Mars Session | Opportunities in Winter Capital

Mars Session | Opportunities in Winter Capital

Dec 5th 2018| Investment By:Max
Having little faith in the bear market? Be a believer like Jeffrey Wernick. Jeffrey Wernick speaking of bitcoin at Mars Global Community sharing session.

Let’s welcome today Mars sharing session guest,Jeffrey Wernick! Jeffrey is very popular celebrity. He had PhD in Economics and Finance of the University of Chicago, early participants in the BTC, has more than 40 years of investment experience, including Uber and Airbnb. After that, he shifted his investment focus to banking transactions, lending platforms and blockchain industries.

First question-

Max: There have been many types of currencies in history, including shell, gold, dollars, and today's bitcoin. Any cryptocurrency want to become the digital gold, it should go up in a steady way, downside risks should be limited. Even BTC and gold are similar in scarcity, but since the past performance, BTC cannot be regard as digital gold. In the nearly future, BTC is also difficult to reduce its volatility. The monetary road for Bitcoin and Gold have many similarities in the beginning, and then the road diverged. What is the difference between Bitcoin and other types of currencies?

Jeffrey: Once we entered the fiat regime. gold has had periods of great strength. then great weakness. but despite its volatility. the purchasing power of gold has outperformed the us dollar. gold was at $35 in 1971 when Nixon abandoned it. since then the us dollar as all fiat has been debased by inflation and the value of gold is at approximately 1200, outperforming inflation. Bitcoin today is more like an option. it is the possibility. sorry for those who do not know finance or option pricing theory. But bitcoin is potential store of value. potential digital gold. more like an option with a variable expiration date. Looking at it that way, explains its volatility. To think of it any differently is just wrong, it is a bet on its potential to be a global currency, options with long expiration dates exhibit lots of volaltity.

Sakura: But I don't think BTC is really suitable for payment.

Max: That is true, one research showed, the usage rate of bitcoin payment has decreased 80% in this year.

Jeffrey: no government will accept competition for payments, bad money forces good money out of circulation.

Max: That is similar to Gresham's Law.

Second question-

Max: Currently, many bad news about BTC. If one day the price of BTC really goes to zero, will it still have any value?

Jeffrey: store of value. I only suggest buying bitcoin if you take a 5 year horzion, ignoring daily or weekly price movements. And that if bitcoin is alive in 5 years, its price is likely to be much higher than today, or maybe it will be 0. If people cannot accept that risk, they should not buy.

Third question-

Max: We will have more disscuss on bitcoin since you are professional in this area, my third question is -Warren Buffett and Mark Cuban predict that the market bubble is in progress. Since 2018, bitcoin has dropped more than 80% from $17,000 peak to about $4,000 today. What is the bottom price of bitcoin?

Jeffrey: the bottom is 0.

Max: wow, that is the best answer I have ever heard!

Jeffrey: During 2001-2. Amazon was down about 99% from its high, so what? who is richer today? Buffet, Cuban and Bezos.


In febraury 2016. about 15.2 million bitcoins had been mined to date. since then about 2 million more. In february 2016. bitcoin was below 600. So clealry most bitcoin was mined at prices way below the current price. more than 90% of bitcoin were mined above the current price. So if you consider that the ipo price, bitcoin is more than 80% above its IPO price. Why focus only on 80% off of high? why not tell people that bitcoin is 6x since Trump was elected?

Max: Yes, the cost of mining increased, and most of pool in china cannot afford anymore since the collapse of Bitcoin in November this year.

Jeffrey: actually with the adjustment that just occurred, mining will once again be profitable. The difficulty adjustment was reduce by 15%, as contemplated in the design of the protocol.

Max: the dark days for pools and miners.

Jeffrey: so why dark days? I met today with teams that are expanding and profitable, but many inefficient miners entered.

Max: I saw many turn off price of mining machine.

Jeffrey: while others turning on. Many in the usa are expanding and profitable.


Fourth question-

Max: I don't believe BTC could reach one million dollars. What do you think would be the highest price Bitcoin could reach?

Jeffrey: bitcoin could potentially reach a million.

Max: it is not my first time to hear about the prediction.

Jeffrey: I am not predicting a million. I am saying it is feasible. We live in an overindebted world. fragile. look at the markets. look at all the debt created to support fiat. and the government guarantees behind bank deposits. If fiat fails. and bitcoin becomes thew global currency. its price would exceed 1 million.

Max: What is the fluctuation cycle of bitcoin price?

Jeffrey: it is easy to foresee fiat collapsing. If adoption grows significantly. volatility will compress. When it no longer behaves as potential money, but probable money, volatility will compress significantly. Think of option pricing theory again, best analogy. At this stage. if you cannot accept volatility. If you believe in fiat and disbelieve in the potential of bitcoin. then do not buy it. It was more volatile in 2017 than 2018, no one complained about volatility when it went from 600 to 19,000 in one year. It is not the volatility. it is the bear market. If a bear market causes people to question their belief. then their belief was always fragile.I understand many investors or traders are momentum investors. and agnostic to the underlying instrument. it is all about trading algorithms. Most of them underperform the market. Most of them only started with the last 2 years, which have no historical perspective and limited knowledge. They are indifferent except to the alleged patterns they claim to observe.


Fifth question-

Max: Haha Really learn lots of theory and more understand about BTC and logic behind it! Let is talk about STO, fifth question -STO is quite popular right now. Its cycle is longer than ICO, its liquidity is worse than IPO, and many governments began to notice that STO requires regulation. In your perspective, what is the future of STO?

Jeffrey: Governments always see regulation. It is not about consumer protection, but control. For example, in the USA, a non accredited investor cannot invest in venture capital, but he can invest 100% of his income in lottery tickets. The expected payoff in lottery tickets is much lower, but the government dose not mind. Because the government is the recipient of the money raised from selling lottery tickets. Why are lottery tickets not subject to the same regulation. Because government knows sophisticated invesstors would not buy them, so only government has the right to scam.

Max: US regulation impact the whole crypto market.

Jeffrey: I think security tokens are a worthwhile financial instrument. If the transactions of a real estate development are recorded on the blockchain, then information asymmetry is mitigated, making pricing more efficient. How many of you trust the financial statements produced by companie? Do they portray the truth or are they spun according to rules they help write regarding how they disclose their financial information? I do not trust any corporate ledger, but I do trust the bitcoin ledger. I think everyone dose, so STO with blockchain will produce more timely information and more reliable information, making pricing better. Do you believe that when a company begins to have difficulties, it discloses it to the market. No, it lies. During the last crisis, the government no longer required financial institutions to use market prices. They could price according to their internal models. You cannot observe their internal models, how many of you trust that? Not me. Companies do not promote the integrity of  their ledgers, they just try to avoid legal liability. STO on blockchain solves that problem. Except for the stupid regulation, there are no disadvantages of STO. Imagine if all economic activities related with any project had all the activity associated with that project recorded on the blockchain with associated tokens, investors have the same information at the same time as the sponsor developer, no information asymmetry. Why would regulators discourage this? Because they are evil and want to protect corrupt incumbent firms. Ask the regulator directly, why is a project funded with equity where there are significant information asymmetries better than tokens which eliminate that information asymmetry. See their answer, they only make money by profiting from information asymmetry. That is their business model.

Sixth question-

Max: I see, USA regulation impact the whole crypto market. My sixth question is -You dislike stablecoin because you think the emergence of stablecoin has hampered the development of bitcoin and cryptocurrency in general, could you explain the detailed reasons behind it?

Jeffrey: regarding stablecoins, supposedly crypto is a response to distrust of fiat, now we have stablecoins backed by fiat, that is anti bitcoin. It is only regulatory arbitrage. Helping people who want to hold dollars, but maybe cannot get a bank account, or do not want to be taxed, or subject to disclosure. Hold dollars through a dollar derivative is not blockchain and it is not crypto. If you believe dollars are stable, fine! Nothing to do with crypto. The record of fiat is debasement, not stability. Check out the dollar since 1971, the governments lie about inflation and consistently under measure it. Has the RMB been stable relative to the price of real estate? Does the same amount of rmb buy the same amount of real estate in beijing or shanghai as it did 10 years ago? Does it buy the same amount of art or the same amount of healthcare?

Max: I admit the inflation.

Jeffrey: it is not stable. So much debt was added to the economy to produce the illusion of stability.


Seventh question-

Max: According to the global blockchain survey of Deloitt, Internet company will increase investment on blockchain technology. For example, IBM had developed blockchain product, allowing startup companies and developers build discrete applications. With more companies move toward this new technology, What do you think of the layout of a large company?

Jeffrey: what big companies want is that you use their blockchain so they can further centralize information. Blockchain can enable decentralization and privacy or accelerte centralization and the loss of privacy.


Eight question-

Max: The most important thing in investment is the management of asset. There are many asset management tools in the market, such as Mars BitUniverse . What do you think of these tools? we had rolled out a management asset tool "Mars BitUniverse", and it is different from other management tool in the market. The investor can use it to look all of accounts in the App and calculate the amount at once.

Jeffrey: I do not believe in using agents to manage money who do not have significant skin in the game and have better incentive alignment, but the best incentive alignment is skin in the game.


Ninth question-

Max: This year, the situations of many industries are not too optimistic. One of my friends told me: “the best investment this year is to sleep at home and do nothing.”  Do you have any good advice for entrepreneurship and investment directions for next year as 2018 is approaching year end?

Jeffrey: do not trust words, trust incentive alignment and skin in the game. Both necessary conditions. but not sufficient.

Max: sometimes we just can see the surface not the logic behind the surface.

Jeffrey: Do not judge a book by its cover. Everything interesting is below the surface. The surface is propaganda. You have to dig for the truth. It does not reveal itself. You need to look hard for it.


Tenth question-

Max: When I was in middle school, I once read an article called "The Gift of The Magi", which tells the story of a young and poor couple who are reluctant to gave each other Christmas gift. At that time, my teacher told me it was kind of stupid, but what I saw was kindness. Now that Christmas is coming, what do you think is the best gift?

Jeffrey: Material gifts are enjoyed, if at all. Only for a short period of time. Short shelf life to material gifts. I do not think the message of Jesus was a statement of materiality. But spiritual. 

Max: Yes, gift means a lot.

Jeffrey: Take time not to talk. But truly listen to your friends, families, loved ones, colleagues. Truly listen. Understand. Respect.