Author: Jeese, Denise, Source: Biteye Community

Jack Kong, the founder of Nano Labs, guest-starred in the Biteye community live stream, discussing the current correlation between cryptocurrency and stock markets, stablecoin policies and practices, as well as the opportunities for entrepreneurs and investors in the new cycle.

Abstract:

• The gameplay in this cycle has completely changed. Due to scarcity and strict regulation, cryptocurrency stocks have received greater capital inflows than the crypto market and enjoy higher premiums.

• Most people are more suited to hold Bitcoin rather than altcoins.

• The future presents opportunities in both decentralized DeFi and compliance. For grassroots individuals, more opportunities lie in the decentralized track.

• The future global competition for stablecoins will primarily be between the US dollar stablecoin and the offshore RMB stablecoin.

• Hong Kong is the most suitable place for Chinese people to start a business, allowing for longer boards and making it easier to achieve success.

The following is the original text of the interview整理.

1. Looking Globally, Observing “Coin-Stock Linkage”

1.1 Question: You are one of the few investors who have experienced the entire process of “Jia Nan Technology’s listing → mining stocks explosion → cryptocurrency stocks linkage”. Looking back, how do you think the traditional financial market’s acceptance of crypto assets has evolved step by step?

Traditional capital markets, especially the mainland market, did not recognize the concept of cryptocurrency in the past.

We launched in mainland China in 2016, operating through a merger with an A-share company. However, we need to prove many fundamental concepts, such as why there are 21 million bitcoins, and to demonstrate the technological principles and data that are now widely known. Even if everything is proven, the mainland capital market still does not welcome such companies.

In 2018, we shifted our focus to Hong Kong, where a large number of legal opinions were required, including product legal opinions from our lawyers in dozens of sales countries around the world. Even after meeting all regulatory requirements, providing all answers and lawyer signatures, the waiting time remained indefinitely long.

Ultimately, we sent the Hong Kong prospectus to the American regulators before the U.S. government shutdown in 2019. After review, the U.S. regulatory agency found no issues but raised a key question: Does the listed company hold digital currency? If so, further research is needed; if not, although our equipment is used for mining, they believed there were no obstacles. Therefore, we quickly submitted our listing application in the U.S. After less than three months of review, we successfully landed on NASDAQ in November 2019, becoming the first listed company in the global industry. From 2016 to 2019, we worked continuously for four years to accomplish this, and we set two records on NASDAQ: the highest number of on-site attendees and the highest number of online viewers.

This experience reflects the differences between the capital markets of mainland China, Hong Kong, and the United States. Currently, all new investments, including mining stocks, cryptocurrency stocks, and US stocks on the blockchain, are taking place in US financial institutions or markets. “The US regulatory system ensures that financial innovation can occur in the US, while regulation in other places tends to be more conservative.”

We have experienced the last wave of the capital market cycle, mainly in mining stocks. Apart from companies like Canaan, which saw its mining chip company reach over $6 billion, mining companies like Marathon Digital have also been favored by capital. This time, we see more mining companies being viewed as traditional industries, while companies holding cryptocurrencies, including Microstrategy and others holding Bitcoin, Ethereum, Solana, BNB, and stablecoins, are also in high demand.

The narrative and hot topics of the capital market have been changing. Regulation has shifted from prohibiting listed companies from holding cryptocurrencies to gradually integrating cryptocurrencies into their financial statements, with accounting standards being modified accordingly. Now, many cryptocurrencies can be acquired by listed companies in the U.S. stock market, and there is no significant regulatory questioning. Overall, it has undergone a process from being very conservative to gradually accepting, and now fully opening up and supporting the industry.

1.2 Question: From Canaan Creative, the “first blockchain stock”, to the frequent interactions between listed companies and mainstream cryptocurrencies, do you think ‘coin-stock linkage’ will become the next long-term trend? What opportunities do investors have in this new structure?

In 2018, mainstream institutions such as BlackRock communicated with us because we planned to go public, coinciding with Bitcoin’s rise from over $10,000 to $20,000. Many institutions showed great enthusiasm for the industry for the first time that year. I had meetings with 10 to over 20 institutions a day, including mainstream institutions managing over $100 billion in assets. Although they were already experiencing FOMO at that time, when Bitcoin fell from $20,000 down to a low of $3,000, they could no longer understand the industry.

Many institutions experienced extreme FOMO from 2018 to 2019, followed by a period of not understanding the industry. During the price surge to $60,000 from 2020 to 2021, they regained confidence in the market. Even stock investors like Cathie Wood began to publicly express optimism about the market. Institutions first went through this experience in 2018, then again at $60,000, and now it may be the third time.

During the cycle of participating in the track, I believe that the linkage between cryptocurrencies and stocks is definitely the mainstream narrative of this cycle. The reason is that many U.S. stock investment institutions and investors, and even global investors, cannot buy ETFs, including many cryptocurrencies that do not have ETFs. Therefore, this method of linking cryptocurrencies and stocks addresses the regulatory and investment needs of different investors who cannot buy ETFs or various cryptocurrencies. When you meet the various needs of numerous investors and investment institutions, liquidity and premiums will become apparent.

Therefore, under the circumstances where there are restrictions on investments in ETFs and coins in the mainstream global capital markets, the opportunities for coin stocks remain sustainable overall. For more ordinary investors, I believe that purchasing Bitcoin is sufficient. “Based on my entrepreneurial experience over the past decade, the only asset that may be worth holding long-term is Bitcoin.” We have many publicly listed companies, with stock prices ranging from 5 to 10 billion dollars at their peak, but only a few hundred million dollars at their lowest. I personally have been increasing my holdings in Canaan stock and these publicly listed companies at high prices, yet my account now may only be worth 1/10 or even a fraction of what it was at that time. During this time, many online KOLs criticize me for cutting the leeks, but in reality, I am the one who has lost the most in this.

Since we have always been optimistic about the sector, we often do not sell the shares we hold at high positions, and we also buy stocks of these listed companies at high positions. I have also increased my holdings in stocks like Canaan and The9 at high levels. Ultimately, you will find that regardless of how skilled an investor you are, the market decides. For example, when Bitcoin falls, your stock price may drop even more, and when Bitcoin rises, your stock price may increase even more. The fluctuations of Bitcoin are not dictated by individual will, so I believe that for more conservative reasons, most people may only be suited to hold Bitcoin. The volatility of coin stocks is greater; they may rise tenfold in a day or dozens of times in a month, but they can also drop by 90%-99%. This is more suitable for professional secondary market investors to participate in.

1.3 Question: May I ask, what is the core logic behind Nano Labs being the first listed company to choose BNB as a reserve? Are there any plans for further diversification of reserves?

Before reserving BNB, Nano Labs also reserved Bitcoin, but the Bitcoin field Microstrategy is already strong enough. I believe Bitcoin is the best asset, no doubt about it. I just suggested that individuals hold Bitcoin, but when running a business, you will find that it is actually difficult to compete with existing giants. Where is your differentiation opportunity?

“We have researched all mainstream cryptocurrencies and believe that besides Bitcoin, BNB is the highest quality, relatively stable, and has growth potential as an asset.” Because of the entire BNB ecosystem, we believe that if CZ, the first sister, and many other ecological partners continue to build the BNB ecosystem, it may have more opportunities than other cryptocurrencies besides Bitcoin. We are willing to work together with a group of people for the long term, believing that this is a very promising ecosystem.

We observed that the rise of Bitcoin is because people see it as digital gold, the rise of Ethereum is due to the entire DeFi Summer, and Solana’s meme narrative satisfies the demand for quick profits. We believe that the entire track, including trends from DeFi to meme, as well as RWA stablecoins and on-chain tokenization of US stocks, is developing. We believe that ecosystems similar to BNB have the opportunity to capture hotspots in new narratives, so we are willing to build this ecosystem.

We noticed during this process that after the listed company released its announcement, CZ expressed a supportive attitude, and it is possible that more key participants in the BNB ecosystem will be willing to support such an ecosystem. If the company reserves more BNB in the future, it will promote an increase in BNB prices, which will indirectly drive the emergence of more opportunities within the BNB ecosystem, thereby further promoting the increase in BNB prices. In summary, a positive cycle is formed among the company’s holdings, stock price, BNB price, and the overall development of the ecosystem.

2. Based in Hong Kong, Participate in the Stablecoin Wave

2.1 Question: Besides the BNB reserve plan, Nano Labs is preparing to apply for stablecoin licenses for Hong Kong dollars and offshore Renminbi. Recently, we’ve also seen major domestic companies like JD.com and Alibaba gearing up to enter the market. What is your view on Hong Kong’s positioning in the global stablecoin landscape? In what specific aspects will its role as a “bridge” be reflected?

When we talk about stablecoins, we must introduce several mainstream opportunities for their development. Many people mistakenly believe that US dollar stablecoins represent the dominance of the dollar. Neither the current Trump administration nor the previous Biden administration had much knowledge of stablecoins until Biden’s election campaign or Trump’s current term, when they began to strongly support stablecoins and Bitcoin. Prior to this, during Trump’s first term, he had little concept of digital currencies. When a country’s president has little concept, how can stablecoins possibly be for the dominance of the dollar?

The first real opportunity for stablecoins emerged from China’s regulation. At that time, there was a document from a ministry in China stating that Bitcoin is a virtual commodity and that the general public could buy and sell freely, while financial institutions were not allowed to participate. This meant that initially, everyone could use RMB to directly purchase Bitcoin, and the paths for directly buying Bitcoin through channels like Alipay were cut off. At that time, Chinese exchanges held a significant share of the global trading market. During this period, we could not directly use RMB and RMB stablecoins; the only one accepted was the US dollar stablecoin. This created the first application scenario for US dollar stablecoins, which was trading stablecoins and coins within exchanges, serving as a substitute for converting fiat currency into US dollar stablecoins.

At that stage, due to the global regulatory environment not understanding the matter, only a few exchanges had fiat deposit channels, while more exchanges were focused on crypto-to-crypto trading pairs. Stablecoins gained greater trading volume and growth from the explosive development across various crypto-to-crypto trading pairs and exchanges, which is precisely the scenario of early native market trading for stablecoins.

Another scenario is after the explosion of Ethereum, where we saw an explosion of various iterative ecosystems. The DeFi ecosystem needs stablecoins even more. This wave has further promoted the growth of stablecoins, as various ecosystem-related financial interactions and other applications require the use of stablecoins. Therefore, Ethereum and DeFi have led the entire market.

Cross-border payments, black, gray, and the payment needs of those without a banking account system are important scenarios for stablecoins. Whether it is payments for gambling, drugs, or the recent Yiwu small commodity market, many merchants accept stablecoins. At that time, when they accepted USD to exchange for RMB, they were often blocked by the public security in various locations, making stablecoins a simpler method. Therefore, in various cross-border exchanges, stablecoins are indeed a better payment tool and medium.

These three scenarios have contributed to the development of stablecoins worth two to three hundred billion US dollars in the past. In this process, we found that to develop stablecoins, in addition to the scenarios, any scenario needs to meet three characteristics.

The first is to improve payment efficiency. For example, cross-border transfers can take one day, two days, or three days, while stablecoins may arrive within a second, thus truly enhancing efficiency.

The second point is the need to reduce costs. The transaction costs of traditional banks far exceed those of stablecoin transactions.

The third point is the wealth effect. So why do you want to hold stablecoins after using them? Especially for those in the native market, why do they need to keep stablecoins? The reason is that they can purchase various Memes and other coins to make money through trading, quantitative trading, and TVL. Although these profits may seem to incur some losses, the overall wealth effect is greater than using fiat currency for other investment methods. Therefore, I believe that the past stablecoins align with these three core points, which has led to their growth.

The legislation for stablecoins in Hong Kong was originally planned to be launched last year, but the entire process, both in terms of regulation and legislation, takes a lot of time. Although the timeline for this round seems to be similar to that of the United States, Hong Kong has a complete opportunity to get ahead of the U.S.

The second question is whether it meets the three conditions mentioned earlier. If the existing scenario can be satisfied by the US dollar stablecoin, then the Hong Kong dollar stablecoin needs to find more other scenarios. At the same time, the Hong Kong dollar stablecoin also needs to accomplish the three core points I just mentioned in order to truly develop.

The offshore RMB stablecoin has undergone significant changes in the past month, including many regulatory agencies on the mainland that were originally not very enthusiastic about these innovations. However, now, in addition to the internet giants we see, such as JD.com and Ant Group, many state-owned financial giants will also apply for stablecoin licenses and join the wave. This indicates that China is further accelerating its position in the competitive landscape of RMB stablecoins.

In the long run, the US dollar stablecoin and the entire payment system are priced in US dollars within the global financial system. The second is the renminbi stablecoin, which is definitely an offshore renminbi stablecoin now, because “domestic payments are particularly developed, and there is no need for a renminbi stablecoin at all.”

We believe that with China’s global development in the industrial manufacturing sector, offshore RMB stablecoins will usher in huge opportunities.

I believe that before the offshore RMB stablecoin reaches a high level of development, there may be opportunities for US dollar stablecoins and Hong Kong dollar stablecoins. As the offshore RMB stablecoin continues to grow, the global stablecoin landscape may be more about competition between US dollar stablecoins and offshore RMB stablecoins, while Hong Kong dollar stablecoins serve more as a supplement, including future euro stablecoins, Middle Eastern dirham stablecoins, or other stablecoins, which are regional supplements outside of these two stablecoins.

3. Looking back, sharing experiences

3.1 Question: You have experienced the ups and downs of multiple cryptocurrency cycles. Nowadays in Hong Kong, Web3 entrepreneurs are faced with different paths such as token issuance and IPOs. How do you view these two models? What advice would you give to entrepreneurs?

I believe that many people have gone through multiple iterations during the entire crypto cycle. During the iteration process, inertia in thinking may lead to many situations that were already at A8, A9, or even A10 in the previous cycle becoming impoverished again in this cycle.

The first round of the cycle is characterized by the Bitcoin-dominated enlightenment era of the entire Web3. During that industry, the things that could be accomplished were perhaps only 5-10, such as mining machine chips, mining, mining farms, and cloud computing power. Just these 5-10 industries were already the limit. However, we find that the earliest mentioned cryptocurrencies like Bitcoin and Litecoin seem to have their second place changing every year or every couple of years. There were other coins before Litecoin, and there are Ethereum and others after Litecoin. Thus, you’ll notice that the position of gold, represented by Bitcoin, has not changed, but the position of silver has been changing, which is a characteristic of that cycle.

The second cycle is DeFi Summer, where we saw the emergence of various financial applications based on smart contracts throughout the process, as well as the boom of NFTs and opportunities in DAO governance. During that cycle, Bitcoin doubled in value, while other coins might have increased by 3x or 5x; Bitcoin might have increased by two to three times, while other mainstream altcoins could have surged by 5-10 times. This is its characteristic.

In this round, many investors believe that the exchange rates of Bitcoin and Ethereum have decoupled from the previous cycle when exchanging currencies. They think they should convert to Ethereum, resulting in another prolonged decoupling. The same goes for other altcoins; Bitcoin has increased 5 or 6 times in the past two years, while other altcoins may have dropped 99% from their highs.

Therefore, many investment methods operated during this cycle, which actually led to significant problems, including for ourselves. For example, at that time, the value of the Ethereum ecosystem was 300 billion USD. When we saw the Bitcoin ecosystem and the inscription ecosystem gradually emerging, we believed that the 1 trillion USD Bitcoin should be able to grow into several hundred billion USD worth of Bitcoin ecosystem. Thus, we made efforts to go long on the inscription ecosystem and the entire Bitcoin ecosystem, buying many coins regardless of whether they were at low or high positions, and we have not sold them to this day. However, we found that this ecosystem is currently close to a state of zero. We also used inertia thinking, believing that the Ethereum and Bitcoin ecosystems were developing in this way at that time.

From the facts, our judgment direction is completely wrong. The host just mentioned that issuing coins is similar to an IPO. In the past, we have seen a very ordinary project that, due to the support of investors and listings on Binance, Upbit, or Coinbase, can turn into a project worth hundreds of millions, billions, or even over a hundred billion dollars.

This is the phenomenon result we observed in the last cycle. “Due to the overall inflow of funds in the last cycle being greater than the growth rate of cryptocurrency projects, most projects were able to enjoy the benefits of incremental funding.”

In this cycle, we have observed that most token issuance projects may experience a price drop in the past six months to a year. Even without considering funding rates, all projects listed on Binance could be shorted, and from the perspective of coin prices, they all have profit potential. There are very few coins that have risen in price after being listed, which is completely different from the previous cycle. Recently, newly listed coins are not performing well, while stocks are very popular. This is because the stock market, whether it be shell companies or leading assets, has only a few thousand firms, which are under the scrutiny of auditing firms, lawyers, and regulatory agencies, making the cost of fraud very high. However, the overall inflow of incremental funds is much larger compared to the cryptocurrency space.

Therefore, we are seeing more projects similar to stock tokens, such as Circle. If Circle issues a token, it is unlikely to rise very high, as the peak market cap after the IPO subscription is close to that of the issued stablecoin. Because in this cycle, hundreds of thousands of new tokens appear every day, and the stock market is generally a scarce target. Therefore, combined with leading Web3 projects, it can create better liquidity and attention. Overall, it seems that leading projects were more suitable for issuing tokens in the last cycle, while this cycle may be more suitable for the linkage between tokens and stocks.

3.2 Question: What is your view on the current global Web3 compliance process? In the next two years, what is the most certain trend for Web3 compliance in Hong Kong? What areas still have uncertainties?

I believe that the track is undoubtedly transitioning from the native and grassroots stage to the compliance stage. The entire underlying infrastructure of blockchain is decentralized, and DeFi always exists. “We believe that the future will definitely be an opportunity for both decentralized DeFi and compliance to coexist. For the grassroots, more opportunities lie in the decentralized track.”

For large institutions, their opportunities lie in the compliance track. Looking at the stablecoin applications from Hong Kong, when the Hong Kong Stock Exchange applied, it was mostly native crypto institutions, but stablecoins are completely different; they are more often applied for by internet giants and traditional financial behemoths. Therefore, it has become increasingly difficult for ordinary native crypto institutions to secure a place in Hong Kong’s stablecoin market.

The compliance trend in Hong Kong is very clear, gradually advancing from exchange licensing to stablecoins and OTC, having established a complete regulatory framework and system, which will further improve in the future; this is its regulatory system.

Secondly, the friendliness of the Hong Kong government is the best globally. For the past three years, we have emphasized that many people did not believe it, especially when Singapore was used as a comparison. At least in the past few months, Asians are certainly convinced. Singapore’s very strict regulatory policies officially came into effect at the end of June, and many institutions are leaving Singapore. The reason is that Hong Kong has a small government but is a relatively law-abiding place. As long as you do not violate the national security law and do not affect China’s politics, you are just an entrepreneur, and it is definitely a very law-abiding place.

Although the United States has been very open in the past six months, from the cooperation and disputes between Trump and Musk, I believe that the policy environment in the U.S. will certainly be very open in the long run. However, during different periods, standing with different parties will carry risks. However, in the context of maintaining the unity of the motherland in Hong Kong, there is no need to align with other parties or regulatory interest groups; we can simply focus on developing the Web3 business.

We believe that for Chinese people born on the mainland, Hong Kong is undoubtedly the most suitable stronghold for developing Web3. The reason Hong Kong did not develop well in Web2 in the past is that Web2 follows the barrel theory, where only by addressing every shortcoming can it succeed.

When you only have a few long boards in Hong Kong, you cannot make up for the short boards, and it is certainly impossible to develop web2. Web3 is the long board theory. Tether has more than 160 employees and profits exceeding 14 billion USD. They only engage in stablecoin issuance and have not involved themselves in direct development matters related to chains, wallets, and other ecosystems. The number of users for stablecoins is global, extending its long board, while other chains and wallets have compensated for their short boards.

“Hong Kong is just the right place for you to extend your longboard, especially suitable for Chinese born in Mainland China and Chinese around the world. Here, it is ideal for starting a business and serves as a very good bridge in the future process of Sino-American competition and cooperation.”