Dialogue with Mossfire Capital Co-founder: The Bull Market is Coming, How to See Through the Market Fog?

Host: CC, Product Head of RootData

Guest: Raymond Huang, Co-founder and Managing Partner of Mossfire Capital

****Rootdata: *Welcome to our space. I am your host tonight, CC, the Product Head of RootData. Our heavyweight guest this episode is Raymond, the co-founder of Mossfire Capital.*

Raymond :

My name is Raymond, and I am the CEO and co-founder of Mossfire Capital. I really got into the crypto space and started buying coins around 2017 and 2018. However, I think I became more deeply involved and spent more time during the 2021 cycle. My experience is somewhat unique, transitioning from being a deeply engaged participant in traditional Web2 to gradually becoming an investor in Web3. This is part of my historical background.

Mossfire Capital is a newly established liquid token firm that was founded just 24 years ago. We mainly focus on secondary market liquid token strategies. Mossfire Capital primarily seeks investment opportunities in the market that have good fundamentals but have not yet been discovered by the market, which could potentially generate greater alpha. We mainly look at the secondary market, do not engage in primary investments, and do not make any VC investments; we purely trade long and short digital currencies.

Unlike many other investors, we completely disregard primary investments. Strategically, the crypto world is still more inclined towards the secondary market, which has a much larger depth compared to the primary market. Therefore, we chose this direction to pursue our activities.

Rootdata : Thank you, Raymond, for the detailed introduction. I just heard you mention that you have been involved in both Web2 and Web3 for quite a long time. I would like to ask, since you joined the fund sector, how do you perceive the pace of changes in the overall market? Are there any moments that made you feel this is a turning point in the market?

Raymond : Looking back at the history of crypto over the past few years, the market has become more stable and mature, with decreasing volatility. This can be clearly seen from the decline in quantitative strategy returns; the market has expanded while volatility has decreased.

I believe the current market is in the latter half of a bull market. The four-year cycle is not only related to Bitcoin's halving but also closely tied to the tightening and loosening of the Federal Reserve's macro policies. We are currently at the beginning of a rate-cutting cycle, and we can refer to trends from previous cycles to see some signs.

As for specific events, the collapse of FTX was undoubtedly a significant event in the industry. I consider myself relatively lucky because I mainly focused on DeFi and did not have much capital in centralized exchanges, resulting in almost no losses. However, I have many friends in investment banking or trading who used FTX as their primary trading platform, and many suffered heavy losses in this incident.

Rootdata *:That can be considered an act of God.*

Raymond : Two events left a deep impression on me. The first was shortly after the collapse of FTX in November 2022 when the Curve (CRV) token was shorted. At that time, the price of CRV was close to the liquidation line, and the founder borrowed a large amount of funds using the tokens as collateral. Due to the low liquidity of CRV, the market began to operate and attacked him in a manner similar to "shorting the founder" in traditional finance. What surprised me was that despite the liquidation scale reaching hundreds of millions of dollars, the entire process was completed transparently on-chain without causing greater panic. This incident made me start to believe more in the resilience and transparency of DeFi, as traditional financial systems often lack transparency and can easily trigger systemic crises.

The second event was in March 2023, when the Federal Reserve's rate hike process made me realize how much the crypto space relies on macro liquidity. At that time, people began to anticipate that the rate hikes were nearing an end and speculated on potential future rate cuts. This expectation boosted market sentiment, leading to a significant rise in October. Although the actual rate cuts only occurred recently, the crypto space, as a high-risk asset, is very sensitive to changes in liquidity. This made me more aware that the movements in the crypto space cannot be separated from the Federal Reserve's policy environment.

Rootdata *:Thank you for the wonderful sharing, Raymond! Considering the recent low price performance of BTC, how do you view the current stage of the market? Everyone is saying the bull market has returned, but is this a true return of the bull market? Or is it just a pullback or a tentative rebound in the market?*

Raymond :

When defining a bull market, I think the term "bull return" is not very valuable. This year, the term has appeared at least 50 times on WeChat; every time the market shows a slight rebound, it is considered a bull return. However, what people truly expect is a one-sided upward trend like the one from last October to this March, where operations are simple and everything you buy makes money. However, such trends are not common in historical cycles. The reason the 2021 bull market lasted so long was primarily due to the unprecedented monetary easing by the Federal Reserve. Therefore, many people coming from 2021 hope this cycle can also rise to 150,000, but this linear extrapolation is more of an optimistic fantasy because the current liquidity environment is far from that of 2021.

To judge the market stage, we still need to start from liquidity. We have now entered a rate-cutting cycle, and I expect there will not be a major policy shift in the next year to a year and a half. The key issue is not whether rates will be cut, but how much they will be cut. Previously, the market's predictions for a rate cut in November fluctuated between 50 and 25 basis points, but with changes in economic data, there is now a general expectation of a 25 basis point cut in both November and December.

The impact of rate cuts typically first affects debt products, then transmits to stocks, and finally impacts high-risk assets like the crypto space. Therefore, from a cyclical perspective, we may not have reached the peak moment for the crypto space yet.

Another core variable in the fourth quarter is the U.S. presidential election. Some polls indicate that if Trump is elected, the crypto market could rise by 10-20%; whereas if Harris is elected, the market could drop by 10-20%. This has a huge impact on the short-term market trends and entry timing. Personally, I believe Trump has a high probability of being elected. On Polymarket, his approval rating is approaching 60%. In contrast, Harris's chances of re-election seem slim.

Trump has even started issuing tokens, which indicates he is more inclined towards a crypto-friendly stance, and he also favors a weak dollar policy, which benefits the dollar-denominated crypto market. Overall, I believe his election would have a positive impact on the market. Once the election dust settles, the focus of the market will shift to expectations of rate cuts and stock market performance, driving the arrival of a trend-driven bull market. Therefore, I hold an optimistic view for the end of this year and the beginning of next year.

Rootdata *:Thank you, Raymond, for enlightening us about the election system and its implications for the market, including the impact of rate cuts and which party wins. Overall, you maintain an optimistic attitude towards the future. Now, if we shift from the macro perspective to the secondary market, are there any sectors or tracks that you think are worth paying attention to recently?*

Raymond : I believe the popular tracks in the market this year are very clear. First, the memecoin sector is worth watching. Although many tokens invested by VCs have been criticized for poor performance, these memecoins lacking fundamentals have performed exceptionally well, reflecting the market's thoughts on the crypto ecosystem and user choices.

Secondly, the AI sector. Although many AI-related tokens currently have more meme attributes, in the long run, these projects have potential in narrative and market externalities, with significant room for future development.

Thirdly, established DeFi projects. These projects have withstood the test of time, with teams continuously iterating, and both TVL and trading volume are growing, indicating solid fundamentals. Especially after the Trump family launched a lending protocol, the market's regulatory expectations for DeFi have become more optimistic, further enhancing the attractiveness of established DeFi projects.

In contrast, other trending market spaces and potentials are significantly inferior, so they may not be worth discussing in depth.

Rootdata *:I see. Indeed, the former president's actions may bring a wave of new user attention to DeFi projects. Recently, the Sui ecosystem has also been quite popular. Apart from memecoins, Sui has shown promising growth. Some believe Sui is being heavily promoted by capital. What is your stance on this viewpoint? Are there any targets in the Sui ecosystem worth considering?*

Raymond:
To be honest, I have been slow to react to Sui. I have always leaned towards the EVM ecosystem and have not been very interested in Move-based Sui and Aptos because they launched their tokens early and have few projects in their ecosystems, so I have always found them rather average. Recently, Sui has risen, mainly because people are looking for the next Solana.

The discussions around Sui are more due to disappointment with Ethereum and the search for alternatives, rather than simply saying it is a "capital promotion." I also do not believe in the notion of "capital promotion"; for example, some say Solana is the result of Western capital operations, but it once dropped to a few dollars, where was the capital then?

Price fluctuations in the crypto space do not always have a direct relationship with improvements in fundamentals. Significant price volatility often occurs because of prolonged declines and large drops, leading to a turnover of market chips at the bottom. After light-handed investors exit, only those with stronger conviction remain, and this optimization of shareholder structure actually increases the chances of a price rebound. When the timing is right, it no longer matters who ignites the "fire" for price increases.

Outside of EVM, we are more optimistic about Solana. Although Sui is currently cheaper, Solana has performed outstandingly in various fields such as memecoins, DePIN, and DeFi this year, and many established EVM protocols are migrating to Solana. These trends indicate its potential. Additionally, Solana has not dropped significantly in the past six months and has performed well when it rises, indicating that its chip structure has stabilized. Therefore, I believe Solana is still worth focusing on.

Rootdata *:Indeed, Solana has undergone a round of bull and bear tests from various aspects. Do you think there will be another emerging technology or project in the market similar to NFTs or DeFi? Will such situations arise?*

Raymond : The core of our work in blockchain lies in believing in its potential. Key concepts such as "permissionless," "anti-censorship," and "composability" are very important, as these ideas can provide certainty and technological revolution in the future. Although many people are currently pessimistic about the Ethereum ecosystem, its scale, market value, TPS improvements, and decreasing fees indicate that it still has future potential. The explosion of Ethereum may not be now, but in the next cycle, perhaps in 2028.

The innovations of the past two years have been quite mediocre; projects like Starknet, zkSync, and Scroll are not considered true breakthroughs in user scenarios. Users cannot perceive technological advancements; they only care about how much they can earn from airdrops. Therefore, discussions on innovation should focus on the application level—products that truly change user experiences, similar to innovations like Didi or Meituan.

Currently, I believe there are several innovations worth paying attention to:

1. Polymarket: I use it every day. Although the technology is not complex, its application in the crypto world is extensive, and the user experience is better than previous products.
2. Ethena: As a project that quantifies funds into DeFi, it is one of the important innovations of this cycle.
3. FriendTech: Although its execution is poor, the idea is good. If the team had stronger front-end support, the product could be even better.

Overall, while there are some standout projects in this cycle, their quantity and influence are far less than the iconic innovations like Uniswap or GMX that emerged in the previous round.

Rootdata *:Let's delve deeper. Previously, it was mentioned that 2021 was the DeFi summer, while this cycle seems to be more about memecoins. Memecoins have also produced a relatively innovative product, Pump.fun. It feels like the narrative has somewhat exhausted this round, and at the application level, users find it hard to perceive changes, unlike DeFi or NFTs, which brought clear changes in trading methods. People are more focused on accumulating memes. Compared to before, it might be due to some memes or other factors. However, I believe Pump.fun is also an innovation in this cycle's performance.*

Raymond : Yes, I think it's a great example. I honestly didn't expect Pump.fun to become so popular; it seems like there have been many rounds of launchpads. The previous cycle saw many launchpads fail, but this one dedicated to memecoins has been doing quite well, which I completely did not anticipate.

Rootdata *:Indeed, it has sparked a small climax, allowing people to reach a brief consensus and find a place to engage during a relatively sluggish market. Previously, this round experienced a long period of market stagnation. As a secondary market investor, how do you seize opportunities during market downturns? Does your fund have specific cases to share?*

Raymond : I do not completely agree with the view that one should actively seek opportunities during downturns. I believe the best strategy during a downturn is to rest and avoid frequent trading. Many losses actually stem from frequent trading—trying something today, making a move tomorrow, and ending up with less and less money. Therefore, one should not force opportunities during downturns.

I often use an analogy: are we herbivores or carnivores? Cows and sheep graze for over ten hours a day, while lions and tigers wait for the right moment and occasionally hunt for a big meal. Thus, frequent trading is like "grazing," while "eating meat" might only happen once or twice a year.

If one must make progress during a downturn, it is better to focus on learning and research: analyzing which sectors have dropped too much, determining where the bottom is, and how different coins react to specific events. The key at this time is knowledge accumulation, not blind trading. Otherwise, when the bull market truly arrives, you may find you have no capital left.

Rootdata *:So it is essential to learn more during a bear market. Alright, we are nearing the end of today's space. What advice do you have for new investors entering the market? What indicators should they focus on?*

Raymond : I believe new investors need to lower their expectations; money in the crypto space does not come easily. If someone tells you that making money is easy, they are likely a scammer. Therefore, the first step is to avoid being deceived.

For newcomers, I suggest starting by researching the top 300 coins, understanding their functions, valuations, and histories. This will provide a deeper understanding of the entire crypto space. Although quantitative indicators are important, ultimately, you need to develop an intuition, especially when trading opportunities arise; feelings are often more reliable than quantitative analysis. Therefore, it is crucial to learn more and enhance your abilities.

Whether for institutions or retail investors, paying attention to macroeconomics is also essential, including the Federal Reserve's policies, non-farm payroll data, and CPI, among others. These are all important macro indicators.

For new investors, there are three important questions to consider: first, decide whether to enter the market; second, determine how much to invest, such as how much to allocate from a million; and finally, choose what to buy. The weight of the first two questions is greater, perhaps in a 7:2:1 ratio. Choosing the timing to enter and the allocation ratio is more important than what to buy. If the timing is right, anything you buy could rise, but if you buy the wrong thing, it may take an entire bull market to break even.

Rootdata *:Alright, what is your overall view of the future of the crypto market? This question may be relatively broad, so you can answer from a macro perspective.*

Raymond : I am very optimistic about the overall market outlook . For example, looking at a three to five-year cycle, let's not talk about the long term; in the short term, I am definitely very optimistic about the next three to five years.

First, we have just come out of the highest interest rates set by the Federal Reserve in history. We have been accustomed to interest rates below 2 for a long time. We rarely encounter such high interest rates, so after reaching this high point, it will lead to a long period of liquidity easing. Therefore, I believe this period is very favorable; money will gradually increase, which is very good for all risk assets, including stocks, not to mention our currencies.

• I believe we can visibly see more countries, more governments, and more individual institutions around the world gaining better confidence and understanding of cryptocurrencies, beginning to show enthusiasm for institutional or personal involvement. I think its prospects are becoming clearer and increasingly absorbed and digested by society. The spot ETF is just a result; many Americans are secretly buying Bitcoin, so why not do this business themselves?

Thirdly, we must clearly understand that in the world of crypto, it actually creates a different order or a different set of infrastructures for our society. In many countries, sanctions may prevent them from using dollar accounts. Many countries have very poor banking systems, so they need to use alternative systems to replace their original banking systems. Such issues are occurring in many countries. If you look at over 100 other countries worldwide, they have a clear demand for crypto and clear application scenarios. Therefore, I believe this is a system that helps us find better certainty and order in an increasingly chaotic or disordered world, which I think is extremely valuable.