"Within 22 months, without leverage, the average monthly return was 50%+, and the overall return was more than 12 times."
At a small industry exchange meeting in early October, when the head of Geometry Capital talked about their above performance in the past two years, everyone present thought it was an obvious slip of the tongue.
The Hong Kong capital market in 2023-2024 is still like a quagmire. Geopolitical tensions, economic slowdown, and liquidity tightening; virtual assets seem to be in full swing, but in fact, the market hysteria of small size and high cost is difficult to eliminate. After a meeting, the institutions generally said seven words: it is not easy to stabilize returns.
Geometry Capital has just entered Hong Kong, but its performance has attracted attention.
On May 20, 2024, Geometry Capital (Hong Kong) Co., Ltd. (Geometry Capital's Hong Kong subsidiary, hereinafter referred to as "Geometry Capital (Hong Kong)") officially obtained the Type 4 (providing advice on securities) and Type 9 (asset management) licenses related to virtual asset investment issued by the Hong Kong Securities Regulatory Commission. At the same time, Geometry Capital's BVI subsidiary obtained the BVI manager license. To date, Geometry Capital (Hong Kong)'s core team has a total of 7 Chinese. The first step in expanding the Hong Kong market has just been taken, and new challenges are waiting for them.
Low-key, professional, pragmatic, and risk-conscious
Leo is one of the founders of Geometry Capital.
The Peak in the evening is a great place to overlook Victoria Harbour and Kowloon Peninsula. At nightfall on a weekday in early autumn, tourists are bustling around; the temperature is getting colder, and lights in the distance begin to flicker one after another. What comes into view is the prosperity of Hong Kong, and what you feel is the calmness and clarity of mind.
Leo chose to stay in the crowd this night. His eyes fell on the land in the distance, and his mind was full of two questions that would have the most far-reaching impact on the results in the next few years: How big is the future potential of the Web3 industry? Should he take root and develop his business in Hong Kong to keep up with the trend of global compliance development?
The night was not long, and Leo obviously made a firm and correct decision.
"Once known as 'cryptocurrency', now known as 'virtual assets', the development of blockchain technology is clearly deepening and even reshaping the global financial system. Blockchain is a trust machine that can solve the difficulties of credit non-transmission or low transmission efficiency from a higher dimension, thereby releasing huge resources and incremental value for society. Virtual assets based on blockchain technology will be the first to carry these values, thus creating new wealth opportunities. This is already a consensus reached among global investors and institutions."
"In the financial market, risk and return are twin brothers. Take leverage operation as an example. If used properly, the return can be significantly magnified; on the contrary, a mistake may lead to an instant loss. The crypto market is a high-risk area with violent fluctuations; but on the other hand, On the other hand, after a deep understanding of its laws, its potential returns can far exceed those of the traditional market. We hope to use our past experience in the encryption field to help investors avoid risks and maximize the wealth of the crypto world while the risks are controllable. opportunity."
"Amid turbulent times and stagnant growth, the achievements of Bitcoin have proven that the potential of virtual assets will continue to be unleashed in the future. To be more specific, the biggest enemy of the development of virtual assets in the capital market is still the negative impact of global regulatory uncertainty. The introduction of relevant policies in Hong Kong has finally connected the crypto world and the traditional financial world through the bridge of compliance supervision. Geometry Capital (Hong Kong) can use this path of compliance to develop crypto asset management in Hong Kong."
With a direction, you will not be confused in the face of any difficulties.
In Hong Kong, applying for a license is a protracted battle, and it is also the time and opportunity cost that must be paid to embrace compliance. Taking Hong Kong's traditional financial licenses as an example, it usually takes at least 9 months from preparation to formal approval of Type 4 and Type 9 licenses. Direct application for virtual asset-related licenses is even more stringent. During the entire application process of Geometry Capital (Hong Kong), Leo, as the main RO, answered nearly 1,000 questions.
"The response to the license application inquiry must be controlled within 24 hours. On the one hand, it is to speed up the license application process; on the other hand, it is also the best opportunity to convey the team's professionalism to the regulators."
After 7 months of review and inquiry, Geometry Capital (Hong Kong) received the approval of the Hong Kong Securities and Futures Commission on May 20, 2024, and was officially issued the 4th and 9th type licenses related to virtual assets in Hong Kong. This is the 22nd virtual asset type 9 license in Hong Kong. As of the end of October, the Hong Kong SFC has issued a total of 30 virtual asset-related type 9 licenses. The vast majority of institutions have upgraded from traditional type 9 licenses to virtual asset type 9 licenses, and a few are local Hong Kong institutions that directly apply for virtual asset type 9 licenses. Geometry Capital (Hong Kong) is one of the very few institutions with a pure mainland background that directly went to Hong Kong to apply for a crypto type 9 license.
Leo admitted that he was "very excited" to be approved in such a short time.
Hong Kong has a transparent and friendly financial regulatory environment and is the best choice for crypto pioneers who embrace compliance.
To date, Geometry Capital (Hong Kong) has recruited 7 Chinese members, including experienced local ROs in Hong Kong and excellent financial talents from the mainland. With awe of the market, they have formed a low-key, pragmatic and professional team. Under the synergy of the two major committees of investment decision-making and risk control, they are divided into 4 small teams: investment research, compliance and risk control, market, and back-end, to jointly carry out business. Facts have also proved that Geometry Capital (Hong Kong) is indeed capable of making achievements. Now that it has appeared in the eyes of the market with its achievements, it has gained more recognition for the team and more extensive cooperation opportunities.
Deepen the implementation of the 3+2 strategy
Never fight a battle in the financial market without preparation.
As a professional financial institution, Geometry Capital cannot miss the opportunity due to the cumbersome license application process. Before the license was officially approved, the team took the lead in developing investment research strategies to prepare for the investment work after the license was issued.
“Based on the team’s understanding of the market, we developed a 3+2 execution strategy, and the results showed that we did quite well,” Leo introduced.
3 major offensive systems: value base, trend strategy, and trading thinking
“To determine whether a target is worth investing in, we first need to determine the upper and lower limits of its reasonable valuation, and then determine what type of black swan event may have a huge impact on the target, and then assess the probability of such black swan events. For the crypto industry, another point that needs attention is whether the target has the risk of returning to zero. By doing a good job of the above evaluations, we have completed the construction of the value foundation of the target.”
“Based on the value base, through the overall judgment of the development trend of the crypto industry, we can analyze whether we are currently in a bear market or a bull market, and whether we are in the early or middle stages of a bull market. The judgment of the big trend is very important for this industry, and it determines your specific execution strategy. After determining the macro stage of the industry, we can combine the relevant technical indicators at the micro level: on-chain data, stablecoin indicators, sentiment indicators, liquidation data, gas fees, etc., to trade at the right time and follow the trend.”
"The trend trading strategy has enabled Geometry Capital to successfully share in the benefits brought by the market's own growth; but to outperform the entire market, we must also pay attention to the various market participants, especially the trading methods of the market makers. Only by standing from the perspective of the market makers and understanding their trading thinking can we find the real gold in this turbulent market."
2 major defense systems: position control and risk quantification
"From the perspective of risk prevention, we proposed the '3+X' position control strategy, which selects 3 relatively independent tracks in the Web3 field, selects the leading target X in each track, and invests funds in the above targets to achieve investment risk diversification; in terms of fund allocation, the investment funds for each target are divided into 3 parts, one is the base fund for initial position building; one is the offensive fund, when the market fluctuates, if there is no adverse change in the fundamentals, you can buy on dips to reduce the cost of holding positions; the last part is the defensive fund to deal with emergencies in the market."
"Based on the above four steps, the construction of the entire trading system has basically been completed by 90%, and the last step is to stop profit and stop loss. Based on the judgment of the value base of the benchmark, the stop profit and stop loss lines are reasonably set, and the risk is quantified into a certain data, so that investors can have a bottom line in their hearts and invest with confidence and peace of mind."
"Of course, formulating a strategy is only the first step. The core is always how to effectively implement the strategy. In the actual operation, what is needed is a deep understanding of the market game psychology, and a comprehensive application of experience and scientific methods to complete accurate timing and opportunity selection."
"Four-step" strategy to pursue long-term success in the industry
Halfway through the meeting, the industry is often very interested in the new forces that have just emerged. The people from the Geometry Capital team present gave people the impression that they were all low-key and easy-going. They were not afraid to share the team's insights and experiences, and generously exchanged opinions with all the practitioners present.
“We have formulated a ‘four-step strategy’ for future development: outperforming M2, outperforming BTC, creating an unparalleled smooth Web3 investment experience, and optimizing and establishing a scientific and effective retracement control strategy.”
“It is relatively easy to outperform M2 in the crypto market. Unlike traditional finance, the crypto field is currently in the early stages of rapid development. It contains countless wealth opportunities, and the returns of various risk-free arbitrage strategies can outperform M2.”
“Whether it can outperform BTC is an important test of institutional investment capabilities. As the ballast of the crypto market, BTC’s market value accounts for more than 50% of the total market value, and its performance usually reflects the overall market trend. Outperforming BTC means Institutions not only need to accurately grasp market dynamics, but also need to have significant advantages in target selection and risk management. On the premise of controlling risks, we allocate part of our positions to other mainstream currencies and crypto stocks with high potential, and use them. The leverage that comes with stocks and the high returns of other currencies allow us to obtain excess returns that exceed the growth of BTC, thereby outperforming BTC.”
"The existing second-generation Internet technology has provided an extremely comfortable and perfect experience in various fields such as life, work, and investment. The third-generation Internet technology represented by the cryptocurrency industry is still in the early stages of development, and its experience is far less comfortable than that of Web2. For investors in the traditional market, exchange selection, stablecoin exchange, private key custody and other issues are all difficult problems they need to overcome when entering the crypto market. What we have to do is to connect the Web2 and Web3 worlds, and through the "new wine in old bottles" method such as cryptocurrency funds and crypto stock funds, let investors share the wealth opportunities of Web3 with the experience of Web2."
The system is mature and the sharing is detailed. However, the return of more than 12 times in 22 months is still "exaggerated" enough to surprise peers.
(Notes: 1: This performance curve is an overlay automatically generated by the Futu Niu Niu app and has not been audited; 2: Historical performance does not represent future performance.)
Leo's response was peaceful from beginning to end.
"The results are in front of us. Although it sounds unbelievable, the numbers are true. Anyone who is interested in discussing is welcome to check out our positions and have in-depth discussions. These are the actual results we have achieved. At this stage, our top priority has shifted to how to achieve long-term performance, and this goal is inseparable from the drawdown control strategy. The team has been investing a lot of energy in early warning lines, stop-loss lines, risk warnings, industry research and other aspects, and continuously optimizing these key measures; we will certainly devote more effort to it and pursue better performance."
"In our view, achieving higher business goals not only depends on technical factors, but also on the impact of compliance and regulation, which may even require more attention. Investing in Web3 through funds not only lowers the threshold for ordinary investors to understand technology and market trends, but also effectively realizes the diversified allocation of assets. As an institution, our important task is to bring this safe and high-quality investment experience to more investors who have not yet entered the virtual asset market."
Geometry Capital's view is not without reason. Virtual assets, or the blockchain industry, have developed to this day, and bottlenecks are becoming increasingly apparent, and demands are becoming more clear and focused. From the perspective of industry development, the financial sector is the fastest-growing application scenario for blockchain technology, and supervision and industry integration are bound to be key issues for long-term development.
With the implementation of the Hong Kong dollar stablecoin policy, Hong Kong's regulatory policy in the crypto industry will form a perfect closed-loop regulation, and its virtual asset industry development policy will have a global demonstration effect. A clear regulatory framework has improved market transparency and enhanced investor confidence. However, strict compliance requirements have also restricted the development of small businesses and start-up projects to a certain extent, increasing operating costs. Although embracing compliance will cost a lot, in the long run, it is the only way for the healthy development of the crypto industry.
Geometry Capital has just begun its journey. It has made a great start and has a long way to go.
We don’t need virtual assets, but our descendants do
I have a wonderful fate with Geometry Capital. After the meeting, I took the same elevator with Leo, which also led to the birth of this article.
The virtual asset market has been fluctuating for a long time. I can't help but wonder, from the perspective of Geometry Capital and institutions, how much confidence do they have in the future? How long will they have to persist and wait?
Leo's analogy is very interesting: "First of all, we need to realize a problem: the existing wealth tools can only help us find the best room on the Titanic, but what we actually need is a Noah's Ark that can pass on wealth."
From the perspective of Geometry Capital, the development of virtual assets has closely followed the times. In the past, they were only considered collectibles; but now, virtual assets, in addition to collectibles, have demonstrated their value storage function and "risk-avoidance" potential in dealing with geopolitical risks. In the future, with the advent of the digital age, virtual assets are expected to be recognized in a wider range of exchange behaviors and may become a new global currency.
This is a very long-term perspective. To some extent, the current market fluctuations are just a jumping note on the future value curve.
“Perhaps we don’t need cryptocurrencies or virtual assets, but our descendants do. Wealth will be concentrated on the hardest money, and wealth that is not based on the hardest money will eventually be gradually siphoned away. Investing in virtual assets is essentially an option allocation for the future digital age. If the digital age has not arrived, the losses are still controllable; but if it arrives as expected, investing now is the most effective way to ensure that the family’s wealth and status do not slip.”