(Bloomberg Markets) — When Su Zhu co-founded Three Arrows Capital with Kyle Davies a decade ago, it seemed like a risky bet for two derivatives traders in their 20s. But the bet paid off. Today the company’s investments include Bitcoin, Ether, Avalanche’s AVAX, and Solana’s SOL, as well as decentralized finance (DeFi) projects like Neon, funds such as Multicoin Capital, and the play-to-earn project Axie Infinity, according to its website. Its blockchain holdings alone are worth close to $10 billion, estimates analytics firm Nansen. (Zhu would only say that the firm’s assets are in the “multibillion-dollar” range and wouldn’t provide data on the fund’s returns.)
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Zhu, who turns 35 in April, was born in China, moved to the U.S. at age 6, and has been a citizen of Singapore since 2016. He’s proud of having called the bottom of the yearlong “crypto winter” with his Dec. 21, 2018, tweet: “We will pump off the bottom extremely quickly, leaving most sideline investors stuck in fiat.” Bitcoin, worth about $3,850 at the time of his tweet, surged to around $47,000 at the end of March this year.
Zhu spoke with Bloomberg Markets in late February about his career and his investment philosophy. The interview has been condensed and edited for clarity.
JOANNA OSSINGER: How did you get into finance?
SU ZHU: I did a pretty typical pre-GFC [global financial crisis] route. Majored in mathematics at Columbia, did a summer internship at an investment bank that turned into a full-time analyst role. In 2008, I started in equity exotic derivatives trading at Credit Suisse in Tokyo, got laid off during the financial crisis. Then I was fortunate enough to find a junior trader role at Flow Traders, a Dutch ETF [exchange-traded fund] market-making firm which was expanding in Singapore. Did a couple years there, then worked in Hong Kong for a year at an investment bank, and finally partnered with my high school and college classmate Kyle Davies to start Three Arrows Capital to trade emerging-market foreign exchange. Think we were 25 at the time, and back then it was extremely uncommon to start your own fund at that age, but we saw a lot of market structure disruptions coming in FX—electronic vs. voice, listed vs. over-the-counter–and felt the risk-reward was there.
JO: What drew you to crypto?
SZ: I first started dabbling in Bitcoin in early 2013. The main activity was focused on the Chinese exchanges, and there were various arbitrage trades you could do. In late 2017 it became extremely clear to me, just from the caliber and energy of young people involved in the space, that crypto was going to follow the dot-com cycle of creative destruction and then eventually become a paradigm shift across finance, technology, culture, and politics.
JO: What are your key areas of focus at Three Arrows?
SZ: Derivatives trading has been our bread and butter and always will be a huge component of what we do, and it also ties into our venture investing. Crypto trading firms have done well since 2018, because they have the resources to invest in stellar talent whether market conditions are good or bad. We don’t have any external investors, which has afforded us the ability to make very good decisions on market timing, which we then parlay into continual reinvestment into the overall ecosystem. Making sure that we capture revenues from market volatility and continue to invest in teams is my No. 1 priority.
JO: What areas have the most potential?
SZ: I’m a believer in Amara’s law, which is that technology is overestimated in the short run and underestimated in the long run, especially when applied to crypto. The areas of most potential are likely not even thought of as crypto use cases today. That said, I’m excited about what scalable L1s [Layer 1 blockchains, which run independently of other blockchains] like Avalanche can enable for users and application developers. We do not even know what kinds of network effects and emergent behaviors are possible when user counts begin entering the millions, tens of millions, and hundreds of millions. Most apps that people use today and think of as the domain of web2 will eventually be disrupted by lightweight and community-owned web3 technologies.
I also think we are entering an era where the potential of Bitcoin to become one of the key reserve currencies of people and nations is becoming clearer than ever. It will not be a smooth ride, but it will be a highly meaningful one for those who take the journey.
JO: What are the worst things about crypto?
SZ: The tribalism and bitter competition between crypto communities. [Austrian economist Ludwig von] Mises predicted open competition of private monies and technologies, and I think we’re seeing that play out in a high-stakes way now. Nonetheless it’s unavoidable that tensions run high when people have a high percentage of their net worth in these assets, and in a way it does also show the resilience of communities and what stuff people are truly willing to fight for.
JO: What has the war in Ukraine revealed about cryptocurrencies?
SZ: The power of crypto to protect individuals’ rights. Ukrainians are using it to protect their wealth from war, and Russians are using it to be able to flee the country and retain some level of assets. Moreover, crypto is enabling the global community to interact intimately with what’s happening.
JO: You frequently mention history and philosophy. How do those topics inform your work?
SZ: To really get crypto, you must understand what it’s a reaction against and what it’s a movement toward. For me, crypto represents several convergent trends:
Away from centralized control, toward decentralized decision-making.
Away from closed-source walled gardens, toward open-source discussion.
Away from institutional ownership, toward individual ownership.
Away from permissioned assets, toward self-sovereign bearer assets.
Away from crony capitalism, toward collective capitalism.
Away from platforms capturing value from creators and fans, toward creators sharing value with fans.
I am a libertarian, but with that I am also a voluntaryist. What that means is I do not wish to convert everyone to my own way of thinking—I simply wish to help bring about a world where a parallel freedom-centric system exists, and at later points in time anyone can partake in this system as they see fit.
The first major victory for individuals was the advent of the internet, and the second was the development of open-source peer-to-peer encryption technology in the 1990s. At the time, the existence of end-to-end encryption for individuals was so alarming that the U.S. government attempted to deem its dissemination as the unlawful exportation of military-grade technology.
Since then, we’ve learned that these were in fact inalienable human rights that we’ve had all along. Technology re-enables behaviors as natural as handing someone cash or having a simple conversation in the physical world. I refer to the idea of crypto as a revanchist technology, because it is a critical step in reclaiming key ground that individuals have given up over time.
JO: What investments are you proudest of, and least proud of?
SZ: Investing in Deribit, the leading crypto options trading exchange, during the bear market. Investing in Layer-1s, like Avalanche, Solana, Polkadot, during the bear market, especially via the over-the-counter market. All of these felt really contrarian at the time, but obvious in the sense that going against the grain and backing hardworking, tech-oriented teams would pay off.
I don’t think there’s anything I’m not proud of. Even the ones that lose money, it’s important that those projects were attempted, and founders tried things. Too often people look at something that fails and try to make some broader conclusion, while not recognizing the probabilistic and unknowable nature of all things. To give you an example, our best venture investment to date was Axie Infinity, a project so undersubscribed in its seed round that people thought they were donating. The most crowded investment thesis I saw was probably Facebook’s Libra nodes, which everyone set up SPVs [special purpose vehicles] for and thought would become the future of crypto. [Facebook, now Meta Platforms Inc., planned to revolutionize global finance with a crypto initiative called Libra, later renamed Diem, but it never got off the ground. All the assets were sold to Silvergate Capital Corp. early this year.]
JO: Which person do you most admire in history or philosophy?
SZ: If you look at someone like [Singapore’s late founding prime minister] Lee Kuan Yew, what he managed to accomplish via the Singapore separation from Malaysia was incredibly futuristic. Essentially, Singapore was the first startup city. It had to undergo multipronged challenges of nation-building: security, energy, economy, and culture—all in a perilous geopolitical environment. I see a lot of analogies to crypto community-building itself. You have to believe in the power of community and collective will to action, as well as in the importance of nonstop transparency and honesty and the ability to win in the battlefield of ideas.
JO: What does the future hold for you? For Three Arrows?
SZ: I’m looking to support the development of whole-systems thinking wherever I can. I see important parallels to how we as a society think about futurism itself—many technologies sound futuristic but are in fact regressive, while many that seem clunky are in fact powerful humanity-enhancing innovations.
I am a big proponent of nature-based, grassroots solutions to key agricultural problems and look forward to making more of an impact there. My commitment to that is an extension of the same ethos and philosophy that underpins my commitment to crypto. Nature-based food systems, or agroecology, decentralize our access to nutritious food and clean water. They move us away from dependence on global supply chains. If we build farming alternatives at a community level, then people can choose to participate in this more local parallel food system. Community-supported market gardens, especially in cities, expand our freedoms. They will be another major victory for individuals as they will give us more control over our own health and nutrition whilst regenerating the Earth.
As for Three Arrows, we will continue doing what we do best, which is invest in cryptoassets and support crypto-builders and communities for the long term.
Ossinger covers cryptocurrencies in Asia for Bloomberg News. She is based in Singapore.
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