Bloomberg Exclusive Interview with Three Arrows Capital Founder Su Zhu: The Potential of Bitcoin as a Reserve Currency is Clearer than Ever

Author: Joanna Ossinger, Bloomberg

Original Title: 《Fund Manager Who Called End of Last Crypto Winter Remains Bullish》

Translation: Hu Tao, Chain Catcher

Ten years ago, when Su Zhu co-founded Three Arrows Capital with Kyle Davies, it seemed like a risky bet for two derivatives traders in their twenties. But the gamble paid off. According to its website, the firm’s investments today include Bitcoin, Ethereum, AVAX, and SOL, as well as DeFi projects like Neon, funds like Multicoin Capital, and P2E projects like Axie Infinity. Analysis firm Nansen estimates that the firm’s blockchain assets alone are worth nearly $10 billion. (Zhu only stated that the firm's assets are in the "billions" range and would not provide data on fund returns.)

Zhu turned 35 this April, born in China and moved to the U.S. at the age of six, and has been a Singapore citizen since 2016. He proudly tweeted on December 21, 2018, calling that year’s "crypto winter" the bottom: "We will rocket out of the bottom at an incredible speed, leaving most outside investors stuck in fiat." Bitcoin was valued at about $3,850 when he tweeted, soaring to around $47,000 by the end of March this year.

Zhu discussed his career and investment philosophy in an interview with Bloomberg in late February. The following is a transcript of the conversation, condensed and edited for clarity.

Joanna Ossinger: How did you get into finance?

Su Zhu: I took a very typical pre-GFC (Global Financial Crisis) route. I majored in mathematics at Columbia University, interned at an investment bank, and then became a full-time analyst. In 2008, I started trading exotic equity derivatives at Credit Suisse in Tokyo and was laid off during the financial crisis. Then I was fortunate to find a junior trader role at Flow Traders, a Dutch ETF market maker expanding in Singapore. I worked there for a few years, then spent a year at an investment bank in Hong Kong, and finally co-founded Three Arrows Capital with my high school and college classmate Kyle Davies, focusing on emerging market forex trading. Think about it, we were 25 at the time, and starting our own fund at that age was quite rare.

JO: What attracted you to the cryptocurrency industry?

SZ: I got involved with Bitcoin in early 2013. Most of the activity was centered around exchanges in China, where you could do various arbitrage trades. By the end of 2017, I was very clear that, just based on the talent and energy of the young people involved in the space, cryptocurrency would follow a creative destruction cycle similar to the dot-com bubble, ultimately becoming a cross-section of finance, technology, culture, and politics.

JO: What are the main areas of focus at Three Arrows?

SZ: Derivatives trading has always been our livelihood and will forever be an important part of our work, and it is closely related to our venture capital. Since 2018, crypto trading firms have performed well because they have the resources to invest in top talent regardless of market conditions. We have no external investors, which allows us to make very good decisions about market timing, and then we use that to reinvest continuously in the entire ecosystem. Ensuring that we generate income from market volatility and continue to invest in the team is my top priority.

JO: Which areas have the most potential?

SZ: I believe in Amara's Law, which states that technology is overestimated in the short term and underestimated in the long term, especially when applied to cryptocurrency. Nowadays, the most promising areas may not even be considered crypto use cases. That said, I’m excited to see what scalable L1s like Avalanche can bring to users and application developers. We don’t even know what kind of network effects and emergent behaviors might occur when user numbers start reaching millions, tens of millions, and even billions. Most applications that people use today and consider to be in the web2 space will ultimately be disrupted by lightweight, community-owned web3 technologies.

I also believe we are entering an era where the potential for Bitcoin to become one of the primary reserve currencies for people and nations is clearer than ever. It won’t be a smooth journey, but for those who embark on it, it will be a very meaningful journey.

JO: What is the worst thing about cryptocurrency?

SZ: The tribalism and fierce competition among the crypto community. Austrian economist Mises predicted the open competition of private money and technology, and I think we are now seeing this unfold in a high-risk manner. Nevertheless, when people have a high proportion of their net worth in these assets, tensions will inevitably escalate, and to some extent, it also shows the resilience of the community and what people are truly willing to fight for.

JO: What insights about cryptocurrency has the Ukraine war revealed?

SZ: The power of crypto technology to protect individual rights. Ukrainians used it to safeguard their wealth from war, while Russians used it to escape the country and retain some level of assets. Additionally, crypto enables the global community to closely interact with what is happening.

JO: You often mention history and philosophy. How do these themes influence your work?

SZ: To truly grasp cryptocurrency, you must understand what it is reacting against and the direction it is heading. For me, crypto represents several trends:

Moving away from centralized control towards decentralized decision-making; moving away from walled gardens of closed-source code towards open-source discussions; shifting from institutional ownership to individual ownership; moving away from permissioned assets to autonomous, untraceable assets; moving away from crony capitalism towards collective capitalism; shifting from platforms extracting value from creators and fans to creators and fans sharing value.

I am a liberal, but I am also a voluntarist. This means I don’t want to convert everyone to my way of thinking—I just want to help build a world where a parallel system exists centered on freedom, and at some point in the future, anyone can participate in this system as they see fit.

The first major victory for individuals was the advent of the internet, and the second was the development of open-source peer-to-peer encryption technology in the 1990s. At that time, the existence of end-to-end encryption for individuals was so shocking that the U.S. government attempted to classify its dissemination as illegal export of military-grade technology.

Since then, we have come to understand that these are indeed the inalienable human rights we have always possessed. Technology has made actions feel as natural as handing someone cash or having a simple conversation in the real world. I refer to the concept of crypto as "restorative movement" technology because it is a key step in reclaiming the foundational elements that individuals have relinquished over time.

JO: What are your proudest and least proud investments?

SZ: Investing in the leading crypto options trading exchange Deribit during a bear market. Investing in first-layer blockchains like Avalanche, Solana, and Polkadot during a bear market, especially through over-the-counter markets. All of this felt very contrarian at the time, but in a sense, going against the grain and supporting diligent, tech-oriented teams pays off.

I don’t think there’s anything I’m not proud of. Even those projects that lost money are important because they were attempted, and the founders tried. People often see failed things and try to draw broader conclusions without recognizing the probabilities and uncertainties of everything. For example, our best venture investment to date is Axie Infinity, which didn’t even reach its expected subscription amount in the seed round, leading people to think they were doing charity.

The most crowded investment theme I’ve seen might be Facebook’s Libra node, where everyone set up SPVs (special purpose vehicles) and thought this would become the future of cryptocurrency. (Facebook planned to revolutionize global finance with a crypto initiative called Libra, later renamed Diem, but it never got off the ground. Earlier this year, all assets were sold to Silvergate Capital Corp.)

JO: Who do you admire most in history or philosophy?

SZ: If you look at someone like Lee Kuan Yew (the late founding Prime Minister of Singapore), the achievements he made through Singapore's separation from Malaysia are incredibly futuristic. Essentially, Singapore is the first startup city. It had to navigate multiple challenges of nation-building in a dangerous geopolitical environment: security, energy, economy, and culture. I see many parallels with the building of the crypto community itself. You have to believe in the power of community and the collective will to act, as well as the importance of uninterrupted transparency and honesty, and the ability to win on the battlefield of ideas.

JO: What does your future look like? What about Three Arrows?

SZ: I hope to support the development of systems thinking as much as I can. I see significant similarities in how we as a society view futurism itself—many technologies sound futuristic but are actually regressive, while many seemingly clumsy technologies are actually powerful human-enhancing innovations.

I strongly support nature-based grassroots solutions to address key agricultural issues and look forward to making a greater impact there. My commitment to this is an extension of the same spirit and philosophy that supports my commitment to cryptocurrency. Nature-based food systems or agroecology decentralize our pathways to obtaining nutritious food and clean water. They free us from dependence on global supply chains.

If we build agricultural alternatives at the community level, then people can choose to participate in this more localized parallel food system. Community-supported market gardens, especially in urban areas, expand our freedoms. They will be another significant victory for individuals, as they will allow us to better control our health and nutrition while regenerating the Earth.

As for Three Arrows, we will continue to do what we do best, which is investing in crypto assets and supporting crypto builders and communities for the long term.