The booming of NFT

After DeFi, the NFT become more popular. According to the data from Google Trends, the search popularity of NFT surpassed DeFi for the first time on February 21 and surpassed ETH for the first time on March 6. The search volume has soared unprecedentedly, and there is no doubt that this is the explosive spring of NFT.



NFT(Non-fungible token) is an “irreplaceable” encryption tool that can be used to tokenize “unique digital projects”. Because they are irreplaceable, which means that NFTs are not interchangeable with each other. It can prove the scarcity of digital projects and then endow the projects with inherent value.

In the real world, people exchange works of art and collectibles through physical exchanges, brokerage companies and other media. The concept of “digital ownership” is much more ambiguous than the concept of “physical ownership”, so it lacks in the digital field corresponding to the transaction infrastructure.

NFT is a very effective solution that can help individuals “own” items such as digital art on the Internet in a verifiable manner, and it also can exchange value. Through standardized “digital goods”, NFTs can also exchange digital works on public blockchains, which in turn solves the inefficiency of traditional digital trading platforms.

By viewing the current hotspots, it is not difficult to see that “out of the zone” is the key to this NFT outbreak, including the encrypted collection NBA Top Shot with the theme of NBA star cards, YouTube celebrity Logan Paul launched the Pokémon NFT collection, and the world’s top auction “Christie’s” auctions Beeple’s NFT encrypted artwork.

The reason why people have a strong interest in NFT is mainly due to the huge innovation in this field in 2020. Some well-known artists have entered the NFT market, such as DC Comics artist, “Wonder Woman” illustrator José Delbo, and encryption artist Trevor Jones. The NFT price of many works of art is also quite substantial (usually more than $100,000), which shows that more digital collectors start to see value in NFT. The most noticeable is the Flow of CryptoKitties. NBA Top Shot is a market where NBA authorized digital collectibles are sold on the FLOW blockchain. The platform has more than 67,000 users and sales have exceeded 228 million US dollars. In general, in 2020, the total value of NFT transactions has tripled, approaching US$250 million.

DeFi expands the meaning of Token in the financial field, while NFT interprets the meaning of “non-homogeneity” and “uniqueness”, and has a wider range of applications. Compared with a year ago, today’s NFT ecology and gameplay are rich enough. From public chain infrastructure and development platforms to applications in multiple fields such as games, collections, virtual worlds, art, and personal social interactions; From data analysis platforms to trading platforms; From simple transactions to DeFi mining gameplay, full of imagination and fun.

The NFT application scenario


NFT is very popular in the gaming industry because these tokens solve some inherent problems. For example, it can be used as pets, weapon props, clothing and other items in the game. Using NFT, these features can be easily transferred and used in different games. Therefore, NFT can help promote the economy in the game.

Digital assets:

For example, Decentraland, where participants can purchase virtual land.

In addition, digital artists have accepted NFT to create NFT-based artworks. However, NFT is so attractive because of the profit artists can make in the NFT market. It is worth noting that in the second half of 2020, digital artists will sell their products at the highest prices. For example, an NFT digital artwork that changed with the price of Bitcoin was sold for 262 ETH ($101,100 at the time) in September 2020.

Intellectual property:

NFT can represent a painting, a song, a patent, a film, a photo, or other intellectual property rights. In this field, NFT plays the role of a patent office. Help each unique thing to register the copyright and help it identify the patent.

Physical assets, real estate such as houses, and other physical assets can be tokenized by NFT. It can be used in financial markets such as the circulation of assets.

Records and identification:

NFT can be used to verify identity and birth certificates, driver’s licenses, academic certificates, medical records, etc. These can be safely stored in digital form to prevent abuse or tampering. NFT is an ideal tool to combat identity theft and can be digitized to represent identities and can even be our appearance.


Invoices, orders, insurance, bills, etc. can be converted into NFTs for transactions. In particular, NFT is beginning to integrate with DeFi. For example, the DeFi agreement Yearn Finance has developed an insurance product called Y.Insure for any virtual currency asset. Y.Insure uses the NFT mechanism (ERC-721) to represent the unique nature of the insurance policy. Basically, when defining the unique characteristics of an insurance policy, the standard ERC-20 token appears “meaningless”.

DeFi currently solves mortgages through cross-chain and leverages through the margin system, and finally achieves the same operation as credit derivatives. With leverage, mortgage, and pool of funds, we have all the most basic things in finance, and theoretically any complex derivatives can be designed.


The impact of NFT is not limited to the material ownership of digital goods. It extends to the user experience with technology and it changes the way consumers interacting with their products. Finally, NFT make artists pay more attention to their works instead of catering to the taste of the market.

In short, popular NFT may become the next outlet comparable to DeFi. Of course, the current NFT still has many imperfections, and many obstacles need to be overcome to fully realize its potential. But it is still worthy of our attention in the early stages of development.

2021 crypto market insights — Part 2

In our opinion, compared with the following three things, the bull-bear transition may only have a phased significance in the first half of 2021. The occurrence and impact of these three events will even more represent a milestone in the development of blockchain. They are, respectively:

The rise of Defi and NFT; the global migration of computing power centers; and the Ethereum 2.0 process.

(1)Defi and NFT:

In fact, the rise of Defi should strictly be counted from the second half of 2019, but this trend continued in the first half of this year. According to the statistics of DefiPulse, Defi’s lock-up volume increased from $15.87B on January 1, 2021 to $77.97B on August 12, an increase of 387%.



Exhibit 1: Defi’s lock-up amount from September 2020 to present




Exhibit 2: 2020.1-2021.6 NFT sales on OpenSea

Source:,,Dune Analytics


But the rise of NFT is really the new format this year. Compared with traditional tokens, NFT is indeed a big improvement, especially in the popularization and application level of blockchain. According to a report from Reuters on July 5, NFT achieved an order of magnitude increase in the first half of 2021.


(2)Migration of computing power:


Blockchain has been a global industry since its inception. Therefore, from a global perspective and the development of the blockchain, the migration of computing power will be the norm for the blockchain, and the decentralization formed by the dispersion in the migration process is beneficial to the healthy development of the system.


Although China’s regulation in the first half of the year seems to be the main reason for the migration of computing power. However, CCAF’s statistics show that, in fact, the migration has already begun even earlier, and it is becoming more and more decentralized, which is more and more conducive to the stable development of the Bitcoin system.



Exhibit 3: The proportion of countries accounting for the Bitcoin computing power of CCAF, the Cambridge Derivative Finance Center (2019.10-2021.4)

Source: CCAF statistics


(3)Ethereum 2.0 process


If Bitcoin is the spiritual pillar of the blockchain world, then Ethereum is the guarantee for the rapid progress of the blockchain. So this is why the entire industry is paying attention to the upgrade of Ethereum from 1.0 to 2.0. From POW to POS, it has been conceived for a long time, discussed for a long time, and still pending for a long time.


April 15, the Berlin fork disappointed the entire crypto world because there was still no consensus on important changes. It was not until the London fork on August 5 that EIP-1559, a change that changed the charging model of the Ethereum chain, was finally launched. The launch of EIP-1559 marks another step forward in the progress of ETH2.0.


In the Ethereum community, the indicated time point for the completion of 2.0 has always been: about 2022. We previously expected it to be at the end of 2022, but for now, we need to move ahead.


Blockchain + industry

As shown in the 2019 McKinsey report, the blockchain is at a critical point from the development stage to the growth stage. The next 10 years will be the 10 years when the blockchain releases value. The 2020 new crown epidemic is undoubtedly a booster for digital transformation. Companies want to use digitization to improve collaboration efficiency. The application of blockchain in the industry will also enter the fast lane. More fields will join the blockchain ecology, such as blockchain + live broadcast industry, blockchain + agricultural industry, Blockchain + medical industry.


The following will list several hot application areas of the future blockchain.


Blockchain + finance: The application of blockchain + finance has a high degree of maturity. Blockchain technology can be deeply applied to the financial industry supply chain finance, trade financing, capital management, payment and settlement, digital assets, extended fields and other links. Provide credible platform services in pledge, financing, project management and other links.


US payment giant VISA launched the blockchain-based cross-border payment network “B2B Connect” to facilitate cross-border payments by international financial institutions.


Blockchain + Intellectual Property: Blockchain timestamp, hash algorithm, asymmetric encryption and other technologies can effectively solve the problem of copyright confirmation, and blockchain smart contracts and consensus mechanisms can effectively assist multi-person collaboration in intellectual property rights. Consensus judgment and other links.


Blockchain + social: The application of blockchain technology in the social industry can be divided into instant messaging projects and social platform projects; instant messaging projects are simple to operate and have strong security; social platform project rewards and review mechanisms are relatively sound.


Blockchain + Energy: Blockchain can effectively improve indicators such as energy industry distribution and sharing, security and transparency, and promote transparency in multi-party transactions; global blockchain companies have established in-depth applications around distributed transactions, energy finance, carbon trading and other scenarios.


Blockchain + medical treatment: Blockchain can effectively solve the pain points of efficiency, sharing, management, platform and finance in the medical industry, build a complete technical framework, and efficiently apply to scenarios such as data encryption, traceability, and asset digitization.


With the gradual close integration of the blockchain and various industries, the economic benefits brought by the blockchain continue to increase, and it is expected that more companies and users will recognize the blockchain and increase the consensus on the value of the blockchain. Gradually deepen.


Attitudes towards blockchain

Texas, United States: The House of Representatives unanimously passed a “virtual currency bill” that recognizes the legal status of cryptocurrencies; the governor believes that “blockchain is a booming industry that Texas needs to participate in.”


Colorado, USA: A new state bill in the Senate proposes to use blockchain technology to protect private data from cyberattacks and solve the state’s existing data collection and retention problems.


Wyoming, USA: Decided to exempt property taxes on cryptocurrencies in this state. The bill defines “virtual currency” as a form of digital expression that serves as a medium of exchange, unit of account, or means of storage of value, and is not recognized as legal tender by the U.S. government. It aims to simplify the legal framework of cryptocurrency and the use of blockchain technology in the state to facilitate the establishment of related commercial venture capital.


Arizona, USA: Revise the bill that allows residents of this state to use cryptocurrency to pay taxes and fees; incorporate blockchain signature and smart contract technology into the law.


Washington and New Hampshire, USA: The bill on the cryptocurrency ecosystem has been passed.


Delaware, USA: Believing that blockchain will play a broader role in its economy.


Illinois, USA: Using distributed ledger technology to “redefine the relationship between government and citizens.”


El Salvador: Starting from September 7th, Bitcoin will be used as the country’s legal tender.


Busan, South Korea: The head of the digitalization work at Busan Bank stated that “the government is changing its attitude towards cryptocurrency and has appointed a government agency to manage the industry”.


Goldman Sachs: A survey conducted by Goldman Sachs found that nearly half of its family office clients would like to add cryptocurrencies to their portfolios.


Tesla: In February announced the purchase of $1.5 billion worth of bitcoins, a total of 46,000 bitcoins were bought. Tesla CEO Elon Musk made it clear that “Tesla is very likely to resume Bitcoin payments” and revealed that another company, Space X, also holds Bitcoin.


Audi: Announced the release of NFT in cooperation with xNFT and others on August 10.


Ernst & Young: Ernst & Young is one of the first companies to explore the field of cryptocurrency and is committed to the development of the Baseline protocol, which uses the Ethereum public mainnet as a tamper-resistant state machine to record business data. In May 2019, Ernst & Young announced its Nightfall open source code for private transactions on the Ethereum blockchain.


PayPal: Announced the launch of a new service that supports cryptocurrency from the beginning of 2021; in November 2020, PayPal’s cryptocurrency transaction and payment platform for US users will be launched.


Microsoft: Microsoft provides blockchain services through its cloud computing platform Azure; it announced a partnership with Ernst & Young to use the Ethereum blockchain to pay Xbox game royalties.


In the end:

We cannot predict the future.


The British workers described by Marx seem to be living in such a hot water, but the Victorian England is the pinnacle of the British Empire. Both historically and the bottom people of many other countries in the world at the same time, they seem to be happiness.


A generation of Americans who grew up during the Great Depression showed little interest in stock market investment, but their generation was one of the most golden periods in the U.S. stock market.


But under the current trend, the blockchain has passed its born period. The ensuing supervision and questioning are like growing pains.


Young parents are always planning their children’s future, but whose future is really planned? Life is full of accidents, we are just gardeners, watering and irrigating, and expecting it to thrive.


Just like the blockchain.


2021 crypto market insights — Part 1

The price of encrypted assets has fallen due to the new round of regulations in various countries. But historically, encrypted assets have a strong anti-fragility. After five huge waves, the yield is still higher than other mainstream investment products. In the long run, the supervision itself will also promote the more standardized and healthy development of the blockchain industry and encrypted assets. From the perspective of the real economy, the blockchain is continuously integrating with various industries to empower. The recognition of the blockchain by governments, enterprises and the public in various countries is gradually increasing.

“Life is a trial, investment is a practice.”



Table 1: From April 14th to July 20th, Bitcoin fell from its highest point to its lowest point

Source: Trading View

On April 14, 2021, Trading View statistics showed that the price of Bitcoin climbed to a maximum of $64,854, and market sentiment reached its peak!

Three months later, on July 20, 2021, the price of Bitcoin fell to $29,278.

During this period, it experienced the global computing power without China; The late arrival of governments’ supervision, the slogan of the world environmental protection movement, the continuation of the epidemic.

In this situation, it is difficult for us to keep clam. But we are responsible for our investors and their property. Just as Jiao Wei, the excellent fund manager of Yinhua Wealthy in 2020, said, if we only look at the market, we will also doubt whether what we have done is just the mistake of a small group of survivors.


The situation of crypto assets from 2020 to 2021

The encrypted assets in 2020 has also experienced a wonderful year like other capital markets. Bitcoin reach the highest prize which more than $29,800 on the last day of 2020, with a full-year return rate of 330%. Bitcoin futures contract open interest rose from approximately $2.7 billion to approximately $9.4 billion, an increase of 248.15%. The scale of the Bitcoin Trust was expanded to $17.475 billion.


At the same time, the ecology of Ethereum has also confronted with a major explosion. Not only it achieved a 2100% increase in the amount of total volume locked positions, but also the transaction volume has increased by 41.98% year-on-year, which is nearly three times that of Bitcoin.



Table 2: Ethereum exchange supply (yellow line)

Source: Messari


Based on the data on the chain, the entire crypto market in 2021 continues the trend of 2020. And the ecology of the entire blockchain is further improved: Polkadot, BSC, Solana, Flow, Near, Polygon, Layer2…Ethereum has emerged competitors, also, Ethereum itself is constantly iterating and updating. The number of active addresses is also increasing. There are constantly new tracks joining the world, and the integration with the old field is also deepening.



Table 3: Number of active addresses in Ethereum

Source: Messari


Traditional companies are entering the market, but it will take a while before they truly understand the blockchain world. It will take a while before the world truly understands the blockchain. Just as people around the millennium did not really understand the Internet, we know what it can do, but we don’t understand it.

This is our opportunity. Time is our friend.


This report will be divided into three parts:


In the first part, we reviewed the nearly ten-year history of Bitcoin from a historical perspective and sorted out 5 rounds of bull-bear conversion, trying to illustrate that Bitcoin’s characteristics are anti-fragile.


In the second part, we horizontally compared the yields of other assets in the same period, showing that those assets that we have traditionally reached a consensus on wealth are not actually better than encrypted assets.


In the third part, if we take the present as the starting point and draw an extension of the past trend to look forward to the future, we can see a deeper integration and mutual shaping of various fields and the blockchain. From this perspective, we believe in the future has come, but has not been seen.


Bitcoin’s anti-fragility

1.Five rounds of “bull and bear” markets for Bitcoin


In 2011, Bitcoin first rose from $0.3 to $31.5. After that, it fell from US$31.5 to US$4.77 in just one and a half months, a decrease of 85%. During the entire decline, there were seven days of Bitcoin’s single-day drop of more than 20%. The entire decline process lasted 3 months before it really bottomed out.


In 2013, Bitcoin’s rise exceeded 100 times again. In April of the same year, Bitcoin fell from $266 to $54.25 within three days, a decrease of 77.4%. After several months of adjustments, Bitcoin regained lost ground and reached new highs.


At the end of 2013, Bitcoin plunged 92.5% in 83 days. This is the largest plunge in Bitcoin’s history. After that, Bitcoin entered a bear market for several years.


In September 2017, the Chinese government halted cryptocurrency trading, and the price of Bitcoin fell 37%. Then in October and November, after regaining the lost ground and setting a new high, Bitcoin began a new round of plunge. It is from a high point of close to 20,000 U.S. dollars to a 70% plunge.



Table 4: The most recent wave of “bear market” in 2021

Source: CoinMarketCap


 In 2020, Bitcoin went from $5,200.37 in March to a peak of $64,854, a maximum increase of 17 times. In May 2021, due to high-pressure regulation, Bitcoin fell sharply, hitting $29,000.


2.The results of the “bull and bear” market

Bitcoin has experienced 5 plunges, and the price on August 4, 2021 was $37,763.88. Although it was down 40.16% from the peak period, it was still 2.37 times that of 1 year ago and 377637.8 times that of 11 years ago.



Table 5: Bitcoin price trend in 2013-2021

Source: CoinMarketCap


3.Bitcoin anti-fragility

Bitcoin, as the representative asset of the blockchain, has the characteristics of all blockchain assets, the most important of which is anti-fragility.


The vitality of the blockchain comes from openness and competition. For a decentralized autonomous system to be viable, it must be as open as possible, and lower the threshold as much as possible to allow more people to participate. The greater the number of participants, the fiercer the competition, the more dynamic the system, and the stronger the anti-fragility.


Blockchain can meet the real needs of users and gain support from users. Users can satisfy most users’ needs through mechanisms such as community governance and voting. The closer the connection with users, the more dynamic the blockchain, and the more anti-fragile.


Blockchain is a free market, a market that is decentralized to the greatest extent, and each individual can play games according to their own purposes. Therefore, the short-term market will have greater volatility, but it has strong anti-fragility in the long-term.


Comparison of crypto assets with other mainstream assets



Gold has risen 46.45% from 1,238.31 USD/oz in August 2010 to 1,813.5 USD/oz in August 2021.



Table 6: Gold price trend from 2010 to 2021

Source: TradingView




Amazon’s stock price increased 27.23 times from US$117.89 in August 2010 to US$3,327.59 in August 2021.


The Nasdaq Composite Index (IXIC) increased 6.05 times from USD 2,114 in August 2010 to USD 1,4895.1 in August 2021.



Table 9: Amazon stock price trend from 2010 to 2021

Source: TradingView




Table 10: Nasdaq Composite Index Trend from 2010 to 2021

Source: TradingView


Comparison of return rates of major investment projects

In the current major investment projects, such as gold, stocks, etc., the yields of cryptocurrencies such as Bitcoin and Ethereum are much higher than other investment projects. Even if Bitcoin has experienced several huge rises and falls, it can still bring huge benefits, and it is tens of thousands to tens of millions of times that of other investment projects. Secondly, according to the Sharpe ratio of each item, Bitcoin has the characteristics of high risk and high return.


Note: According to the definition of MBA Think Tank Encyclopedia, the Sharpe ratio = (expected rate of return-risk-free interest rate)/standard deviation, where the risk-free interest rate is the 10-year Treasury bonds of the United States. The standard deviation method is to select the price of the last day of each year from 2010 to 2020 and find the standard deviation of these 11 prices.


Table 11: Comparison of return rates of major investment projects




Bitcoin-King of the cryptocurrency

Total crypto market cap is $1.56T…Bitcoin dominance is 59%, which represents a +0.82% gain over the last 24 hours. — Nomics

When it comes to cryptocurrency, people always think of Bitcoin. In the mainstream financial news, most of what you hear is the rise and fall of Bitcoin. After the clickbait link was clicked in, the article only contained a few concise words. In the crypto world, bigwigs talk about Ethereum, Binance Chain, Huobi, Polkadot, defi, and NFT, but few people talk about Bitcoin. On the one hand, everyone recognizes that Bitcoin is the cornerstone of the entire cryptocurrency world. On the other hand, they talk a lot about the technological superiority of their projects and the reasonable token economy.

However, like the stock market, there are a few “demon shares” with continuous limits every year. But the truth is that investors looking for “demon stocks” should buy lottery tickets. Ordinary investors and fund managers should not count on such investments. If my fund manager someday shows off to me which “demon stock” he has staked on, then I’m sorry, I don’t need a fund manager who is too gambled.

The reality of this blockchain world may be: Just like the market as individual stocks, the price of Bitcoin also has a considerable influence on other cryptocurrencies.

Cryptocurrency follow

The currency market is the same as other financial markets daily, with ups and downs. When you’ve sung your part, I take the stage. However, just by looking at the chart of the last 7 days, it can be seen that the price trend of Ethereum and Bitcoin are almost exactly the same.

This is not difficult to understand. If Bitcoin is version 1.0 of cryptocurrency, Ethereum is undoubtedly version 2.0 of cryptocurrency. Such an “intimate” relationship is enough to make them both prosperous and ruinous.

What about other cryptocurrencies?

Some of them are “brothers and sisters” competing with Ethereum, and some are applications attached to their respective main chains. Some of them are separated from Bitcoin by a “generation” and will they still advance and retreat with Bitcoin?

The answer may not be so obvious.

Here, we used the 10 cryptocurrencies with the largest liquid market capitalization on CMC. (Note: non-stable coins are not anchored coins) Pearson correlation calculations are carried out using their daily price rises and falls and Bitcoin’s rises and falls.

The results are as follows:

Correlation coefficient table with Bitcoin

(Statistical time is from August 8, 2015/project listing date to August 26, 21)

(Correlation coefficient: In general, the absolute value of 0-0.09 is no correlation, 0.1-0.3 is weak correlation, 0.3-0.5 is medium correlation, and 0.5-1.0 is strong correlation.)


In fact, the relevance to Bitcoin is still determined by the type of token. The correlation between each public chain and Bitcoin is very high, while the correlation between each application is relatively low.

In previous research, we saw that the correlation between Uni and Bitcoin (0.3977) is actually not high. So, as a DEX project on Ethereum, will it be more relevant to Ethereum? If we go one step further, how are other mainstream projects on Ethereum related to Ethereum?

Table of correlation coefficients between popular projects on the Ethereum chain and Ethereum

(Statistical time is from the listing of each project to August 26, 2021)

Now we know at least two main points:

1.Uni and Ethereum are more relevant than it is with Bitcoin;

2.Generally speaking, although Ethereum projects show a certain correlation with Ethereum, The correlation coefficient is still not as good as the correlation coefficients of major public chains to Bitcoin.

Moreover, considering that correlation research is more sensitive to the number of samples, the smaller the number of samples, the stronger the correlation (even if there are only 2 samples in the extreme case, the correlation coefficient must be 1). Then, in terms of Bitcoin correlation samples with thousands of samples, the actual Ethereum project has a lower correlation with Ethereum.

Finally, some projects still “stepped on two boats”. Here we have found two projects that are both alive on Ethereum and Binance Chain. Let’s study how they are related in a slightly more complicated situation.

Table of correlation coefficients between double-chain projects and public chains

(Statistical time is from the listing of the project to August 26, 2021)

There are still some connections between the project and the public chain, every project has its preferences at this time. Dodo prefers Binance, while Mirror prefers Ethereum.

From Bitcoin to major public chains, from major public chains to various projects on the chain, from various projects on the chain to the development of cross-chain products. From simple to complex, we have seen a weakening of relevance. Perhaps, this encrypted world is the same as the real world, the top-level architecture is always similar, but the lives of each person in it are different.

Our research does not intend to stop there. Correlation does not mean cause and effect. Perhaps Bitcoin has affected the prices of other tokens, or vice versa. It is also possible that some factors have affected all cryptocurrencies including Bitcoin. Or, there will be some unexpected changes in this magical field.

To be continued…

Introduction of PRINCIPLE68 CAPITAL

Brief introduction about who are we?

PRINCIPLE68 CAPITAL has a world-class investment in R&D and management teams, located in London and Shanghai. Our team members have worked in well-known hedge fund management companies in London. They have rich market experience in computer quantitative model design, research and development, and application. We have several strategies to operate in the cryptocurrency field, namely, statistical arbitrage strategy and intraday trend strategy.

Crypto Systematic Trading Fund

There 3 kinds of crypto systematic trading fund we use.

The first one is trend tracking, we use a large number of different technical indicators to find current market trends, and make directional investments based on the trend. The strategy is intraday high frequency, and the position is managed according to the strength of the trend signal. The strategy can be long or short, and it can be profitable whether in a bull market or a bear market.

The second one is statistical arbitrage. The strategy finds the most relevant currencies, and then finds the long-term equilibrium relationship (cointegration relationship) of each pair of currencies. When the spread of a pair of currencies (residual error of the cointegration equation) deviates to Start building a position at a certain level—buy a relatively undervalued currency and wait until the price difference returns to equilibrium to close the position to make a profit.

The third one is futures spot arbitrage. Futures arbitrage refers to a certain type of futures contract. When there is a price gap between the futures market and the spot market, it takes advantage of the price gap between the two markets to buy low and sell high for profit. In theory, the futures price is the future price of the commodity, and the spot price is the current price of the commodity. According to the same price theory in economics, the difference between the two is the “basis” (basis = spot price-futures price). Equal to the holding cost of the commodity. Once the basis deviation and the cost of holding are large, there is an opportunity for cash arbitrage.


Compared with the subjective investment strategy in the market, we have the following advantages. Firstly, from the test aspect, we have real-time analysis and testing capabilities for big data integration in the cryptocurrency market. Also, the system will conduct rigorous testing on massive price data within a valid period, including scenario analysis and stress testing. Secondly, all the decision are relatively subjective. Objective screening process and efficient and stable investment process to avoid human prejudice and emotion. Besides, the model is built in a complete system and does not depend on individuals. Lastly, our risk control system is sophisticated. Our risk management is completely embedded in the entire investment process, not just ex post risk control. What’s more, a wide range of investment strategy applications, 360-degree full market scanning, to avoid the limitation of choice caused by lack of energy. Also, the investment process can be monitored with high transparency, and can be continuously improved and optimized.

Compared with traditional strategies, what’s the core competitiveness of quantitative strategies?

Traditional investment VS quantitative investment

Different from traditional investment methods, quantitative investment does not use personal judgment to manage assets. Instead reflects the thoughts, experience, and intuition of investment experts in a quantitative model. Also, uses computers to help the human brain process large amounts of information and make investment decisions in the final.

The main feature of the quantitative fund is to deduce the theory of qualitative research through a quantitative model. With the help of the powerful information processing ability of the computer, a full range of investment objects that meet the “standard” are selected. Avoiding any “blind spots” when investing, and maximize capture “standard” investment targets. With the help of quantitative models, quantitative investment can avoid the interference of fund managers’ emotions and preferences on the investment portfolio, accurately reflect the investment ideas of fund managers, and maximize “rational” investment.

For traditional active investors, the limitation of decision-making breadth is reflected in the limitation of tracking the number of investment targets and the limitation of thinking variables in decision-making; quantitative investment has a greater investment perspective and breadth and can dealing and mining mass information processing quickly and efficiently in the whole market. Of course, the traditional active investment method has advantages in decision-making depth, so doing more in-depth fundamental research to make up for the lack of decision-making breadth is the key to success or failure. However, with the acceleration of market information transmission, many analysts seem to be more and more difficult to make up for the lack of decision-making breadth by facing the excavated fundamental data, and more in-depth analysis. At the same time, traditional investment managers are inevitably affected by the surrounding environment, and they often make trading behaviors that deviate from their judgments. Differently, quantitative investment is highly objective and disciplined. Rational investment by strict strategic rules can effectively overcome random and emotional behavior in the investment process.

Quantitative investment and active investment influencing factors

In the above figure, the diversity of investment strategies, high risk corresponds to event-driven and index enhancement; medium risk corresponds to growth stock investment and alpha strategy; low risk corresponds to value investment and arbitrage strategy. The left part is event-driven, growth investment, and value stock investment, which are active management strategies; index enhancement, alpha strategy, and arbitrage strategies are all quantitative. Strategies can be divided into strategies that are easy to use when there is a high-risk preference, strategies that are available when there is a medium-risk preference, and strategies that are available when a low-risk preference is used. At the same time, they are also divided into two parts: active and quantitative, one is determined by humans, and the other is determined by machines.

Why are the drawdowns of some funds relatively small but some of them relatively large? Why are the yields slightly different? Many factors affect the rate of return of quantitative funds.

For example:

First of all, some funds can be able to hedge by borrowing the CSI 500 ETF, without index hedging, its maximum drawdown will be relatively small; otherwise, sometimes due to the impact of index premiums and discounts, its maximum drawdown will come bigger.

On the other hand, for example, there are more investors in the entire company, and the composition of investors is relatively complicated. Sometimes, some new products are launched. If there is investment from a brokerage firm, and the brokerage firm that invests happens to be the main product of this product. Underwriting will result in some products not being launched, which will lead to differences in overall revenue.

In addition, whether the hedging end can borrow spot hedging will also lead to some differences in returns. There are many other situations, which are relatively complicated, and there are two biggest impact factors.

The whole quantification, if it is hedging, the drawdown is relatively small, and the return is relatively stable. However, quantitative hedge funds are not comparable to funds that are not hedged at all. The risk appetite between the two is completely different. Quantitative hedge funds may be relatively more investors who like bank wealth management and trusts. The unit price of a generally quantitative investor’s investment (the amount purchased by a single customer) often far exceeds the amount purchased by a single customer of active products. Why? It is mainly because there will be many high-net-worth clients who need more stable financial management, and their risk-return preferences are relatively low.

Relative to the annualized volatility, the net worth volatility measures property changes. The overall volatility can be controlled at around 5.5%; If the index is strengthened, it is not hedged at all. Its overall volatility can reach 26%, and the risks are indeed different.

From this year’s point of view, because the market has risen relatively well this year, We must like active products with enhanced indexes or no hedging at all. For example, in 2018, when the market was not good, this series of products for quantitative hedging was basically in short supply. Therefore, at different times, investors will have their risk appetite. If their own money is relatively limited, they may switch between the two. But in fact, it’s quite difficult to do like this. Because you are judging the rise or fall of the market, and for other people, some of the funds are used for speculation, and the other part of the funds is relatively low in risk appetite. This can do it together.

Quantitative risk control

Quantification itself has a natural risk control. Some quantification models will choose 300 to 400 stocks for a basic strategy. Generally speaking, an entire fund will have two or more strategies. Under such circumstances, the number of stocks can reach 600 to 700, and the high degree of diversification of positions has been adopted to avoid the black swan risk of a lot of individual stocks. In addition, stock index futures or 500ETF are used to hedge, to help investors filter out the risk of market fluctuations. The stocks are diversified, and the market risk is hedged. Under such circumstances, the actual rate of return and risk control process is done relatively sufficiently.

Of course, some investors do not want the volatility of the market to be waved away. In this case, his better choice is the index-enhanced series of products. As far as hedging products are concerned, if a few hundred long combinations cannot run better than the index, hedging is meaningless. Because hedging still has to deduct discounts and other things, it makes sense for the long series to outperform the index. The only difference between these two products is whether you are hedging or not. The long end is the same, so the choice of these two products depends entirely on the investor’s risk appetite.

Now, you may have a question. Why have so many quantified private placements rise so quickly in recent years? The data shows that many of the top active private equity in the market has been in operation for almost 10–13 years. The top average annualized rate of return is about 19% (annualized), and the best can achieve an annualized rate of 22% (private placement over ten years). Quantitative private equity in the market nowadays will be relatively late to be established. Therefore, in five years, the average annualization of the top five companies can reach nearly 25%, from the perspective of index enhancement alone. There are certain advantages to this process.

Of course, different people have many different opinions in this regard. For example, some people think that quantification is done by machines, and they don’t know whether they should be trusted or not. On the other hand, he may think that the active product has investment managers who constantly help him with psychological massage, which will let investors know his thoughts and ideas, which is more conducive to investors to understand the fund. The interaction between people has an advantage.

However, from the data point of view, quantitative index-enhanced products are also constantly rising. For some investors, the customers who are partial to science and technology are often more acceptable if we simply look at the yield and the performance of hundreds of stocks; the customers who are partial to the perceptual category may still prefer traditional active private equity.

But, indeed, some funds in the market have gradually paid attention to quantitative private equity. The performance made by hundreds of stocks is statistically more convincing. Under such circumstances, they will also be willing to believe. That’s the reason why index enhancement strategies, including quantitative hedging strategies, have emerged rapidly in recent years. Everyone takes what they need.

Take Tesla as an example. Everyone said that Tesla’s autopilot has a problem, involving a personal accident or what kind of situation, so the news may become serious. People naturally don’t trust machines, but the fact is that Tesla’s autopilot system (data shows) has a car accident rate of 1/200 that of human driving, and humans may gradually accept it by then. The quantification initiated by the machine is assured and recognized by people when the rate of return is much higher than that of manual labor. This is continuous development and it is also a process which everyone gradually understands and agrees. The rise of quantification and the future of quantification still have a long way to go, but I believe that quantification will indeed be very competitive in the future. After all, a quantified neutral product is a relatively low-risk and medium-yield product. It is very attractive for many high-net-worth customers. Its capacity is relatively large because it has passed hundreds of A combinations of stocks, so the overall strategy capacity is relatively large.

Take Tesla as an example. Everyone said that Tesla’s autopilot has a problem, involving a personal accident or what kind of situation, so the news may become serious. People naturally don’t trust machines, but the fact is that Tesla’s autopilot system (data shows) has a car accident rate of 1/200 that of human driving, and humans may gradually accept it by then. The quantification initiated by the machine is assured and recognized by people when the rate of return is much higher than that of manual labor. This is continuous development and it is also a process which everyone gradually understands and agrees. The rise of quantification and the future of quantification still have a long way to go, but I believe that quantification will indeed be very competitive in the future. After all, a quantified neutral product is a relatively low-risk and medium-yield product. It is very attractive for many high-net-worth customers. Its capacity is relatively large because it has passed hundreds of A combinations of stocks, so the overall strategy capacity is relatively large.

Quantitative investment options

For investors with a relatively high-risk appetite, the future index enhancement will have a strong impact on all active fund managers. The top active fund managers will do a certain style right in a certain year. The rate of return is difficult to surpass, but he may not be the top fund manager every year.

However, based on the top index enhancement products of the past five years, there may be an annualized return of 25% each year in the past five years. This level can already exceed 90% or even 95% of active fund managers. Therefore, in the long run, index-enhanced products will show strong vitality and competitiveness in the future. After everyone gradually recognizes, the choice of quantitative products, whether hedging or index enhancement, actually depends on the investor’s risk appetite.

Quantitative investment methods can be widely used in the entire investment process, from top to bottom asset allocation, industry allocation, style allocation, to bottom to top quantitative selection of targets, etc.

Quantitative investment is not the opposite of fundamental analysis. 90% of the models are based on fundamental factors while taking into account technical factors. Therefore, it is not a technical analysis, but a logical investment method based on an in-depth understanding of the market.