ABCDE Fund Q3 Report
October 2022
Executive Summary
•
Since we launched in April, we have invested 4 projects of
US$4.7 million, and the return on paper has reached
43.75%.
•
During Q3 Crypto Ventures were not deploying money so that
even strong projects could not raise. But Q4 we will see a
lot of oversubscribed rounds since VC try to fill their
yearly quotas.
•
The implied FED target rates are projected to be at 4.625%
at the end 2024 from the 3.25% right now. Crypto is still
in a bear market cycle.
•
Our thesis in the next two years is to focus on
infrastructure including the crypto underlying technology
breakthrough and application development infra.
•
ABCDE has built an ecosystem of some of the most important
pieces of infrastructure in the space and provide all
industry support for portfolio.
ABCDE FUND Q3 REPORT
Table of Contents
1.Macro Economic cycle ------------------------------------ 3
2.Crypto Industry cycle ----------------------------------- 4
3.Why we start ABCDE in 2022 ------------------------------ 5
4.Our Investment Thesis ----------------------------------- 6
5.ABCDE Portfolio & Performance --------------------------- 6
6.Ecosystem support for portfolio ------------------------- 7
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1.Macro Economic cycle
In lax financial market condition, the go-to-forward strategy
for money managers was the typical 60-40 equity bond passive
portfolio or a passive index fund. But macro suddenly
matters, and an active portfolio and asset management
strategy is more than ever required to manage capital and
risk in a highly volatile, geopolitically strained, and
energy scarce post-Covid environment. On top of that central
banks, starting by the US FED, seem to lose control of the
inflationary regime and lag massively to the market they
created risking a global recession.
ABCDE FUND Q3 REPORT
There are in general two ways to manage state economy monetary and fiscal policy. Both can be used to increase
growth, innovation, employment, and getting back on track
from Covid. Compared to Volcker’s time central banks and the
FED have taken the additional mandate to intervene in the
financial markets with instruments such as quantitative
easing as in the bond markets or stimulus packages, so called
“helicopter money”, to maintain and increase labor
participation and full-time employment. Monetary stimulus was
positively accepted by the markets and created growth and a
steady rise of the SP500 so that passive investment
strategies were unbeaten until liquidity moved to the real
economy and created the inflationary regime, we are in.
Unfortunately, the FED is reacting on macro indicators so
that the narrative is shifting from “inflation is
transitionary”, to “peak inflation is reached”, to the final
narrative of a “soft landing of the economy” though a hawkish
FED using quantitative tightening and rate hikes to beat down
inflation. Even fiscal policy as the second method of state
intervention in case monetary policy fails is perceived as
inflationary so that UK tax cuts created the strong
devaluation of the British Pound compared to the USD.
Still there is some hope in sight, especially from the
People’s Republic of CHINA. Monday, 26th of September, data
showed that Chinese companies profit just declined by 2.1%,
the People’s Bank of China fixed the FX rate of USD/CNY, and
the government is slowly opening up towards Macao and HK. We
expect further positive signals concerning the Zero Covid
policy from the National People’s Congress going into the
golden week and a relieve for world economy.
Figure 1 Implied FED funds target rate of around 4.625% by the end of 2024 from
the current 3.25%
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We as ABCDE are active on the primary markets but
closely monitor the secondary markets and thus macro
environment. In a highly volatile macro environment
central banks such as the FED react to economical
indicators such as CPI (consumer price index), PMI
(product manufacturing index), employment rate, and
mortgage application which are unfortunately lagging
indicators to the real situation of the economy. The
implied FED target rates are projected to be at 4.625%
at the end 2024 from the 3.25% right now which would
move the world economy to a recession causing global
geopolitical problems. We assume the FED taking a more
dovish approach to the markets and thus expect a very
quick macro cycle – in 2008 it took the SP500 2 years
to drop by 20% while it is now 6 months to reach the
same bear market territory.
ABCDE FUND Q3 REPORT
Additionally, publicly listed companies are still
reporting strong numbers and investment is on high
level visible by the recent raised mega funds in the
US. We see a huge upside potential to actively manage
LP money in these kind of volatile markets investing in
the future digital asset class.
2.Crypto Industry cycle
The asset class of crypto and digital assets matured
during the recent super cycle getting the attention of
traditional funds and institutional players. While
digital assets were highly correlated with high-risk
assets such as high P/E (price per earning) TMT
equities in the 2021 bull run there is a strong
decorrelating trend now. Equities didn’t yet have the
deleveraging event crypto saw with the recent series of
blowouts such as Terra Luna, 3AC, Voyager, and Celsius
so that crypto markets behave more stable compared to
traditional markets (BTC»20’000 USD and ETH»1300USD).
Big funds are still being raised and projects such as
Aptos and Sui/Mysten lab gather spectacular valuations.
We see that there is a lot of fear among VC which have
driven primary market valuations highly volatile and
very low. During Q3 competitors were not deploying
money so that even strong projects could not raise.
Q4 sees a lot of oversubscribed rounds since VC try to
fill their yearly quotas. As ABCDE we took advantage of
this fear and invested in several projects during Q3.
Our ecosystem approach and network helped us to reach
for the right founders so that we entered valuable
projects before other players in the market generating
a strong positive return for our LPs. We see this bear
market as a time to build so that we will beating
returns in the next bull market.
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3rd Bitcoin halfing
4th Bitcoin halfing
2nd Bitcoin halfing
ABCDE FUND Q3 REPORT
1st Bitcoin halfing
?
Figure 2 The Best Crypto VC Opportunities Are All Appeared in the Bear Market
Between Bitcoin’s Halving Cycles
3.Why we start ABCDE in 2022
Although we launched ABCDE in April 2022, we have been through
several cycles in this industry since 2012. We chose to start
ABCDE when the bear market was at its worst.
Why?
Crypto has gone through three cycles. The best VC opportunities
always appeared in the bear market between Bitcoin’s halving
cycles. For example, Ethereum, Bitmain, Huobi and OKex during
the 2014 bear market. Opensea, Axie, Solana, Dune analytics and
Avalanche during the 2018 bear market.
•
The bear market eliminated
speculators, leaving behind
termism.
a large number of unstable
the founders of true long-
•
The valuation of projects in the bear market is very cheap.
The valuation of Huobi in 2014 was 25 million US dollars,
and the valuation of Opensea, Axie, and Solana in 2018 was
only 15 million US dollars.
•
Projects that survived the bear market would prove their
business model and can shine in the bull market.
This is why we chose to set up ABCDE at this time. Our
Cofounder Du Jun invested in ChainUP in the 2018 bear market.
At that time, the valuation of ChainUP was US$500,000. Today,
ChainUP has become a quasi-unicorn company. The US$150,000
investment has turned into a return of hundreds of millions of
dollars. This is the power of surviving cycles.
The experience of going through several cycles allows us to
understand the market better and to help our portfolio survive
the bear market. We believe that the most important reason for
the success of funds with market-beating returns is the time of
its establishment.
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4.Our Investment Thesis
At this stage, we will focus more on infrastructure investment,
because crypto underlying development environment and infra are
not perfect, and developers are facing many restrictions.
Although builders has been imagining and trying many
application scenarios, including finance, games, identity,
social networking, etc., the industry infrastructure is still
in an incomplete state. So in the next two years, we will focus
on investment in the underlying technology breakthrough and
application development infra.
ABCDE FUND Q3 REPORT
The underlying technology breakthrough:
• Modularization and scalability
• ZK infrastructure
• Breakthrough in capital utilization efficiency algorithm and
economic model
Application development infra:
• Data layer
• Security infrastructure
• Storage layer
• Developer Tools
• Traffic entrance
Infrastructure investment is precisely what we are good at. We
have incubated and invested in industry-leading infrastructure
such as Huobi and ChainUP and can bring a lot value add to the
infrastructure portfolio.
5.ABCDE Portfolio & Performance
Since April, we have lead-invested 4 projects of US$4.7 million,
and the return on paper has reached US$2.056 million,
representing a return on paper of 43.75%.
Our goal for the next two years is to invest no more than 20
projects each year. In principle, we only lead the investment,
not follow, and invest our time, experience and resources in
depth to support the team to successfully become an important
infrastructure in the next cycle.
Four projects we lead-invested:
Project
Brief
Round
Lead
Additional
VCs
Date
Invest
ment
Book
Return
Seed
ABCDE
Hash
Global,
Bodl, Mask
Aug
29th
$1.2M
122%
0xScope
0xScope Protocol is the first
data knowledge graph
protocol and an
independent Web3 data
layer.
Angel
Baidu
(TS)
Danhua
New
Horizon
Fund,
Oasis
Sep
6th
$1M
25%
Sep
13th
$1.5M
5.96%
Sep
13th
$1M
25%
$4.7M
43.75%
Overeality
Overeality presents a
scalable, compatible and
interoperable ZK full stack
solution for Web3 with the
fastest ZKP protocol ever DeVirgo
MetaTrust
MetaTrust provides a full life
cycle security service. It is
the world's first suite of
builder-first Web3 security
solutions covering the full
Software Development Life
Cycle (DLC).
Seed
ABCDE,
M23
Longhash,
Founder’s
Friend,
MEXC,
Outlier,
Redpoint,
SIG
DeBox
DeBox is a Web3 social
platform based on
blockchain DID
Seed
ABCDE
Tokenpocke
t
Seed
ABCDE,
VC
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6.Ecosystem support for portfolio
We have founded or invested some of the most important pieces
of infrastructure in the space and provide all industry support
for builder, including Huobi, ChainUP and more.
ABCDE FUND Q3 REPORT
01.
Exchange
We have co-founded Huobi, one of the world’s leading crypto
exchanges with millions of users. We can list tokens on Huobi
for easier purchase to customers & increase brand
awareness/legitimacy
02.
Media
CoinTime
We have co-founded Jinse Finance, which are Asia’s most popular
crypto publication, receiving millions of views from crypto
curios/native individuals. We can run advertising campaigns &
publish articles on the site to increase user growth & build
brand awareness across the Asian market.
03.
Developers
We have co-founded BeWater, which is a hardcore developer
community with 100+ github-verified developers. We can help you
connect with the developer and together empower every developer
in the world to innovate and succeed.
04.
SAAS
We have co-founded ChainUP, on of the world’s leading
Blockchain SaaS provider boasting over 1,000+ large B2B
customers. They provide SaaS including crypto exchange system,
wallet system, mining pool, etc. ChainUP can be used as a
substantial distribution channel giving exposure to a notable
customer base.
05.
Expertise & Network
Given their extraordinary entrepreneurial track record &
reputation, BMAN & Du Jun have one of the most extensive
networks across the crypto world. Additionally, both partners
are full-time in the fund and can share their own insights,
providing founders with veteran advice.
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