Big thanks to Boosik, we scored an interview with Ju Ki Young, the visionary CEO of Crypto Quant, for this Monday's Space back in Nov. 2023.
Ju opened up about his crypto journey in a laid-back chat, all in Korean. Straight from his unofficial Twitter, he shared some serious OG wisdom. Let's get into it.
1. Brief Self-Introduction
In 2016, I made and lost money through margin trading, and after graduating, I decided to start a company in late 2018 to find alpha based on on-chain data. At that time, there weren't many teams like ours, but it seems like there are more now.
2. What Prompted You to Start This Venture?
The inception of our company was rather serendipitous, thanks to a random phone call with Kim Seo-Jun, the CEO of Hashed. I was running a study group to learn about blockchain and wanted to make a documentary with my co-founders. Back then, we got in touch with a KBS producer to improve public perception of cryptocurrencies, focusing on misinformation. I called Mr. Kim for an interview, and when he asked how old I was, I replied, "I'm 26." He responded, "Well, then you should make some ROI!" Confused by what he meant, I ended up starting the company.
3. Could You Share Some Insights on Your Involvement in the Nth Room Case?
* It was a major scandal in Korea at the time.
After starting our venture, we were contemplating what kind of business to pursue. That's when we heard about a person named "Doctor" who got into trouble with cryptocurrencies due to criminal activities. I called the police and offered assistance, but they turned us down, claiming they didn't need our help. So, we decided to take matters into our own hands by approaching the media. We had some connections with journalists back then, and through their cooperation, we managed to obtain cryptocurrency addresses associated with Cho Joo-Bin and other individuals involved in the case. Upon tracing the funds, we discovered they had used CoinOne. Our efforts contributed to catching the culprits and assisting in locating sex offenders.
4. Please Provide an Overview of Crypto Quant's Services.
Just as you have transaction history in your bank account, having access to blockchain data allows you to understand supply and demand in the securities market. For instance, if a consumer pays for oranges with CBDC Bitcoin, we can use on-chain data to assess demand and supply for all products. Furthermore, we can calculate interest rates and provide innovative insights into global economics through data-driven decision-making regarding whether the current situation is "dovish" or "hawkish," effectively taking on the roles of the Fed and SEC.
While cryptocurrency fundamentals are essential, understanding supply and demand comes first. By analyzing how much seed investors put into a coin, how much the next investors contribute, and the subsequent investors' amounts, you can determine the average price at which investors are getting in. This kind of analysis, based on cohorts, can serve as a valuable investment indicator. Currently, Crypto Quant focuses on cohort analysis and labeling.
We differentiate ourselves by employing advanced machine learning for labeling, which is primarily used by institutions. We provide on-chain data through charts for easy web access, offer data as APIs, mainly used by Wall Street, and even compared to competitors like Dune and Nansen.
Dune primarily targets developers for SQL, while Nansen focuses on altcoin investors. In contrast, Crypto Quant is closer to macro traders in futures trading. Therefore, our data structure and abstraction tables cater to the preferences of traders, making us stand out. We're also developing new features, allowing users to customize labeling and cohorts according to their preferences. Stay tuned for what's coming!
5. Thank You for the Explanation. Could You Clarify What Cohorts Are for Our Listeners?
Labeling cryptocurrency wallets manually might work, but it's often inaccurate and lacks significance. So, our Crypto Quant team developed a web service, similar to amplitude tools commonly used in web services, to break down user bases into various segments based on clear criteria, like countries and devices. Cohort analysis allows us to understand who the players are behind the 85% of cryptocurrency transactions that involve unknown entities, contrasting the 15% involving miners, exchanges, and DApps.
With cohort analysis, we can answer questions like how many Americans are involved, how much is associated with money laundering, and how custodial wallets change patterns. When U.S. institutions buy Bitcoin, custodial wallet holdings often change. We're developing a service that lets you analyze such phenomena through various lenses, helping you understand the crypto market better.
6. What On-Chain Data Do You Think Is Crucial to Monitor, According to Your Perspective?
When looking at cohort analysis, it's essential to define the groups and decide what metrics to project. These metrics, when split by entities such as funds, exchanges, individual users, or MetaMask wallets, can be helpful for cohort analysis. The three key metrics seem to be - holdings, fund movement, and average price.
Many people often scrutinize how much of their assets have been moved to institutions. One of the best indicators to consider when investing is the average buy-in price of venture capitalists. However, it's still a risky move, so it's recommended to take it as a reference rather than gospel truth.
Personally, what's interesting to me is that when constructing sentiment, the average price tends to be relatively accurate. By examining the realized price, we can calculate the average purchase price when funds enter a wallet and are assumed to be sold when they leave the wallet. This allows us to determine the average buy-in price when all the wallet's assets are considered. Analyzing these metrics within cohorts can provide a precise view of people's average prices.
Many individuals go as far as analyzing the average price by tracing back to exchange wallets, trying to decipher movements before listings.
Crypto Quant primarily focuses on creating cohorts scientifically, as our products are tailored for institutions.
7. USDT's Market Cap Is Increasing, Is Tether Safe?
To be honest, there was a time when many people viewed USDT skeptically, possibly even as a scam. There were many instances of price manipulation with Bitcoin and Tether on Bitfinex. When we examined the individual proportions held by Bitfinex, there were fluctuations in 2020's March crash and the price surge in 2019, particularly around spikes before crashes. Our investigations, along with information from various sources, led us to believe that they were engaged in the pump-and-dump of Bitcoin. For example, they might have exploited trends where futures prices often drive spot prices, so they could buy thousands of Bitcoins in futures, then sell in the spot market, continuously boosting the Bitcoin price.
Moreover, the U.S. accused USDT of fraud and demanded fines, which is a publicly known fact. But in terms of whether the current USDT is falsely issued like Luna, it doesn't seem likely. In the past, they may not have had sufficient reserves, but it appears they do now.
The increase in USDT's market cap could be due to the lower probability of USDT asset freezes, as it operates outside of U.S. jurisdiction. Especially in 2019, Chinese miners primarily used USDT, which contributed to its significant growth. Currently, with BUSD facing uncertainty, USDT might be the choice for Chinese users.
From the U.S. perspective, actions like banning Binance could give companies like Circle, behind USDC, a chance to strengthen their position. Binance might gradually decline due to U.S. pressure, as orders from the U.S. could lead to withdrawal suspensions. People might start leaving, making it difficult for exchanges to operate. In line with this, Coinbase seems to be creating a futures trading market to capture those who leave Binance, indicating a strategy to target these individuals.
If the U.S. succeeds in diminishing the influence of services like Tether and Binance outside of the U.S., it's expected that they will become more proactive in opening up the blockchain and cryptocurrency market.
Currently, the blockchain market seems to be moving towards extremes, either becoming completely lawless or excessively institutionalized and monotonous.
8. Differences or Characteristics Between Korean Traders and Foreign Traders?
Personally, what I've noticed is that investments should be made during bear markets. Leverage during bull markets can lead to disaster, so it's crucial to accumulate during bearish phases. Those who endure ultimately emerge victorious. When I observed people's reactions during bull and bear markets, I found it amusing.
For example, during the 2019 bear market, many people talked about exiting the blockchain industry due to uncertainty about the future. However, innovation happens first, and then investments follow. As they say, "Fortune favors the bold." With various scenarios in play, it's better to think that the market will go up and hold your investments. Bitcoin investors often view the risks in the future as something they pass on to their grandchildren over 50 or 100 years.
However, when it comes to altcoins, there is potential for various valuations. In the absence of on-chain data in 2017-18, investments were primarily based on backers and valuations. This approach didn't change much even during the subsequent bull market. But recently, there has been a shift towards using on-chain data for fundamental analysis. Crypto VC funds, for instance, have started focusing on fundamental analysis, and Hashed, a Korean VC, is doing well in this regard. However, retail and institutions are not paying enough attention to on-chain data, so there needs to be a change in perception.
When I first entered the Bitcoin market as a business in 2017, the blockchain market itself was in a gray area. It was like the Wild West, and there were discussions about how to regulate it, pay taxes, and where to be shady. We thought, "Let's be shady in the areas that we can." However, over time, those who didn't draw the line properly got caught. Terra's Do Kwon, FTX's SBF, and others crossed the line too much. Those who did that eventually faced consequences. Binance's CZ managed to maintain a balance and was relatively transparent compared to others, which earned him respect. Nevertheless, he is still seen as a criminal for money laundering by the current generation. As well-regulated money starts entering the crypto market, we, as businesses operating in the market, need to adapt. Crypto Quant also operates 100% transparently and legally by opening a U.S. corporation and Circle accounts.
Looking back, I personally had opportunities for price manipulation and ICOs, which could have earned me a lot of money. However, my personal philosophy was to earn money in a cool way, so I didn't engage in such activities. Running a business with on-chain data feels legitimate. We believe our company is less risky compared to other services because we only provide data. We didn't issue securities or operate them, so we are relatively safe.
9. Will Crypto Quant provide NFT data in the future?
No, we won't. NFT Bank is doing well in that area, and we believe it's essential to focus on our own vertical, which is cohort analysis and labeling.
10. Was there a specific reason for a significant increase in Twitter followers?
I think my followers increased significantly during a bull market. At that time, there weren't many people analyzing on-chain data. Personally, I consider myself part of the second generation of on-chain data analysis. The first generation started analyzing data around 2016-17, while people like me from the second generation analyzed on-chain data based on exchange flows. During the period when Bitcoin was consolidating around $10,000 from July to September 2020, I noticed that 97% of the trading occurred outside exchanges, which was unusual. The way that money was moving didn't make sense. So, I started investigating and found that Bitcoins were leaving Coinbase and going to what looked like custody wallets but weren't Coinbase wallets. They had strange Bitcoin amounts like 1283, but when you converted them to dollars, they matched perfectly. I posted a tweet explaining that it seemed like institutions were buying Bitcoin on Coinbase and moving it to custody wallets. Back then, this content gained me many followers. I shared three tips on how to gain followers on Twitter:
Ride the trends. Be active on Twitter during times when Bitcoin's price is surging, for example.
Unique content is crucial.
Observe your audience's volume and target accordingly.
: Since 90% of my followers are English-speaking, I realized there are limitations to creating content in Korean.
11. Tell us about the cryptocurrency market trends for 2024.
Well, when we look at the whale Coinbase buy orders and such, we can see that there has been a lot of buying activity happening at lower levels. So, I'm feeling pretty bullish right now. Of course, when things are bearish, I can talk bearishly, but at the moment, it's all sunshine and rainbows. We are constantly improving our products based on what our customers are requesting, and currently, we are giving a lot of attention to miners.
Looking at the mining hash rate, it's clear that mining companies are going all-in on Bitcoin. They are buying and mining Bitcoin like there's no tomorrow, and they're not selling, just accumulating. When I think about whether they can hold up even after the halving, I believe they can.
Now, there's a lot of debate in the public about whether to buy or not based on the mining hash rate. When you look at the mining companies as a whole – the costs of mining can vary due to electricity rates, but let's say it costs $18,000 to mine one Bitcoin, and when the halving happens, it roughly doubles to $36,000. So, currently, mining Bitcoin is basically breaking even. Therefore, it would need to be worth more than that to make mining meaningful, and investing in mining companies would also have significance. For example, if the US market buys Bitcoin at $30,000, they're not going to sell it for $36,000, right? So, the outlook for Bitcoin itself is positive.
When thinking about the reasons behind the ETF rejections, from the US perspective, it's logical for the government not to approve it if they can't control the crypto market. Also, it seems like Binance may have played a slightly shady game, and handling that legally was a part of the dispute. Considering these factors, if Binance were to be expelled from the US, and Coinbase were to dominate the market with a 70-80% market share, then maybe approval could be on the horizon.
Right now, if it gets approved, it's only good news for Tron's Justin Sun and CZ. So, the moment when Coinbase and Circle are in a position to win, it seems likely that the US will approve the ETF.
12. Do Korean whales or traders have any influence in the market?
At the top level, it doesn't seem like there's much of a difference among top traders. However, in the case of Korea, it's unfortunate that many traders seem to focus only on Upbit. While Upbit, Bithumb, and Coinone are all good exchanges, when you compare the trading volumes, global users tend to buy more Bitcoin and Ethereum. In Korea, on the other hand, altcoin trading volume is much higher. There is a culture of alt coin investment, but it doesn't seem like they have a clear investment thesis. I've heard people say they bought a coin because it had a nice name, and it seems like they actually trade based on such whimsical reasons.
Regarding Korean traders, here's the situation. In 2018, Korea had almost the highest trading volume in the world. And with all the attention, it was an opportunity for the entire nation to learn about Bitcoin, leading to the emergence of many Korean Bitcoin whales. (In this context, whales refer to traders who hold a significant amount of Bitcoin, not drug lords or miners.) Despite this, due to government regulations, Korea failed to become a crypto advanced nation on a national scale.
The US started imposing taxes on Bitcoin in 2014. This is a flow that cannot be 100% banned, like in China, or completely unavoidable, like in the US. So, Korea should open up reasonably while setting boundaries, like coexisting with cryptocurrencies. The US has been in a symbiotic relationship with crypto since 2014, so there's no chance they'll ban it completely. When the US establishes its dominance, I believe they will fully open up to it.
Korea seems undecided on its path. I hope Korea at least follows in the footsteps of the US. Since we're not planning to engage in pirate businesses, if we want to become a leading crypto nation, we need to keep up with the US, even if just barely.
13. Will Bitcoin go up?
I'm more of a guess-and-see type, but the data I mainly use is related to cohort labeling. I mostly look at exchange and miner flows to assess supply. I've only been talking about Bitcoin, but when financial institutions look at this, they only see Bitcoin. However, within Bitcoin, there are several narratives that institutions invest in.
There are two main narratives:
Bitcoin can be a hedge against inflation.
Bitcoin, as digital gold, can serve as a backing asset comparable to a reserve currency when adopted by developing countries.
The hash rate fundamentals are strengthening. People who bought into the "digital gold" narrative are not selling. I mostly focus on this, but the real alpha comes from trading market data. If you follow this alpha, you can make a profit within six months. The issue is when you lose money, and that usually happens when assets like Luna suddenly send a lot of Bitcoin, causing third-party risks.
People generally want to know about this in advance. We need tools to predict this kind of FUD, and CryptoQuant has a track record of warning about various FUD incidents in advance, so it seems like we use CryptoQuant for that.
14. How did you gather users for CryptoQuant services?
Well, I'm a Korean native with a TOEFL English score of 4, so being a non-native English speaker made business targeting English-speaking individuals a bit challenging. Normally, it would be quite tough, but having been an influencer on Twitter, that helped a lot.
Looking at Wall Street culture, it's predominantly White-centered. As a Korean "kid," it's difficult to make a significant impact, to be honest.
The reason I got close to people in BlackRock Digital Assets is because people who were in the crypto scene ended up working at the company. People who had worked at Reflex at Goldman Sachs also joined, and various people from the crypto scene started working on Wall Street. Given that I was an influencer, all these factors seemed to align nicely.
We hired someone who had been with MSCI, the largest index company in the US, for the position of Head of Sales. We also hired someone who had worked at CME for about 15 years. With people from the financial industry joining, things started to work out. Even if you explain the same thing, when someone from the traditional financial sector conveys it in their own language, it makes a big difference. I'm mostly involved in the initial stages of deals, and our employees are doing a great job with the closing part.
Mr. Ju, we're grateful for your time and for sharing your story. Readers, hope y'all be incredibly rich 2024! #NFA
