Trader Jason: How to obtain Alpha by trading Beta assets?

The following text is organized from the Twitter Space series #DialogueTrader, hosted by FC, founding partner of SevenX Ventures, Twitter @FC_0X0.

Guest for this episode: Jason Huang, Twitter @Jhy256.

The "Penetration Rate" Logic Makes Internet Investors All in Crypto

Jason describes his background as quite Web2. As an internet VC, he has worked at Huaxing Capital and Qiming Venture Partners, and later went to the family office of Alibaba's chairman, Joe Tsai, responsible for all domestic investments.

Jason's first purchase of cryptocurrency was during the ICO boom in 2017, but at that time, his understanding of crypto was still at the "a bit like a scam" stage, so he made a small profit and exited.

His deeper understanding of crypto came in 2020 when he was "preached" by the influencer "Lunch": Bitcoin is a great long-term asset that should be held for the long term. The logic that successfully "brainwashed" Jason was:

When Alibaba went public, the e-commerce penetration rate in China was 3%, and about ten years later it reached 30%, a tenfold increase. At that time, the penetration rate of crypto was 100-200 million people out of 6 billion worldwide, and reaching 2 billion should be a simple and replicable process. In fact, the penetration rate of crypto today is only around 600 million people, leaving a lot of room for growth.

Fast forward to 2023, this year Jason left the family office and founded his own fund NDV, entering the market when Bitcoin was around $29,000. After about 20 months, he achieved a return of over 4.3 times, outperforming BTC.

Looking back, the trading strategy Jason used is actually very simple.

Why Choose $MSTR?

Since founding his own fund, Jason has adhered to the "penetration rate" logic, stating, "What I buy is called institutional penetration rate."

So in 2023, they only did one thing: buy GBTC. At that time, GBTC was trading at a discount to Bitcoin, so they outperformed Bitcoin during that phase.

Once the ETF was approved and the discount was restored, Jason began to think about what institutions would want after buying Bitcoin ETFs that would excite them.

The answer is: stocks related to crypto.

Thus, the options in front of them included mining stocks, Coinbase, and MSTR. After some trial and error, Jason and his team chose MSTR for one reason: the simpler the logic, the easier it is to build consensus, at least at the stage when everyone is just starting to learn about crypto.

Companies like Coinbase, which have fundamentals, are often studied by many institutions, making it harder to buy; mining stocks follow a different logic. Although theoretically small-cap stocks might rise faster, the results to date have shown otherwise, as having more than one mining stock tends to dilute consensus.

From the results perspective, MSTR has actually outperformed Nvidia, Bitcoin, and many other assets.

What Do "Big Money" Care About in the Market?

In Jason's definition, big money refers to sovereign funds, insurance companies, university funds, endowment funds, and various hedge funds. The penetration rate of crypto among these entities is likely less than one-thousandth.

What big money cares about is simply understandable and liquid assets.

Therefore, their positions at this stage can only be in Bitcoin or a few stocks, and the stocks with better liquidity will attract more consensus because big money needs to consider entry and exit.

"So my logic is very simple: where there is simple and easily spread consensus, where liquidity is good, there is likely to be an influx of big money.

In fact, the increased attention on XRP and SOL is also for this reason, especially XRP, which has been around for a long time, has a huge market cap, excellent liquidity, and occasionally garners attention due to lawsuits.

Ultimately, finance is a game of supply and demand, so you should look at what big money is thinking. Anything that requires a lot of effort to build new consensus is not worth gambling on. As long as large positions are in some correct assets, you can outperform others."

When Will the Bull Market "Peak"?

In fact, Jason has validated many times on Twitter his accuracy in judging large cycle trends. Regarding the peak of the bull market, Jason still thinks from the perspective of "what big money is thinking." He believes that since the issuance of the ETF, BTC has risen from $40,000 to around $100,000, with $30-50 billion flowing into the market. To push it to $150,000, at least an equivalent amount of money is needed.

Where will the money come from?

First, look at sovereign funds; basically, only the U.S. has put out this amount of money, and others might follow suit, or rather, only the U.S. can afford it. Therefore, Jason judges that in the short term, neither the Federal Reserve nor the Treasury will release this money.

The remaining "big buyers" currently visible may only be state governments, as each state government has been discussing this recently. If we estimate that a large state can put out $2 billion, then the 50 states combined could contribute at least $50 billion to $100 billion.

"So if we do a simple math problem, my target position (peak) is around $150,000."

Regarding macro on-chain data that can be referenced, Jason recommends following Twitter @Murphychen888.

Additionally, Jason feels that today's market is actually very "transparent," because under the backdrop of the U.S. dominating the market, they have announced all the key event dates in advance, avoiding sudden policy announcements, which gives participants enough time to think about whether the market has front-run or is preemptively speculating, and what the state of any event would be if it exceeds or falls short of expectations.

"The macro judgment, combined with Bitcoin's supply and demand data, makes it clear what kind of story the market wants to tell."

Will the Four-Year Cycle Still Exist?

Regarding future market changes, Jason believes that cycles will still exist, but there will no longer be a four-year cycle, as the supply-side pressure of four-year sell-offs has weakened significantly. The "four-year cycle" is more of a strong psychological imprint.

At the same time, long-term money will come in, and the market will trend towards being more like the U.S. stock market, with various coins gradually developing their own independent narratives and trends, no longer rising and falling in sync with BTC.

Jason predicts that one of the most important things the next Trump administration will do is redefine what a token is. Tokens will no longer be securities, or even allow token dividends and buybacks. Once these tokens have their own distribution logic, they may be able to develop their own independent narratives.

"Crypto will not resemble the sector rotation of A-shares but will be more like the strong getting stronger in U.S. stocks. The essence is that the market participants have changed."

How to Choose Altcoins? Focus on the Founder, Not the Fundamentals

For trading altcoins, Jason has a simple selection principle: under the big trend, only choose tokens from founders he knows.

"Most founders in crypto, I think, are just looking to make a quick profit and leave. So as long as they don't intend to cut and run, and they keep working, your loss is really just opportunity cost."

Regarding the judgment of founders, Jason believes there is no systematic way to filter out all the "good people," so he focuses on one trait: "whether they have high growth potential."

"Whether they are unreliable sales types or diligent workers, I don't reject either, as long as they are growing, as long as they can deliver new insights each time, and they are actually doing the work, I think that makes them a good founder for me."

How to Keep Growing? A Book, A Path, A Person

Jason keeps himself progressing by admitting mistakes and learning to face himself honestly. He recommends everyone read "The Road Less Traveled," a book that changed his life and taught him that when making mistakes, one should neither blame others nor excessively punish oneself.

"Admitting mistakes is the beginning of changing oneself; being able to bravely admit mistakes is impressive."

Focusing on trading, Jason believes the way to keep progressing is through practice, iteration, and review.

One challenging but helpful method for trading is to write down the reasons for each trade, continuously accumulating reviews. This is also a valuable experience he learned from primary investments.

Finally, Jason recommends following the trader "Lunch," who has formed much of Jason's foundational understanding of crypto, and Lunch knows what to take and what to give up. At the same time, he made Jason realize that he is not that kind of genius trader, so he needs to clarify where his trading advantages lie and maximize them.

FC: My Way to Keep Progressing is to Put Money In

Regarding how to keep progressing and remain sensitive to new things, I also shared my thoughts and practices with Jason.

I believe that everyone experiences the emergence of new things, especially the transformation of momentum, differently. Some people look at data and research reports, while others need to stay in the market. My way of not missing trends is to put money in.

The specific method is: first, establish a "zero fund," follow smart people, smart groups, and smart money, and add some basic judgments based on their target purchases. If most targets rise, it indicates that this sector is worth my attention.

Second, set up a "tenfold fund," putting in more money than the "zero fund," and make tenfold bets on the leading targets that emerge from the "zero fund." After iterating for a while, I found that this is a way that suits my rhythm in the market.

Especially now, on-chain trading is an "accelerated version of the crypto space," where you simply don't have time to research. For example, like GOAT, which dropped from $200 million to $100 million, and within about four or five days, it surged to $1 billion. If you didn't start tracking it from a few million in market cap, you likely wouldn't find this context.

So what I'm doing now is putting money in, feeling it out from below, and then making quick decisions and increasing positions from above.

In Conclusion

The biggest takeaway from chatting with Jason is that we are all highly sensitive individuals; most traders are likely in this state. The greatest joy of trading is competing with oneself; you don't need to know too many people, just find a few interesting individuals to chat with at specific points, and it's very liberating.

Thanks again to Jason for participating in Dialogue Trader. Previous Space audio will be gradually updated on Xiaoyuzhou, search for Dialogue Trader.