Strategic Moves: Navigating the Crypto Market for Optimal Strategy | KBW2023

the head of communication strategic Partnerships at first digital so I'm going to hand over my microphone to Karen hi everyone thanks for joining us today um I'm very honored to kind of moderate this panel with our esteemed panelists I think we're going to start by getting you guys to give a brief introduction on your background um your current role and um The Firm that you founded or work for yeah so hey everyone I'm Jansen I'm uh Trading I do the trading here at Sega uh Sega is a decentralized option a decentralized structured Investments protocol um we help users generate 8 to 60% Plus apy on their usdc deposits with built-in downside protection uh high yields and uh productive strategy so uh so Sega has processed about 300 million in trading volume to date and we are have we have launched on ethereum arbitrum and Solana hey everyone great to be here this is Cole canelli uh founder and CEO of fmx labs um at fmx we build the leading crypto volatility indices uh which are Biv and eviv uh were the only Bitcoin and ethereum available uh indices available on trading view um we also build a defi deex a PR deex around that and a couple other sorts of products great to be here hey guys uh I'm Yang Jan um thanks for coming here um so I'm a CEO and co-founder of pressol um we're an algorithmic trading firm founded in Singapore we're trading both tradify and crypto uh on the crypto space we're trading about like billion dollars a day on on average with our prop book and then we're also as a market maker uh providing liquidity to the various projects especially on the day1 market making purposes yeah great thanks for the introduction I think we're going to start with you know what is your current outlook on uh the crypto market and how how has it evolved in uh recent years and that's open to all of you guess I I guess I'll start um so personally I am quite a mod a flat to moderately bullish um I personally think that um for the rest of 2023 we're not going to see any High volatility events um so so so unfortunately I feel like it's going to be quite boring until the end of the year um so there are I'm personally way really bullish for 2024 though because um there's a few events that I think could be potential catalysts um so first of all I think that the main one is the Bitcoin having so if you uh just a kind reminder to everyone that uh one year after each Bitcoin having the price of Bitcoin has actually more than doubled through through that year so uh if you for long-term investors that are are are looking to to have uh to make some money in crypto I think that now is a good time to start buying um incrementally I wouldn't like um do it all in one shot um I think that um doing it uh month by month or week by week you know amount that is suitable and to do it on a consistent basis is uh is a is a good strategy um second Catalyst that I think could potentially uh Spike on markets would be uh the FED announcing that they pausing their rate increases so fed last you know from since March of 202 2022 has been quite aggressively hiking rates and with the expectation of you know many Market many Market participants are expecting that that rate hike is going to come to a pause during the end of the year and whether the not the FED actually takes this path is is uncertain but it's it's it's likely and I think that given this announcement it's uh you know if they do announce this uh I think it's a it's a positive for the macro environment and you know hence crypto um over to you guys yeah I resonate with a lot of the points Jansen mentioned um markets you know I'm super long-term bullish uh we're still building and you know moving you know uh very as quick as we can and investing lot in the space I think that um you know Market's been a little lethargic in the last couple of months uh you know realized V implied VA uh are sort of at you know historic lows um but you know summer is over uh you know eventually the ETF uh news will pick back up um you know some of the having having stuff as well so and you know interest rate Cuts eventually and so uh you know crypto is going to come back and uh you know super excited about you know next couple of months um I'm sort of a perable but uh obviously last couple of months have been uh year and a half have been interesting so long-term bullish very much yeah I kind of agree with like pretty much all the points that you guys pointed out uh the market is kind of stuck in the in the like 30 $3,000 avable for for Bitcoin um for quite long just because you know last year we experienced a lot of bad events you know unfortunately you know FTX collapsed and and you know many governance failures I think that changed the sentiment um especially the the smart money big monies they step away and then they're just waiting for the you know some reasons to to you know come back in so I think until you know we see some clear regulatory you know um you know improvements or um those sentiment changes uh I think we cannot see like a big momentum for a while yep what are the most important factors driving the investor sentiment do you think take so important factors driving investor sentiment is especially for crypto I think is hype um So currently like I think there's not enough hype in crypto um I think this also goes with the risk reward perception to to retail investors about crypto um currently you know who's if if if you ask anyone on the street you know do you think Bitcoin is going to go to 100K by the end of the year you know probably no one's going to tell you that but if you asked this question you maybe maybe a year or two ago there's people that will tell you that this is going to this is going to happen so this is a this is also a hype issue um I think I think that other things that drive sentiment are you know the performance of the of the of the asset class in general so um in in recent times uh a lot of other markets have been going down um there's only there's only one market that's been performing well this year and it's that us equities um you know personally I'm from Hong Kong and um the Hong Kong equities have been just really trash this year so um I think a lot of people have invested their money into US equities and and putting their capital and allocating their Capital into other asset classes rather than Bitcoin or cryptocurrencies general maybe yeah and also as I said like I think um a lot of people are just waiting for um some some headline uses from the US leg Regulators because you know if BTC um ETF is approved then you know there can be a huge catalis but you know that there is so much uncertainties in you know politics and regul side so people are just waiting for it and keeps reading the tracking the newses and then the you know and there's no not much um money inlow into the crypto Market at this moment so a lot of price movements are dominated by uh the macroeconomic events like numbers the CPI headlines rate hikes acbs in fat um those numbers were not so important in back in 2021 because enough number enough money was already coming in without those newses but now everyone is looking for those external factors so yeah when do you see a recovery happening I think everyone wants to know including me um I mean like a recovery will go to the point like it goes back to the point I talk about um you know I don't think it's going to come this year um it might come slightly you know we might recover to like 28 30k Max by the like I personally think it Max by the end of December but I think the recovery will come during the uh during the start of 2024 when when actually um this actually goes to another point where I think that I think a lot of the funds or the institutional investors that have generated a lot of profits this year they will start toning down trading activity towards the end of the year because they want their books to look good they want their numbers to look good um so they they probably toned down a trading activity towards the end of the year and once this beginning of 2024 comes and they need to deploy their they need to redeploy their CL their Capital into the markets um that's when I think that the potential for for the price increase for Bitcoin to come and uh yeah yeah well said Jansen um yeah I think some of the points we touched on earlier regarding you know uh ETF flows uh having and an interest rates could create uh a little perfect storm for crypto to go back up so whenever those things sort of align could be you know beginning of 2024 as Jansen said um you know no one really knows don't have a crystal ball but uh eventually you know grayscale ETF uh or you know gbtc conversion is inevitable uh I believe and uh you know also like the Black Rock stuff so I think that sort of thing would bring a lot of Wall Street buy side folks or institutions in general to the space and um so 2024 should be quite bullish but uh who knows I'm going to go into some of the more granular questions around uh trading uh strategies um crypto markets can be obviously see less liquid than traditional um markets um and especially in this bare market like liquidity is quite thin on the ground how do you address liquidity challenges in your trading activities um that's a good question so even in traditional markets not all the let's say for example stock markets not all the single names have enough liquidity so some less popular stocks and some less developed um stock markets they also have the similar problems so um you know when you run your strategies you have to adjust your uh Market impact uh you can actually run some simulations to uh estimate the market impact um you have to adjust your strategy size based on the market liquidity yeah and like crypto markets uh as you said U the absolute value of liquidity is thinner than traditional markets that's true but you know it's open 24/7 and then you know if you have to trade on something on the weekends where' you go like the CME is not open so you have to uh go to like some some centralized exchanges some some Dax I think from that perspective liquidity is there especially on holidays and weekends yeah and oh yeah I just wanted to say one few more things about liquidity um I personally think that liquidity in crypto markets is actually you know good I don't think it's like no poor to let say um like especially with what what what do people trade the most it's like they trade the perss and like people who who want leverage trading they will they will go to trade perss wherever they find it and the liquidity for perss is still very good um I mean for me personally when I do execution it's like there's not much slippage when I when I when when I execute perss on BDC eth or even some other altcoins that we're trading um so yeah I I don't like I don't think that liquidity is poor so to say um yeah of course for exotic pairs for or like less liquid um you know non usdt based contracts they are are Le they are less liquid but um I think the the big ones are definitely um they are more liquid um relatively speaking so regulation has been like a recurring topic um in the space how does regulatory changes impact your uh trading strategy maybe Co you can take yeah so great question thanks Karen so uh at vmx we build a number of products uh that are defi or sort of you know in partnership with other folks and so we're constantly paying attention to uh the regulation we're not a trading shop but we're a you know software developer uh of the Biv and the eviv index and the linked products and so paying close attention to regulatory developments in the US and globally and you know hope to see you know very thoughtful regulation uh for crypto derivatives uh in the US for perss and uh well perss are not available in the US but you know options and things like that and um and so I think you know it's definitely a big factor um but it's sort of a a little bit nebulous at the moment um but it's not something that we you know uh worry too much about day-to-day it is what it is and we trust that there'll be thoughtful regulation in the end and uh feel confident about that so uh something to pay attention to but it's something that's out of our control right so the next question pertains to sort of um the high interest rate environment and this is one that I'm interested in because first digital has launched its own stable coin FD USD given the high interest rate environment what would be the best way to utilize stable coins um you can deposit like your stable coins in you know some staking Services uh centralized exchanges to earn some some yields um but honestly um the traditional financial markets as you said it's already generating like you know even the US you know base interest rate is already 5.5% and even like very conservative uh money market products can easily generate some like high single- digigit yields so at this moment it's not so attractive i' would say um but you know when the market comes back the demand on the capital on the stables in crypto Market will go up and then I think the expected return will definitely go up as well so I think it's a season seasonal and how do you see cryptocurrencies fitting into a broader Investment Portfolio alongside traditional assets and that's for all of you so as a broader like macro part of a part part of a broader macro book maybe for a macro fund I think that um most fund managers would probably think about deploying a a single digit percentage of of their Capital to crypto um I mean that's just a reality I think that um given the historical like you know or historic expected volatility of crypto I think that not many fund managers can take that variance in the in the p&l um so so I think um as as a if as a traditional fund manager you would you know not deploy that much cap capital into crypto um I would probably like do mostly in equities and then some Commodities and then like some you know other other alternative assets yeah I think it uh fits in their their broader investment allocation strategy but they can look at it like you know in a low Val regime it's like a 45v 40v asset and but like positive all uh you know regime or high Val regime um positive Vol positive spotv correlation excuse me um you can see at at 80 or 100 and so you know if there's an 80 or 100 Vol ass it's not going to represent a huge percentage of the portfolio because it's obviously more risky and so uh you know as J Jansen said like a single digigit percentage of their P portfolio could be allocated to crypto assets like Bitcoin or ethereum um you know and as the market matures maybe that uh mandate uh gets expanded and so uh definitely a very useful uh you know asset class for traditional investors and expect to see more allocations so crypto markets previously followed like a 4-year cycle pivoting around the Bitcoin harving what do you think is likely to happen this time round and what would be a good way to navigate a potential cycle yeah so in the past um the BTC dominance was I think was like 90% um like before 2021 so at the time it's crypto Market is pretty much BTC Market and then at the time the inflation rate ratio I mean rate um um triggered by the mining was about 4% or even before that cycle it was 8% or 10% so at that time the haling had uh fundamental meanings so that actually that um rhetoric actually triggered a big rally but I think this time it's already 1.8% inflation rate and then BTC dominance is only 50% I think um so the effective the fundamental effect will be quite limited for this time but I think the story repeats off so maybe a lot of people will still believe in and they will come back so there there will be some volatilities some price actions but I don't think that the fundamental effect will be that great this time maybe Jensen you want to add some color yeah um so actually for talking about volatility of Bitcoin um historically um you know for the past three three years or so I've been in the crypto industry uh ethereum has uh higher volatility than than Bitcoin but recently it's actually swapped around um you know Bitcoin has more volatility than e um so I think that um Bitcoin will still be The Driver of price um like like for example I think uh you know a few weeks ago Bitcoin there was like a flash crash where um you know where where where BDC and E dropped like 10% in 5 minutes um so during the that time B Bitcoin actually dropped more than eth um that I believe there was more liquidations for BDC and I believe that um you know BDC will still be the key driver of of price action uh in the in the times to come do you think there will be an impact from security tokens and tokenization of real world assets how would you position yourself for um upside whilst minimizing risk Cole yeah so this is a space that I've been paying attention to since like 2018 when first heard about tokenized Securities and I was you know uh you know more green in crypto um I think it's definitely going to be a big thing long term there's a lot of interest from Wall Street uh you know from like a narrative point of view and there's a lot of projects like Ando and some interesting like real world asset stuff um tldr I mean I think it grows the overall pie for Defi and and for crypto generally um it's obviously but it's there's certain um you know these are securities I need to be regulated in certain ways and you need to invest in legal and compliance and it's not um you know there's a lot of you know uh things you need to do to prop you know properly uh launch you know security tokens or real world asset tokens and so I think it's going to be very big I can see that that will drive you know um people folks like maker Dow and chain link are thinking a lot about that I can see how that would be a big Boon to both of their businesses you know adopting real world asset stuff and can grow the overall you know tvl or the you know amount of value cured and so very positive on the idea we don't have a real world asset play at vmx yet but have some ideas and um think that uh you know there's a lot of interesting stuff going on there but it's uh sort of coming to market now evolving great question and actually you mentioned defi defi is actually in the midst of a downturn at the moment so how do you all like sort of envisage that will turn out in the coming months yeah so I've been paying attention I like you know to defy since I met Hayden Adams in at a small Meetup in 2018 um it you know has been a really interesting journey to watch it Bubble Up in 2020 with defi summer and then sort of deflate a little bit with uh you know the bare market and some of this you know uh some of the price action I think defi uh saw tvl go down a lot because a lot of tvl is denominated in tokens and Bitcoin and ethereum and so if you're looking at defi llama you know it's sort of intuitive to think that it makes sense that you know it's down so much because it's denominated in in coins but um I think defi derivatives you know orderbook based perss and options uh specifically things like we're building at Vmax and others like Sega um will be you know a Big Boon to Defi and and help grow the overall space I think that uh a lot of these platforms are coming to market now and and haven't really been in Market there's been a lot of amm based uh derivative products which have been kind of wonky um and there's you know a lot better implementations coming to Market and so bullish on Def derivatives growing the overall defi space um and uh yeah I think that will be probably the biggest driver to defi um but it's excited to see tvl of defi go from say 50 billion uh per defi llama to you know one trillion in the next cycle or so so I'm very optimistic about the future of Defi and think that you know come back in a big way I I think it goes uh you know defi is you know you know not I I wouldn't agree that defi is like in a downturn um I think that um it's actually has to deal with an issue of trust from from the mass users um I think this trust has been breached um last you know in last May in 2022 when I know ter Luna happened and like yeah um and like every had everyone had to withdraw their funds and I I I think the general um audience or the general retail investor is not you know looking to deploy their capital in D5 CR ly um nevertheless I think um Sega as a platform actually has been growing 16% in tvl in the last three months and also we've grown you know we 3x our user base in the past three months as well because we've launched on arbitrum um people you know users can stake as little as$ one or you know one us one usdc on our platform up to you know however much they want um so you know I don't think I don't think you know personally I don't I don't feel I don't feel the downturn I think I feel that um def is here to stay um I think right now D5 def5 platforms should really spend their time building their product um refining the uiux and uh when the bull market does come I really I'm really strongly um I really strongly feel that the the users will come back and they are they'll go to the best they go to the best products would you agree with that y Jun because there's been like a lot of hacks happening recently yeah um I think the challenges on defi is um few things like first one uh first of all it's a regulatory CH uh challenges a lot of I think governments are pushing for you know fedf standard for many CX platforms and I think that's the next Target will be defi I would say um because you know right now a lot of users are like uh a lot of defi users are are using defi not C CI um partially because you know you don't need to go through kyc and those name checks and travel rules are all Exempted I would say and I think eventually the defi will get questioned like how we're going to cope with those um money laundry issues and all those like headaches um I think that's a first challenge um and then the second one is I would say security issues like you know as an Institutional side point of view um it's hard to deploy a large amount of capital to defy at this moment I mean I mean it's able but I want to say that th those two uh problems are are still there I think but in in the end I think defy we resolve um these problems and when the market comes back um TBL will grow and then the expected return will boost up and then the cycle will come back but I I do see those two problems and what do you see sort of um what trends do you foresee in a crypto Market in in the coming uh years I say that crypto's years is a long time um and how do you plan to capitalize on on them I'll jump in here so uh we're talking a lot about derivatives I think that uh you know future sorry options and VA products are obviously underrepresented relative to how big they are in tradify options are many multiples of the size of crypto market and the traditional Finance markets um so I'm very Optimist you know think that will grow a lot uh regulated derivatives has grown you know four or 5x since you know 6 s months ago uh there's a demand for stronger counterparties post FTX right people want you know assurance that uh they're trading on a solvent exchange and a strong counterparty so you know think that the that side of things will keep growing and then of course as mentioned a couple times defi derivatives will be uh you know a big Trend and so uh we have a number of plays in these uh space at VX um different sort of derivatives and uh defi derivatives or partners ship and so uh think that would be really big for the space overall what do you guys think yeah so actually I I at Sega we also believe that defi derivatives will drive the next uh bull market um derivatives actually to the general audience I don't think um you know derivatives they they they feel like it's a it's like a risky word um actually well I don't think so uh if you don't leverage with derivatives I you know you can post full collateral um it's actually a very efficient way of using your Capital um the derivatives can can be very customized to to um the Investor's needs um they can have built-in downside protection um you they can have uh you know you bullish with built-in downside protection um so there's actually many many different uh ways you can structure your derivative to suit your investment profile so um yeah I feel like um when when when high with individuals or family officers realize that um when B when Banks the the products that they're buying from the banks um how much you know how much they're getting scammed by the Banks and they can actually just go to Defi and and have the same product but have trade it more efficiently more transparently um I think that this will be the big driver for for future growth in Defi and do you have any final tips for the audience I guess the billion dollar question is how do you maximize gains and minimize risk is that possible in crypto um um I think if you're a long-term investor um you can I think it's a good time to buy Bitcoin ethereum especially those major ones at every dip because you know I mean it's it's quite cyclical it's it's comes and goes um it's coming back and we don't we just don't know when it's going to happen but it's quite obvious that the total money supply will permanently grow and then the money has to go somewhere to to hatch that risk systematic risk so I'll suggest to keep you know accumulating those you know the major crypto assets um especially during the winter time yeah I think uh dollar cost average is a reasonable approach for a lot of uh folks who maybe don't work in the industry or you know have a strong opinion dollar cost averaging the majors uh as you said um you know also just other uh High convict like you know tokens that have promising you know businesses like maybe maker or things like that so I think that uh not Financial advice but I think that you know uh BTC eth and you know a lot of you know defi coins that or a couple defi coins that have promising you know Prospect would be good things to uh think about and um you know dollar cost average though the majors is probably the main thing to be considering as a invest retail investor yeah I totally agree with both your points um I I would say that if I were to like allocate up you know 100% of what portfolio into to some to some assets I would like you know maybe like four you you have like solid figures that'd be like you know 40% PDC 30% eth uh 20% maybe in uh you know I I hate to say it but like like traditional traditional equities and like bonds maybe at this during this time and uh I would actually allocate the last 10% and maybe a saking protocol like WX or Sega where we can actually um you know generate you know higher returns based on our on on our on our uscc deposits I'll open up the questions to the floor if anyone has any questions just please put your hand up okay well thanks for your time guys it's really uh informative and insightful for me anyway so yeah thank you thank you for listening thank you great to be here thanks everyone thank you ladies and gentlemen once again please give a big round of applause for these great speakers and also our moderator Karen