality problems, no matter how successful his project is, it is likely to collapse in a short time.

The industry has experienced many similar things. Individuals and institutions such as Luna and FTX, which once dominated the industry, broke the moral bottom line due to personality and existence problems, so they collapsed even if they were very big. For investors, this kind of investment does not make much sense unless you are pursuing very short-term interests.

Naval Ravikant, a famous American angel investor, once said: Pick business partners with high intelligence, high energy, and, above all, high integrity…And then high integrity is the most important because otherwise if you’ve got the other two, what you have is you have a smart and hard-working crook. who’s eventually going to cheat you.

That is, if you only choose/help smart and energetic people when choosing business partners, then he may just be a smart and hard-working liar. Bad people with low morals will do more extreme things and may backfire.

Another reflection is risk control. In fact, Arthur did a good job in this regard. Although he invested in Luna, he did not suffer a big loss on Luna.

The rest of the story is just as mentioned at the beginning. Arthur raised the second round of funds, and many of the original LPs supported him. Just as he said at the end: "If a person has personality problems, no matter how successful his project is, it is likely to collapse in a short period of time."

Maybe many friends are curious about him. Looking back on his experience, it may be Arthur's integrity that made him what he is today.