【Blockchain in Korea】Amber Group CEO Michael:How to cross the Bull & Bear Market?
Amber Group
17days ago


Coinin is the Korean blockchain media headquartered in Seoul, South Korea, it relies on industry head resources and community advantages to form a huge influence on the media. It is known as an upgraded version of the blockchain field 36Kr.

Coinin recently launched the "Blockchain in Korea" series in South Korea, visiting the top blockchain practitioners in South Korea and promoting exchanges and cooperation between China and South Korea. In the new phase of "Blockchain in Korea", the Rotation host Ryan Rodenbaugh who is Head of APAC in TrustToken invited Michael Wu, the Co-founder & CEO of Amber Group to talk about "How does Quantitative Investment cross the Bull & Bear Market?".

Guest introduction

The 52nd phase of the "Blockchain in Korea", the Rotation host Ryan Rodenbaugh who is Head of APAC in TrustToken invited Michael Wu, Co-founder & CEO of Amber Group to talk about "How does Quantitative Investment cross the Bull & Bear Market?".

Michael Wu: 

Co-founder & CEO of Amber Group, he graduated from the American Ivy League School of Dartmouth College, a visiting scholar at Oxford University, and a member of the International Mensa Club. He has worked in Goldman Sachs and Morgan Stanley for macro and quantitative transactions, and has worked as a fund manager for a $500 million overseas hedge fund. Amber co-founders are from top international financial trading and financial technology companies such as Morgan Stanley, Goldman Sachs, Bloomberg and etc.


Ryan: You are currently the Founder & CEO of Amber AI. How did you connect with the blockchain industry? What has attracted you to transfer from the traditional financial industry to the blockchain industry ?


Michael Wu:I actually knew Bitcoin when I was in college in the US, and I also downloaded the Bitcoin White Paper (but I didn't finish reading at the time) because I was studying economics and computers at the Dartmouth. At that time, I thought Bitcoin was a cool concept. When I was in college, I was addicted to programming transactions, so I didn't pay much attention to bitcoin.


I was re-engaged with digital currency and traded in 2015, when I was a foreign exchange rate trader at Morgan Stanley. Because the digital currency has a lot to do with the RMB market which I was responsible for, I tried to understand and registered with the exchanges such as the Huobi. In the account transaction, I also bought the Graystone’s GBTC with Tiantian Kullander who was my colleague and current partner (Today DCG is the only bitcoin trust fund that can be traded on Nasdaq).


Unfortunately, after the price of the currency rose, GBTC premium reached 120%, that means it would cost 2.2 US dollars to buy a bitcoin which worth 1 US dollar. We thought this premium was too exaggerated, so we sold them and missed a lot of quotes. In fact, it has also explained from this incident, whether we were at that time or now, we have been using the rational pricing of traditional finance, judging whether there is arbitrage space through data and etc. when we trading digital currency.


I entered this industry in the second half of the 2017. At that time, we established Amber AI, a company that did quantitative trading in the traditional market. Then we found that the volume of digital currency transactions suddenly rose, and the opportunities were huge. There are a lot of big arbitrage opportunities between platforms and varieties, and there are many exchanges that have rebates at the time. Not only can Market Maker earn bid/offer difference, but also earn rebates, so we used some quantitative strategies and those strategies made us easy to make a lot of money. In fact, the difficulty at that time was not entirely in strategy, but in writing the underlying system of the transaction to be better and stable. Our CTO Thomas Zhu worked in Bloomberg, New York, who writes a large traditional trading system including Tradebook, so he helped us to make the whole company's technology base very stable. From that time he led one developer, now he is leading more than 30 technology developors, we have been using this completely self-developed underlying trading system till now.


By the beginning of March 2018, we found that we have done far more in digital currency than traditional assets. Moreover, we found that this market is brandnew, the potential is very large, and many things are not mature enough. As a financial industry professional, we know that the more immature the early market, the more oppotunities exist. So we decided to devote ourselves to the digital currency industry. At that time, the entire market has plummeted from the top. Bitcoin has fallen from a peak of nearly 20,000 US dollars to less than 10,000 US dollars. However, the market is still volatile and the trading volume is huge. We are doing a market neutral strategy. In the first quarter of 2018, our did particularly well, especially comparing with the overall market performance. Therefore, Bloomberg wrote a report that also made us the “World's best performing digital currency fund”. In fact, it was a bit exaggerated at the time, we just took advantage of the strategic style. But in any case, it also boosted our confidence in the digital currency trading.


Ryan: Please introduce the Amber AI and its main businesses. What is the current progress of Amber AI?


Michael Wu:In fact, our company was originally called Amber AI, which was registered in Hong Kong at the time. We called this name because we applied a lot of machine learning algorithms in our quantitative trading. But now we have gradually expanded our businesses from a quantitative hedge funds to a one-stop digital currency secondary market service provider. Now our official brand is Amber Group, and Amber AI is just one of our business entities in Hong Kong. Our Amber Group is currently focuses on the secondary market services of the entire digital currency, including the following major categories:


1. Fund management: This is our original quantitative fund business. Our flagship fund PDT2 has been very stable since the beginning of the 2018. There has been a retracement in just one month, and other months we provided a stable return for our global asset management clients. Business customers provide a stable return; in addition to the main fund, we also provide fixed income class currency management for many institutions, funds and token projects.


2. Liquidity provision: We provide liquidity services to many exchanges around the world, as well as tokens issued by project parties. Through our algorithmic trading procedures, we help them maintain good trading depth and spreads. Through such kind of liquidity services, their trading and currency users can enjoy excellent trading liquidity.


3. Floor and OTC big deal trading: We provide our institutions, funds, project parties and high net worth clients with large transactions between digital and legal currencies, as well as big deals between digital currencies. Our quotes are highly competitive on a global scale. In particular, some customers can enjoy excellent liquidity, very smooth trading and delivery experience through our 24-hour real-time quotation system.


4. Trading execution: In fact, many of our institutional customers, especially the large funds in the United States, executed through our token trading, that means, through us they use the algorithms such as TWAP, VWAP, Iceberg and etc. to buy and sell tokens of each exchange, because these tokens are usually highly mobile and scattered across large and small exchanges in various countries. We have access to dozens of trading platforms and other liquidity channels, so we can provide them with the trading channels and liquidity of all the different types of these exchanges. This business is very interesting. We have been doing this for a long time, and many of the top institutions in the world, especially in the United States, are already using our services. But recently, I suddenly found the hot concept called "Aggregation Transaction", which is essentially hopes to do our business.


5. Derivatives and Structured Products Business: We also provide our clients with services such as custom options, customized hedging solutions, custom leverage and lending. Basically, as long as our customers have specific needs in the secondary market, we all believe that we have the ability to design qualified products and solutions.


Our current clients include global top tier funds, project parties, exchanges, wallets, mining pools, and high net worth individuals and family funds in and outside the industry. Our clients also include a lot of dealers who are facing retail investors who get the ultimate liquidity or profit through us. In terms of customer distribution, our customers are mainly in China, the United States, South Korea, and some customers based in Canada, Europe and Southeast Asia.


Because we are serving these global customers, and providing secondary market services 24 hours a day, 7 days a week, we have offices and colleagues in these major regions. Our company actually has another heavy news to be announced today. A Wall Street senior and talented person who will officially join our company. You may soon read it on the global news website Bloomberg. I will not disclose the details too much.



Ryan: Amber AI is known as one of Asia's most successful cryptocurrency hedge funds, with returns that far exceed those of similar funds in the market. How did Amber AI achieved today's results?


Michael Wu:You praised us too much. I think the essential part is the risk control. Everyone knows that the digital currency market is a very volatile market, and not only is it a market with more systematic risks, from various transactions. Because there are many types of market and non-market risks that need to be dealt with in various smart contracts, and a lot of work to be done here. Everything has to be done very carefully from trading, to technical systems, to later clearing and delivery. I feel that we have accumulated a lot of experience and lessons about risk control in the past two years, which are very valuable. I mentioned earlier, we also had a fund loss retracement in a month, but overall, our fund is still very stable, market neutrality and risk control have entered our entire risk control DNA. We have done a good job in this regard, and our customers are more assured of us, and this is the reason why we must continue to do better.


In addition to risk control, we feel that the constant adjustment and redevelopment of the strategy is essential. The market has been changing very fast. You can't hope that a strategy will always work. Specifically, it was very profitable to brick-moving arbitrage across the exchanges in 2017, but this strategy can’t make much money today, even if there are occasional opportunities, it’s small or it had to take big credit risk and limited cost of capital because the market is constantly becoming more and more effective. To maximize the profit, you should do the simple spot arbitrage, to check whether there is a price deviation arbitrage opportunity between the derivatives, and then need to combine the market-making strategy by simultaneously earning the spread and paying a lower maker fee. The single strategy itself needs to be made more specific and deeper.


Moreover, the market single strategy capacity is limited, and it is often time-effective. Then we should rotate the multi-strategies, configuration and combination to achieve a better and higher sharpe ratio, especially under the premise of managing a large amount of funds, how to reduce alpha decay is necessary to continue to do in-depth research which need as much data as possible for analysis. In order to continue to improve, we need to hire excellent talents, our company has more than a dozen quantitative researchers who are top-ranking universities graduate students or doctoral students. The positions need very solid mathematical analysis skill, and we are constantly absorbing new talents. Luke Li, our quantitative director, joked that in order to continually recruit good quantitative talent, he harassed his classmates in Tsinghua University and Columbia University for several times


Ryan: For the quantitative team, risk control is a very important part. Could you share the risk control logic of the Amber AI?


Michael Wu:We have actually answered the importance of risk control. But for the sake of core IP protection and part of its own risk control, I regret that I can't share the details about the specific risk control. I could share only from the overall concept, the principle is to be careful, consider all kinds of tail risks and corner cases as well as possible, and then do all kinds of the most detailed solutions to deal with various special situations that may arise.


Ryan: What do you think about the differences of quantitative investment between the traditional field and the digital currency field? What is the impact of the alternating bull and bear market on quantitative investment in the digital currency industry?


Michael Wu:I think the quantitative trading is based on a combination of data science and understanding of market logic and product pricing. In the digital currency market, because the market is relatively early, not mature enough, the product categories are different, and there is no industry standard, so there is a lot of space to dig from the pricing of the product itself. Many products are different, including different exchanges’ futures, because of their different delivery rules and underlying benchmarks, actually they have a lot of different pricing logic. Therefore, there are many opportunities for the market to set the wrong price, especially the short-term micro-definite wrong prices. Such opportunities are much less in traditional markets.


On the other hand, because of this reason we think that for terminal traders, digital currency is actually a more complicated market and there are a lot of details of the rules they need to know. Therefore, our customers entrusting us to help them trading which equivalent to using our expertise and deep understanding of each product in this market to help them optimize their trading results or to get the steady revenue in this market.


Regardless of the alternation of bull and bear market, in fact every market has its own macro and micro cycles such as the stock market, foreign exchange market and bond market. However, the cycle of the digital currency market is very short, and the conversion of the bull and bear market is very fast, which has caused a lot of volatility of the directional or unilateral long-term funds. The advantage of our market neutral fund is that it can provide a stable income through the bulls and bears markets, and this income can be the currency standard or the stable coin standard. So our customers can choose whether they are willing to make more tokens or more fiat currency.



Ryan: AI and blockchain are called the three major technologies of the future. What kind of synergy will the combination of the two produce? The importance of data as a middle ground between blockchain and AI technology is self-evident. What do you think about the issue of data validation?


Michael Wu:To be frank with you, I am not an expert in data validation, nor an expert on the underlying blockchain, so I feel that there are other friends who are more authoritative and more appropriate to answer this question. For my personal opinion, the most important combination of blockchain and AI is the ability to assign complex big data processing and analysis capabilities to the data owner himself. Rather than the current possibility that users have no way to protect their own data ownership and use rights, they are forced to let the Internet giant monopolize the value created by using this data.


Ryan: In an interview with CNBC's Squawk Box, Michael Pompeo, the US Secretary of State was asked how to best regulate Facebook's Libra or Bitcoin and other cryptocurrencies, he said that he believes that cryptocurrencies should be regulated like SWIFT or financial institutions, if this secret transaction becomes the norm, then this will reduce the security of the entire world. How do you consider this opinion?


Michael Wu:I think this issue, including this opinion is very controversial on a global scale because it involves a philosophical trade-off: how to balance the protection of personal privacy and the privacy of government agencies for security, anti-money laundering, the right of privacy and etc. This question is too big and this is not my professional scope, I will reserve this questions to a friend who has more authority to answer.


Ryan: What is the latest activities and future plan of Amber AI? In what ways does Amber AI hope to cooperate with projects or institutions in China and South Korea?


Michael Wu:Our Amber Group is based in Asia, as I mentioned earlier, two-thirds of our customers based in China and Korea. China and South Korea are the two countries which leading blockchain innovation and from the governments to the private sectors have deep understanding of the blockchain. Both countries have talents with strong technical capabilities and commercial capabilities. We have already established deep cooperation with top Chinese and Korean projects and institutions including Nervos, Terra, Huobi, Upbit, Hashed and etc. We will continue to deepen our efforts in China and Korea and serve a wider range of outstanding projects, institutions and customers.


Amber is focus on the services of the secondary market, including the aforementioned transactions, financial management, asset management, liquidity and so on. I think that if a company hopes to grow fast, it must focus on what it does best. Our secondary market services for digital currency are one of the most professional institutions in Asia and around the world. Other institutions whether they are project parties focused on technology or application development, investment institutions that focus on primary market investment to find the best quality projects, or exchanges, wallets, and mining pools that serve the majority of users, they can benefit from our one-stop secondary market services.


In addition, we have our own branch in Korea and we will continue to recruit outstanding talents to join us to grow our market share in the Korean secondary market. Welcome to recommend excellent candidates to us, our team and business have been expanding rapidly so we are always very eager for the outstanding talents.


Ryan: As a well-known person of the Chinese blockchain, you may know a lot of outstanding practitioners in the blockchain industry. "Blockchain in Korea" interview program is launched by [Coinin], is dedicated to exploring high-quality blockchian projects and practitioners. Could you recommend three honored guests to our program?


Michael Wu:This question is quite difficult. There are too many outstanding talents of the blockchain industry in China and South Korea, and we have too many friends. Only picking three may miss a lot of excellent friends. I will recommend several guests who I can think of now:


Firstly, I recommend Hashed's partner Ryan Kim, who is not only one of the leading figures in the Korean blockchain industry, but also mainly responsible for investment in Asia, including the Chinese market. He is familiar with the excellent projects in China and South Korea. He is very wise and peaceful, and every time I communicate with him, I can get a lot of deep inspiration.


Secondly, I recommend Terry Tai or Daniel Lv of the Nervos project to this interview. The Nervos team is a veteran of the blockchain industry. Nervos has a strong technical background, it is one of the few treasures to the development of China's blockchain industry. I think that chatting with them can deeply understand the past and future of the entire industry.


Thirdly, in fact, I also think of a person who is very worthy of communication, he allows me continue to learn and improve. He is my partner Tiantian Kullander. Although Tiantian was also a Morgan Stanley trader, I think he is actually a thinker with great thought and insight towards this industry, many practitioners from our blockchain investment institutions in China, the United States, and South Korea think so and they have been dealing with Tiantian for a long time. Tiantian's research on DeFi (Distributed Finance) and innovative token economy is very cutting-edge and deep. Whether those top investment institutions or a lot of top tier projects, they are willing to discuss these topics with Tiantian.


In addition, the important news about Amber that I mentioned earlier has been first published on the Bloomberg terminal between the Wall Street financial institutions. We are so happy that a senior financial industry expert like Jeff has joined the blockchain industry company like us. We will together make this industry bigger! And also welcome more talented people to join us!

Q&A Session

Q1: Do you agree that the larger the scale of funds, the more difficult it is to manage investment?

Michael Wu:Great question! Frankly speaking, yes. Because this market is still relatively new, market liquidity and capacity are still relatively limited, I think the current market may not be able to bear billion USD's purely quantitative fund, especially if the market uses a neutral strategy. And with the increase in management scale, the requirements for risk control and talent echelon are getting higher and higher. However, this also changes with the market conditions. For example, the market liquidity performed very well in the second quarter of this year, and we feel that our current management scale can be more than doubled without much alpha decay.

On the other hand, large scale also has the advantage. For our customers, because we have this scale, no matter from all aspects of risk tolerance, or the entire transaction, risk control, system integrity, we have advantages than other small and medium-sized organizations in the industry. And because of our size, we can provide better liquidity and depth, and a wider range of secondary market services.

Q2: Do you think value investing is outdated?

Michael Wu:I like this question very much! First of all, I think value investing is never out of date. Investment and trading are ultimately to achieve the discovery of market value, but the form of value investment will continue to change, and the carrier will be changing. Moreover, quantification and technology will become more and more important in value investment. How to use the big data of each dimension, analyze the value with the most suitable model and algorithm, and discover the value are one of the most cutting-edge directions of the investment industry. At present, many of the original value investment funds are transforming into quantamental Investing which combines fundamental analysis and quantitative methods to discover the long-term and fair value of investment targets. Pioneers in this direction include Bridgewater and AQR and etc. industry leaders.

Of course, in the asset class of digital currency, value investment is still difficult because the asset class is very new, and the project is in an early stage. Everyone is still studying how to find and measure the long-term value of the project and how to price it. In this respect, I think that some foundations in Silicon Valley, such as Paradigm, are relatively in the lead, because they look at the blockchain companies or token projects to be more underlying, finer, and more patient and they willing to take a long term view. In the process of communicating with them, I found that they are more concerned with long-term values and barriers than short-term prices, which is different from the overall fund in Asia. The funds in the Asia are more intense, and are more sensitive to price and market information. For Amber, we are purely trading and trading services institution. In fact, we find that long-term value is also valuable because we provide the market and our customers with a lot of liquidity, and liquidity itself is beneficial to the market price discovery mechanism.


· END ·

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