【The Midas Talk - Dialogue With Top Web3 Investors】Gate Ventures’ Bear Market Survival Rule

Gate Ventures recently closed a $200 million funding round amid the ongoing crypto bear market. The company has been working on investments in Layer 1 and Layer2 protocols. Layer 1 protocol is the underlying public chain similar to Ethereum, and Layer2 is a multi-chain protocol similar to Polkadot.

Kevin Yang, the Managing Partner at Gate Ventures, said in an interview with Bitpush that the company’s vision is a multi-chain, multi-layered future.

 Gate Ventures' investments in the L1 and L2 protocols have been fruitful, Kevin believes that the next stage will be the best time to invest in advanced layers, such as the middle layer and application layer, and there may be Layer3 or Layer4 in the future. Investing in the crypto market must stick to the fundamentals, that is, assess the credibility of the team, technical framework, and solutions.

The following is the full text of the interview.

Bitpush: Gate Ventures was established in 2021 and raised nearly $200 million this year, which is rare in a bear market. Is there any story behind the financing? How did you do it?

Kevin Yang: I think the timing is ripe for us. Everyone is noticing this is a bear market, but we have to invest in innovation and this year is the right time for us to do so. Macro conditions do influence what people think, but when it comes to crypto VCs, everyone is very bullish on the space, not just the crypto narrative, the hype, and the ups and downs of the secondary market. I think more and more serious institutional investors are looking into this space and they see a need to invest in this space, the timing is right. Not just us, you can see some crypto VCs raising over $500 million.

Bitpush: Have institutional investors participated in the financing?

Kevin Yang: They are all institutional investors, but we cannot name them now, I can say that they are all big institutional investors.

Bitpush: Gate Ventures invests primarily in L1 and L2 protocols, can you elaborate?

 Kevin Yang: This is infrastructure investment. This has made a lot of sense over the past few years. For example, focusing on infrastructure investment can lead to high returns, because on the one hand, everyone in the crypto space is investing in a "fat protocol" (a concept introduced by Union Square Ventures in 2016), and people realize that the most of the value accumulation occurs in the infrastructure space, while Web2 occurs in the application layer. Another point is that if you look at the results, you will see that your portfolio performance will be amazing if you invest in L1 and L2, because the primary focus in this area is scalability. Many competitive L1s are competing with Ethereum because they are more efficient at executing transactions, running applications or protocols. In the past few years, our entire industry was too young and the infrastructure was not perfect. This is why an investment in L1 can return a lot of value.

But we'll see in the next few years, like the next decade, and I think another theory called "fat apps" might emerge as more and more infrastructure is developed. Whether the blockchain has value or not requires a large number of users to prove it.

 So that's why we think the next phase will be the best time to invest in the upper layers, like the middle layer and the application layer. And not exactly L2, because there may be L3 or L4, but of course, we're also continuing to invest in infrastructure, and we want to focus on the broader portfolio. One thing we really think is right is that the crypto market is going to be a multi-chain, multi-layered ecosystem.

Bitpush: Can you talk about your investment philosophy? I've done a lot of reporting in traditional financial markets and interviewed Warren Buffett 5 times. As we all know, Buffett is known for his value investing, what is your investment philosophy?

Kevin Yang: I think one thing for the crypto market is you have to stick to the fundamentals. As a venture investor, you shouldn't bet on a certain narrative and hype. The hype doesn't work all the time, and in a bear market, this will be a difficult strategy. That's why, for me, sustainable investing is the way to go. Even if you're just buying BTC or ETH from the open market, I recommend that you evaluate the quality and fundamentals of these tokens and protocols as if you were a venture investor.

 Bitpush: What are the fundamentals for crypto projects?

 Kevin Yang: Generally speaking, you want to assess the credibility of the team, are they capable of developing something? How much is the team committed to delivering? Ofcourse we have to check the technical framework, although not the code line by line, but in general you have to evaluate if this solution makes sense or if there is a better solution, if it's a token project, so you might Token economics also needs to be examined.

Bitpush: How did you get into this crypto world? What got you fascinated by crypto investing?

Kevin Yang: To be honest, I'm not from a technical background. From 2013 to 2017, I worked in a listed company in Asia, mainly responsible for overseas mergers and acquisitions. In mid-2017, I decided to switch career paths and join a crypto venture capital firm called Fundamental Labs, where I was one of the first employees. When I was the investment director in 2018, I led the investment in Coinbase. This investment may actually set us apart from other VCs in Asia as we are one of the few Asian crypto VCs to invest in Coinbase to date. In the middle of last year, I decided to leave Fundamental to join Gates to help launch this new venture capital arm, Gate Ventures.

Bitpush: You mentioned that you jumped down the “crypto rabbit hole” in 2017. Was there a moment for you that was like, "Wow, this is the industry, this is the new world, and I'm going to join"?

Kevin Yang: Actually, I have been learning about cryptocurrencies and BTC since 2013, but it was just my personal curiosity at the time. But then, I noticed Ethereum. It has huge potential as it allows smart contracts to run on blockchain protocols. In reality, various applications are encoded in smart contracts, this is completely different, Bitcoin can only be used as a payment or transaction on the network. And Ethereum is more than just payment transactions. It's more about functionality, how to build applications on blockchain technology.

 At this time I thought I needed to take it seriously, not just buy and sell BTC, the whole industry ecology around Ethereum, the potential of smart contracts is endless. That's why I decided to join the crypto space in 2017, and the timing was perfect. At that time, ICO projects were emerging one after another, and the prices of BTC and ETH were rising, especially Bitcoin, which was at $20,000 at the end of the year, and we at Fundamentals Labs had already started investing.

Bitpush: As a professional and very successful investor, do you have any advice for ordinary investors in a bear market?

Kevin Yang: This is a very good question. I warned about a bear market on my personal Twitter in early January. My advice is that no investor should be driven by narrative and hype. Fundamental investment methods should always be respected, as I mentioned focusing on fundamentals and checking the background of the team, technical solutions, or whether they have any real users or funds on their protocol. So it's more like you have to do your own research. Do your own due diligence on your bets.

Bitpush: For some investors who are just entering the crypto market, they may want to try BTC and ETH, which seems to be safer option. Do you think Bitcoin and all cryptocurrency markets will follow the 4-year cycle as usual?

Kevin Yang: So far, the 4-year cycle theory is still valid. We have to respect that because this is completely different from traditional financial markets because it is a unique crypto market.

In the middle of last year, I wrote an article saying that Bitcoin's market cap will decrease over the next few years. But so far, Bitcoin’s market cap still accounts for about 40% of the entire crypto market. So Bitcoin itself does have a strong impact on the industry as a whole, and you can think of Bitcoin as a crypto index. And I expect it will change in the next few years because if you look at the fundamentals of ETH, it's something completely different, you can have bitcoin as a store of value, or you can pay like fiat Same as paying your friends via bitcoin, but ETH is the more interesting thing, smart contracts can run on Ethereum, so it's totally different from bitcoin, with more applications or more development on the ETH ecosystem. I personally do expect Bitcoin market cap dominance to decrease further, say to 20% or 30%, which is healthier for the space as a whole.

Bitpush: Currently the macro policies set by the Federal Reserve and global central bankers have a huge impact on the crypto market. So as an investor, how do you assess the impact of monetary policy on the crypto market?

Kevin Yang: That's why I warned everyone about a bear market at the beginning of the year, because we've been tracking gold prices since the middle of last year, because gold prices actually reflect short-term and long-term interest rate movements. If you look at last year's short-term rate, it's been trending upward since the second quarter of 2021.

In the cryptocurrency space, we saw the first peak in Bitcoin price in mid-April last year, I remember because Coinbase went public on the same day and BTC peaked on the same day. In November of last year, we saw another BTC peak near $70,000. In fact, if you look at the market, you will notice that Bitcoin is hitting new highs while altcoins are not. This is really dangerous for the market as a whole as it shows a lack of sufficient liquidity in the cryptocurrency space. So in general, macro monetary policy does have a big impact on the pricing of crypto assets.

As I mentioned, we feel the bear market before most people realize it, and it's actually part of our investment strategy. While it makes sense to set the pace of investment based on Fed rate hikes and market cycles, investing in the crypto space You need to build your own investment fundamentals. For example, people are bullish on ETH, which I think is a sound investment thesis in the long run, and the market cap of ETH may exceed Bitcoin. If you're a retail investor, you don't need to focus on analyzing what central banks, Goldman Sachs, or Morgan Stanley are talking about, one principle is that you focus only on fundamental checks, the fundamentals of the asset you're going to invest in.

I really believe that a great asset can survive multiple cycles because only long-term investments are sustainable.

Bitpush: Your investment strategy is bottom-up, right?

Kevin Yang: Bottom-up or top-down, you can choose the way that suits you to develop your investment strategy.

Top-down is more like, if you think something has value, say a smart contract or a blockchain, only utility can bring value. You have to get more and more users to use them and then you look in this market for what kind of application or protocol is getting more and more users and then you go bet on this asset which is more like a top-down strategy.

A bottom-up strategy might be something like this: you don't know much about crypto or anything, but you're always trading or using a wallet. And you realize there might be a need because you're looking for a feature that no one has developed so far, and you can look for this potential asset or opportunity and invest in it.

By Susan Feng, Mary Liu

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