“I was in the midst of the international financial crisis when it happened in 2008.”
Ran Yi said these words calmly. During the interview, he would always think before he spoke. His tone registered surprise when talking of the essay “Xu Xiang in the cryptocurrency market”.
Ran founded a professional crypto asset management platform, CryptoStrategies, with Kenny Li and entered the blockchain industry.
CSI’s campaigns can always arouse quite a stir in the cryptocurrency market, either it’s the CSI Crypto Fund No.1, a crypto asset management plan, which was sold out within 9 minutes after its launch or the Wolf of Wall Street-Global Cryptocurrency Trading Competition.
Ran has rich experience in asset management, an in-depth understanding of stocks, options, futures, risk control and quantitative trading. He was very familiar with both American and Chinese markets. Why has he chosen the unpredictable cryptocurrency market, a completely new area which is different from the capital market and traditional market that he previously dedicated himself to? Suanlicaijing had an interview with Ran Yi in Shanghai to know more about that.
Out of the financial crisis
Q: What have you done before you enter the blockchain industry?
A: I studied finance in Carnegie Mellon University and worked in Freddie Mac after graduation in 2006. It was a good opportunity at that time. Freddie Mac recruited a total of 5 people that year. My responsibility was asset management and the assets we managed were worthy of 750 billion USD. I was in charge of derivative trading.
Q: What was the amount of your first big trade? How did you feel about it?
A: It was just a number, not my money. So I did not feel very exciting about it. We worked in a team where different team members are charged with different tasks such as giving credits, asset purchase, risk assessment, and hedging of futures and options. We worked together for the success of each and every transaction, rather than work individually.
As we worked in a big team, our responsibilities were very specific and we paid attention to very specific risks. I learnt a lot from fund managers in the process. As we were big buyers, investment banks loved to talk to us. We could get a lot of information.
Q: What were you doing in 2008 when the financial crisis occurred?
A: Freddie Mac and Fannie Mae were thought to be at the center of 2008 American financial crisis as they were responsible for providing fund products in the real estate market. Bubbles in the real estate market and high leverage gradually led to a Ponzi scheme.
People were panic at the beginning of the crisis. Our counterparty went bankruptcy first and then it was Lehman Brothers. Although I was not on the credit team, I could see the anxiety on their faces every day.
We were at the center of the financial crisis. As the two institutions had too many assets, they could not declare bankruptcy like Lehman Brothers but turn to US Central Bank for help.
Q: Why did you choose to come back to China after the crisis?
A: I changed my job on June, 2008 to work in an asset management company. It was the first investment of Bridgewater worthy of 5 million USD in 1987. So we have good connections with Ray Dalio.
I was responsible for finding teams specializing in options, futures and ETF in the company while at the same time we were also looking for good strategies. The good thing is that this job provided me with a global perspective. Asset management in the U.S. is multi-perspective and globalized. We dealt with strategies in different markets including Europe, America and Asia. Through data analysis, I became increasingly aware that China enjoyed great potential in asset management in the future. I was born in China and went to America while I was still a teenager. Westerners did not have a multilingual and multicultural background as I did. I have many advantages in working in the Chinese market.
History tends to repeat itself
Q: Can you get accustomed to the Chinese market easily after you returned to China?
A: In 2012 when I came back to China, people did not know much about private equity or hedge fund. As private equity management in China was not officially recognized at that time, it was still a grey area. People loved to call it “sunshine private fund”.
At the very beginning, people were engaged in FOF, similar to today’s crypto asset management. There was a lack of strategies, standardized and diversified methods. Also, investors did not understand the market but only look at returns, which was unreliable. There was an increasing number of overseas returnees and grass-roots-level institutions entering the market, resulting in the emergence of quantitative trading. The development of FOF in China was similar to that in America. As the number of high- net-worth individuals increased in China, the market matured in 2014. The process is not much different from the development of crypto asset management. The only difference is that crypto asset market develops more rapidly.
To have a deeper understanding of the asset management market in China and get accustomed to the Chinese market, I went on to further my studies in China Europe International Business School and worked in banks in China afterwards. I discovered that although people talked about risks all the time, they could not specify these risks. In contrast, the U.S. market is much mature. The Chinese market is in the preliminary stage of development where people are more proactive in investment and are more capable of risk control.
Q: Why did you turn to engage in crypto asset management afterwards?
A: It was a coincidence. I was exposed to crypto asset transaction through my friends. Having had a deeper understanding of crypto asset management, I decided to enter the market. We have an overseas blockchain innovation center with abundant resources in the industry. We have invested in and incubated blockchain projects. Based on our experience in cooperating with traditional investment institutions, we believe crypto asset can be defined as a new type of asset that can be allocated in investment portfolio. It can both diversify portfolios and diffuse risks. There’s no reason why we shouldn’t enter the secondary crypto market.
Besides, data suggest that almost 97% of the tokens of Binance and Huobi went below their issue price. It shows that prices in the primary market are higher than those in the secondary market, which leads to the fact that investors prefer to trade in the secondary market. As we are specialized in investment management in the secondary market, our platform is very attractive to investment institutions.
As far as I’m concerned, crypto asset is factually another type of asset, not essentially different from other assets. It has supply and demand, fluctuations, retail investors and institutions. It can be traded on multiple platforms 24/7. There are numerous types of trading and prices are highly volatile, which is very difficult for investors, so professional platforms are needed to help manage crypto assets.
Q: The government is cracking down on ICO and speculation. How will this affect you?
A: At present, the Chinese government is cracking down on two aspects. The first is money laundering and the prevention of the outflow of RMB. The second is protection of the common individual traders from being cheated. Therefore, the trading of legal tender, cryptocurrency and OTC is forbidden. This, however, has no impact on our business. We are not engaged in curb exchange, nor do we issue cryptocurrency. We just trade on the subject itself. We don't invest in pseudo-tokens, nor do we take project deals related to these. We look at the business model, team and community building when considering collaborating with projects.
Q: Is there any difference between quantitative trading in crypto assets and quantitative trading in traditional markets?
A: There is no essential difference. The strategy and the logic are similar. For example, traditionally there is high frequency in futures and stocks. We also have a professional team engaged in the business, which arbitrages through buying and selling. The only difference is that we only target at cryptocurrency.
Q: What about the CSI team? How is it going?
A: There are more than 20 people on the CSI platform, most of whom have worked in Wall Street. Six people in the team are preoccupied with trading 24 hours a day 7 days a week. We now have a lot of strategies, such as currency arbitrage, cross-exchange arbitrage, futures and so on. We focus on part of the strategies on our own and our partners including Keying Technology focus on the other part.
I think the current crypto asset secondary market needs strategies the most. Therefore, we prefer to cultivate and incubate individuals and teams that have strategies and provide them with API connections and other technical support. Currently, we are preoccupied with several strategies. The clients are reliable project managers who hope to stabilize the value of cryptocurrency and avoid fluctuations, which is suited to our high-frequency strategies.
We only look at supply and demand and don't believe in stories
Q: Do you think there are many quantitative teams engaged in crypto asset management? How about competition in the market?
A: Objectively speaking, there is no shortage of money in this market. What is lacking is strategy. Some people have a lot of tokens, but do not know how to manage them. So there is always supply and demand. Although there are not many people engaged in crypto asset quantitative trading now, an increasing number of people are entering the industry. However, most of them don't have a platform, similar to the environment when we started to do private funds. We only look at the rate of return and short-term return.
That is because crypto assets are so small in capacity that they are not valued by industry leaders. Global crypto assets are worthy of less than 200 billion USD. The market is far from mature now. Relevant tokens and trading platforms are not standardized. In addition, most people think that crypto assets are a fraud, so a market mogul has not yet emerged.
Q: ETFs have not yet been approved. What do you think of the prospect of crypto asset management?
A: Although there are still a lot of compliance issues and the US government has not approved ETF, I’m still optimistic about the future market development. The U.S. government has not yet approved ETF, but it will be approved. There are now many licensed financial products listed on the Chicago Board of Trade, and there will be more options and custody in crypto asset management. As soon as the SEC approves the ETF, global institutional investors will invest in cryptocurrency, resulting in an incremental effect.
The shuffle is good for blockchain investment and many pseudo-tokens will no longer exist. There are now many projects that are just telling stories with no substance. There are not many believers. Once you enter the market, you actually need a lot of users with crypto assets including project managers, investors, trading platforms and miners to trade on the market. It will be riskier. When it comes to compliance investments, it will be very difficult to have short purchase. Therefore, we believe security token is the trend of the future. I personally believe in BTC and ETH.
Q: Have you encountered any uncontrollable things in crypto asset management? How did you deal with them in the end?
A: Unexpected things may happen anytime in the capital market. They are daily occurrences. I recently read an essay called "Xu Xiang in the cryptocurrency market" which tells many inside stories about trading platforms, project managers and investors. I feel really surprised. It is unbelievable. The fact that shareholders buy or sell stocks at a high or low price to create fluctuations in prices currently exists in most of the secondary markets except for a few mainstream tokens.
If I have been engaged in crypto asset management for a long time, I can take into consideration all sorts of risks. I can predict the risks of trading platforms, project managers, market makers and counterparties. Now it seems that risks of crypto asset trading partner depend on people and we need to understand the people behind those institutions, which will make quantitative trading discretionary, not purely quantitative.
Q: How do you think ordinary retail investors can realize value investment?
A: The so-called value investment in the end has become a bet on people due to the aforementioned trading risks. Maybe BTC can be classified as a type of investment if we must categorize investment .The data suggest that no strategy is as good as BTC and ETH.
It is true that the market is not booming now, so don't trade crypto assets easily. You need to know that your counterparty will become more professional and unlikely to let you win easily. The logic of trading in the secondary market is similar. Passive investment in stocks is a better choice for retail investors. The more you trade, the more you lose.
In terms of crypto asset allocation, we should mainly allocate BTCs and cut down on other mainstream tokens and ETHs. Investors should be cautious in investing in small tokens unless they truly have substance. When it comes to investment, we should all conduct a thorough due diligence and risk control. Do not believe in a story, but understand supply and demand of the token.