Revealed: Capital Management Strategy of F2Pool's Founder in the Mining Pool Industry
Shen Yu, one of China's largest Bitcoin miners and co-founder of F2Pool and Cobo Wallet, has proposed a practical portfolio management approach for cryptocurrency investments known as the four-wallet rule. Although formal documentation of this rule is scarce, it is well-known in the crypto community.
The Four-Wallet Rule
The four-wallet rule divides crypto assets into four separate wallets, each serving distinct investment purposes and risk profiles.
- Long-term holding wallet ("Hodl" wallet): This wallet contains core crypto assets intended for prolonged holding to benefit from long-term price appreciation, with minimal or no active trading.
- Trading wallet: This wallet holds funds earmarked for active trading and market timing strategies, allowing flexibility to capitalize on volatility.
- Stablecoin or liquidity wallet: This wallet stores stablecoins or liquid assets for quick deployment during market opportunities or to mitigate risk when crypto markets are turbulent.
- Speculative or experimental wallet: This wallet is dedicated to higher-risk, potentially high-reward assets or innovative projects, balancing risk by isolating such investments from core holdings.
Benefits of Shen Yu’s Four-Wallet Rule
The four-wallet rule offers several advantages for cryptocurrency investors.
- Risk Management: By segregating assets based on risk profiles, critical holdings are protected from market downturns and operational risks caused by frequent trading activities.
- Enhanced Security: Distributing assets across multiple wallets reduces the impact of hack or theft of a single wallet.
- Liquidity and Flexibility: Maintaining a stablecoin wallet provides immediate liquidity without needing to sell core assets during market fluctuations.
- Psychological Ease: Strictly defining roles for each wallet helps avoid impulsive decisions affecting the main investment, discouraging emotional trading.
- Portfolio Optimization: Encourages balanced diversification between stable, active, and speculative components, which can improve overall return stability.
Context in Broader Literature
While the four-wallet rule is not explicitly described in mainstream academic or industry resources, broader research in crypto asset allocation supports the notion of multi-wallet or multi-portfolio approaches for managing cryptocurrency investments for volatility, security, and strategic growth.
In November 2023, ForkLog reported that several mining pools, including F2Pool, blocked transactions involving addresses from the OFAC SDN list. This event underscores the importance of secure asset management in the cryptocurrency market.
Shen Yu's approach to cryptocurrency investment also emphasizes focusing on "core" assets and maintaining psychological resilience, limiting impulsive actions, and adapting strategies during market corrections. He also advocates for a multi-tiered approach to mitigate risks associated with emotional reactions to cryptocurrency market volatility.
For experimental tokens such as NFTs, Shen Yu advises a cautious approach with a small portion of capital to explore market potential. He also maintains a trading journal to document emotions, reasoning, and predictions for later analysis, reflecting on failures to promote growth.
The warm wallet, designed for steady cash flow to maintain composure during bear markets, stores 20-30% of assets. The cold wallet, reserved for major assets with restricted access to prevent impulsive actions during FOMO periods, typically holds over 60% of AUM. The hot wallet, used for speculative or high-risk activities like NFTs, has funds that are limited, and profits are periodically moved to cold or warm wallets. The fiat wallet operates on a "withdrawal-only" basis to cover annual living expenses, ensuring financial independence even during losses in other wallets.
In summary, Shen Yu's four-wallet rule is a pragmatic asset allocation framework that optimizes risk management, liquidity, security, and growth potential for cryptocurrency investors. This rule is appreciated for its clear structure and benefits in navigating the volatility and security challenges in the cryptocurrency market.
- Shen Yu, a co-founder of Cobo Wallet and F2Pool, proposed a four-wallet rule for cryptoasset management, separating them into long-term holding, trading, stablecoin, and speculative wallets, offering advantages such as risk management, enhanced security, and portfolio optimization.
- In addition to Bitcoin, Ethereum, and other cryptocurrencies, the four-wallet rule can also be applied to new investment areas like NFTs, with a cautious approach encouraged due to their high risk and potentially high reward.
- With more mining pools like F2Pool blocking transactions linked to sanctioned entities, the importance of secure and strategic cryptocurrency management, as demonstrated by Shen Yu's four-wallet rule, continues to grow in the ever-evolving landscape of finance and technology.
