The key to value lies in the fact that it must be a scarce physical asset that cannot be easily manufactured.

Organized & Compiled by: Deep Tide TechFlow

Guest: Jeff Park, Trader at Bitwise Asset Management

Hosts: Bonnie & David Lin

Podcast Source: Bonnie Blockchain

Original Title: How to Invest to Turn Things Around? The Only Investment Iron Rule Learned at Morgan Stanley! Jeff Park [Bonnie Blockchain]

Broadcast Date: July 24, 2025

Key Points Summary

The traditional investment allocation is dead! Jeff Park, trader at Bitwise Asset Management, publicly states for the first time in the Chinese world: The 60% stock / 40% bond portfolio is just an outdated script!

The stock market has long since become a casino, and bonds have lost their hedging function. Young people are no longer willing to participate in the rotten games of the old financial system. As an investment expert who broke through at Morgan Stanley, he has shattered the shackles of the system and rebuilt investment logic with an iron rule. Jeff Park has proposed a radical investment theory, designing a brand new set of survival rules for this uncertain new era.

Highlights of Insights

• "Resistance assets" can hedge 100% of compliant assets (which rely on brokerage firms and leverage). "Resistance assets" are difficult to obtain; they are not things you can easily buy in the stock market, have non-homogeneous characteristics, and cannot be leveraged.

• Scarcity itself is where value lies. In a world filled with financial repression, we need to seek assets that are not artificially manufactured, which is why Bitcoin is particularly important today.

• If you really want to diversify away from the traditional financial system, then those assets that do not rely on the system and are completely under your control are truly valuable. This "system-detached" characteristic is the most important source of value for these assets.

• The key to value is that it must be a scarce physical asset that cannot be easily manufactured; these assets also need to have non-homogeneous characteristics, meaning they cannot be easily replicated or standardized; another key factor is that these assets must have a certain degree of censorship resistance, meaning they do not rely on the traditional financial system.

• If you really want to achieve diversification away from the traditional financial system, then those assets that do not rely on the system and are completely under your control are truly valuable. This "system-detached" characteristic is the most important source of value for these assets.

• People often confuse the relationship between value and price, but the difference is that price reflects someone's willingness to pay for something, while value is the inherent worth of something, which you usually do not know until you experience it.

• Young people have realized that the traditional financial system is somewhat manipulated, and their trust in the stock market is generally low.

• Investing in Bitcoin is not always about betting on its price increase; sometimes it is actually about betting on the decline of fiat currency value.

• Our culture is increasingly inclined to simplify things; it is either "right" or "wrong"; either "left" or "right," leaving almost no room for nuance. But in reality, the world is full of nuances, and options trading can train you to focus on the distribution of possible outcomes, allowing for a more comprehensive view of issues.

• The altcoin market is clearly not as active as it used to be. If you want to pursue a high-risk experience, instead of buying some memes, you might as well try Bitcoin options, which can achieve similar effects.

• If you are optimistic about Bitcoin, investing in Bitcoin through options is a very worthwhile direction to try, especially suitable for those with a long-term investment vision.

• I learned a lot at Morgan Stanley; the first rule is "Don't make mistakes," and the second rule is "Always remember the first rule." These lessons are also very applicable in the cryptocurrency field.

• RWA mainly has two development directions. The first is to tokenize existing financial assets. The second is to tokenize assets that have never been traded or securitized.

The Traditional 60/40 Investment Portfolio is No Longer Applicable & Radical Investment Theory

David:

Today we have invited Jeff Park, the head of Alpha strategies at Bitwise Asset Management and a seasoned portfolio manager. Jeff, welcome! It's great to see you, and we look forward to hearing your views on Bitcoin and the cryptocurrency market.

Bonnie:

Jeff is very popular on Twitter, especially his posts about "radical portfolios" have sparked widespread discussion. Jeff, can you tell us what a radical portfolio is?

Jeff:

That's a great question. I have been studying traditional economics and finance since I was young, which has been a constant throughout my life. When I first entered the workforce, the global financial crisis broke out, and I found that the theories I had learned seemed unable to explain reality. After the crisis, we entered a long era of "financial repression" (where the government intervenes through policies to suppress interest rates and restrict capital flows), and these concepts cannot be found in textbooks.

"Radical portfolios" are actually a summary of my personal experiences, redefining how a new generation of investors should allocate assets. The traditional 60/40 portfolio, which consists of 60% bonds and 40% stocks, is considered a classic strategy for balancing risk and return. However, in reality, we find that the correlation between bonds and stocks is higher than imagined, and this combination does not truly achieve diversified risk management. The core of a radical portfolio is to fundamentally rethink what constitutes a diversified asset allocation and how to redefine the sources and distribution of risk.

Bonnie:

So what does the new asset allocation look like in your theory?

Jeff:

Yes, we need to start with why the traditional 60/40 portfolio has failed. When you delve into this issue, you will find that since the global financial crisis, the price fluctuations of most securities and assets have actually been caused by government intervention and cross-border capital flows.

Currently, the global monetary system is undergoing massive fiscal spending, which has also led to a distortion of the GDP concept. For example, government spending is included in GDP, but can this really be counted as economic growth? This distortion has gradually turned bonds from a past safe-haven asset into a risk asset.

Once people realize this, they will find that the so-called 60/40 portfolio is actually 100% of some asset. So what is this 100%? I believe it is 100% "compliant assets." These assets are the ones we trade in a highly financialized world, relying on brokerage firms and leverage.

The operation mode of this global arbitrage system is the foundation of traditional finance. So, how do we hedge against this 100% compliant asset? The answer is what I call "resistance assets." These assets are difficult to obtain; they are not things you can easily buy in the stock market, have non-homogeneous characteristics, and cannot be leveraged.

For example, gold, but here it refers to physical gold, not the GLD ETF. Physical gold represents a decentralized way to detach oneself from the traditional financial system. Bitcoin is also a type of resistance asset, providing another way to express a viewpoint on this asset class. In addition, there are high-end artworks and unique art pieces that cannot be replicated, truly possessing scarcity and value.

The reason traditional bonds and stocks are not as valuable is that they can be printed infinitely. In contrast, scarce collectibles, like Pokémon cards, may sound like a joke, but for some people, they indeed retain value. Additionally, luxury handbags, like Birkin bags, have become valuable due to their scarcity, and their value retention ability can even surpass some traditional assets.

David:

Sounds like an alternative investment portfolio.

Jeff:

You could say that, but the forms of these alternative assets do not fit our traditional investment language. Few people would consider buying Pokémon cards, handbags, or artworks as a way to diversify a portfolio because they cannot be traded as easily as ETFs. You also cannot easily purchase scarce resources like biotechnology or legal intellectual property.

The value of these things comes from scarcity, and scarcity itself is where value lies. I want to emphasize that in a world filled with financial repression, our generation needs to keep our eyes wide open to seek assets that are not artificially manufactured. This is also why Bitcoin is particularly important today.

If I remember correctly, there is a very rare Japanese Pokémon card that was specially issued for Peter's birthday. This card is extremely rare, especially in well-preserved condition, and its value can reach nearly one million dollars.

Alternative Assets Are Not in the System

David:

It sounds a bit ironic, but finding value actually has a methodology. For example, the method you use to evaluate Pokémon cards can also be used to evaluate an altcoin or a piece of art, right? Can you share your thought process with us?

Jeff:

The key is that it must be a scarce physical asset that cannot be easily manufactured. If this asset can also gradually decrease over time, that would be even better, as it would further enhance its scarcity. For example, the value of Pikachu Pokémon cards is not because of their abundance, but because many cards get damaged or lost during use, making the remaining well-preserved cards more valuable.

Similar examples include fine wines. People buy wine not just for collection but also because it deteriorates over time. If you can store it properly, the value of the wine may grow exponentially. This shows that scarcity is the core factor determining value.

Additionally, I believe these assets also need to have non-homogeneous characteristics, meaning they cannot be easily replicated or standardized. In contrast, the value of stocks and bonds largely depends on the credit system, and their volatility is often artificially controlled. The assets we seek should have inherent high volatility and performance potential, rather than volatility artificially manufactured by the financial system.

David:

Do you use any model to decide how to allocate funds?

Jeff:

This is more about my personal investment preferences. I like to collect unique artworks, such as those by Daniel Arsham. His art blends street culture and high-end art, and is sought after by many. His works often appear in well-known galleries. Artworks like these not only enrich the diversity of an investment portfolio but also bring long-term value appreciation.

Additionally, there is a key factor: these assets must have a certain degree of censorship resistance, meaning they do not rely on the traditional financial system. In the stock and bond markets, your assets are typically traded through brokerage firms, and you are not the direct owner of these assets. Even if you own Microsoft stock, those shares are actually registered in the name of a custodian, not directly owned by you.

Even if you own Microsoft stock, it is usually not held in your name but in the name of a custodian on your behalf. Therefore, true ownership is very important. This is why the distinction between gold and the GLD ETF is significant. If you really want to achieve diversification away from the traditional financial system, then those assets that do not rely on the system and are completely under your control are truly valuable. This "system-detached" characteristic is the most important source of value for these assets.

Many people confuse value and price

Bonnie:

I want to ask you, what is value? How is value created? Yesterday, Peter Schiff sat here and said, "You Bitcoin enthusiasts are just trading 'nothing'; what you buy is essentially nothing." If it were you, how would you respond?

Jeff:

I would respond with a famous saying that I think is very relevant: "People today seem to know the price of everything but the value of nothing."

We live in an era rich in information, where we can see the dynamics of every transaction in real-time, as well as the opportunities brought by high-frequency trading. These trading data may seem to reflect some kind of value, but in reality, they are merely expressions of trading behavior at a given moment and do not represent true value.

In fact, truly valuable things are often not traded frequently. Some things are valuable because they are suitable for long-term holding rather than for quick buying and selling. For example, many billionaires now invest in sports clubs or franchises; these assets are not frequently traded in the market. They are usually one-time large transactions that can even be passed down through generations, truly creating and transferring value.

Therefore, I believe people often confuse the relationship between value and price, but the difference is that price reflects someone's willingness to pay for something, while value is the inherent worth of something, which you usually do not know until you experience it.

Young people do not want to play the old financial games of the system

Bonnie:

Doesn't this require a consensus among people, such as most people agreeing that this thing is worth $2000?

Jeff:

It could be that everyone is wrong; its value largely depends on personal preferences. This is similar to why older people prefer gold while younger people lean towards Bitcoin. Ultimately, these choices come down to personal preference. Another reason I am optimistic about Bitcoin and other resistance assets is that I feel young people have realized that the traditional financial system is somewhat manipulated, and their trust in the stock market is generally low.

To be honest, I think our financial system has not done a good job of establishing a fair and healthy market. For example, the trading volume of zero-day options has now surpassed 50% of the trading volume of S&P 500 and Nasdaq options.

Zero-day options are essentially a financial tool similar to a lottery. What is even more concerning is that this highly financialized phenomenon is happening with the tacit approval of regulators, making the entire market look increasingly like a casino.

When young people see this situation, their reaction is completely understandable. They might say: "I don't want to participate in this game because I don't understand how it works. But I will buy things I like and recognize because at least for me, they are valuable, and other young people will also recognize their value."

I think this is how value is created—because we begin to truly appreciate these things.

The value of gold

David:

Let's talk about your overall view of these assets. You just mentioned gold, so let's compare gold and Bitcoin. I read an article yesterday stating that Goldman Sachs analysts predict the price of gold will rise to $4000. They believe gold is a better hedging tool than Bitcoin and expect it to reach $4000 in the medium term.

The supply of gold is very limited; most of the gold has already been mined. Bitcoin's supply is also designed to be limited. I think this characteristic of "limited supply" makes investors who are worried about runaway inflation feel more at ease.

Additionally, the article mentioned geopolitical factors behind gold. After 2020, many investors began flocking to gold, partly because the dollar was "weaponized," and also because trust in U.S. Treasury bonds has diminished. Previously, people would typically choose Treasury bonds and dollars as safe-haven tools, but now the erosion of confidence has led them to choose gold instead. This is one perspective.

What do you think about what I just said? And about the Goldman Sachs analyst's prediction?

Jeff:

I believe the value of gold primarily comes from its long-standing recognition throughout human history. This brings us back to the question of the source of value—who decides what is valuable? Gold is undoubtedly one of the assets with the longest record.

For example, when I got married, I received gold as a gift; later, when I had children, my family also gifted gold. These traditions exist because gold is seen as a "hard asset." It gives people the opportunity to step outside the framework of fiat currency when necessary. Especially in extreme situations, the transferability of gold makes it a great asset protection tool.

From this perspective, the psychological value of gold does exist. At the same time, geopolitical factors cannot be ignored. After the collapse of the Bretton Woods system in 1971, although it hasn't been a particularly long time, for a certain generation, the memory of gold as a capital foundation remains profound. Many people still long for an economic system based on real assets rather than one that completely relies on state credit.

If the world truly reconsiders price systems like the gold standard in the future, gold may once again play a key role. In fact, many government agencies in various countries are increasing their gold holdings, and central banks are also taking action. They view gold as a hedging tool that can support a new international order that may emerge in the future. From this perspective, this trend is entirely reasonable.

Comparing gold and Bitcoin

David:

Comparing gold and Bitcoin, gold is a safer hedging tool. Bitcoin is more volatile, prone to price pullbacks, and highly correlated with tech stocks. Bitcoin performs well when investor risk appetite is high, which may also explain its high-risk characteristics. What do you think of these views?

Jeff:

Many people tend to view volatility as a negative characteristic, but in fact, young people are more willing to accept volatility. This is related to generational differences. They understand that if they do not accept a certain degree of volatility, it is difficult to achieve wealth growth, and the opportunity cost is too high. However, ultimately, volatility is just part of the investment path; what investors really care about is the final return.

If you believe Bitcoin will appreciate in the long term, then volatility is not so scary. On the contrary, I am more concerned that Bitcoin may not be as good as gold in certain aspects, such as the issue of self-custody of assets. Most people are not good at managing their own assets; they prefer to delegate this responsibility to others, such as banks or custodians, because they fear taking on risk. This is a normal human tendency. Bitcoin completely disrupts this model.

To truly own Bitcoin, you need to self-custody it, which means you have to accept the risk of potentially losing everything if you make a mistake. Many people cannot bear this pressure. Gold also has similar risks, but the possibility of losing gold is not as extreme as forgetting a Bitcoin private key or having it stolen. After all, gold is a physical asset that exists in the real world.

So, when people compare gold and Bitcoin, I am not particularly worried about volatility or price fluctuations; I am more concerned about the issue of self-custody. Many people still prefer to own a tangible asset that they can touch and see, which feels more reliable. Bitcoin, being a digital asset, seems somewhat abstract, which is also why some people still do not believe in its value.

Bonnie:

So if we hand Bitcoin over to banks for management, wouldn't that make things much simpler? Then everyone wouldn't have to worry, right?

Jeff:

Yes, I think this is a very interesting direction. We need to explore how to integrate Bitcoin into existing business models to reduce some extreme risks, such as using insurance to mitigate risks, while not completely losing the characteristics of Bitcoin as a sovereign asset. Because once Bitcoin is put into a custodial model, the ownership of the asset no longer belongs to you, which brings us back to the old path of the traditional financial system. At that point, banks and exchanges might re-engage in lending and re-mortgaging, which is not much different from the problems we originally wanted to solve. Therefore, we need to find a way that allows users to feel safe and convenient when using Bitcoin while retaining ownership of the asset. I think this is an important direction for the industry to break through in the future.

Bonnie:

Do you think there are solutions available now? How far are we from a solution?

Jeff:

I think the popularity and rapid development of ETFs indicate that investors can gain exposure to Bitcoin's price through this method without worrying about custody risks. This way, ETFs and actual Bitcoin holdings can coexist. Many people still need a financialized version of Bitcoin because it performs well in portfolio management and can be used for margin trading and lending. Lending Bitcoin directly carries counterparty risk, but lending Bitcoin ETFs does not have this issue. Therefore, some characteristics of the traditional financial system do have their advantages.

However, this does not mean that investors should not store a portion of their Bitcoin in cold storage. Cold storage is an offline storage method that is more secure. I believe everyone should try both methods simultaneously to truly understand their respective advantages, disadvantages, and applicable scenarios.

Bitcoin ETF Expectations for 2026

David:

Recently, Bitwise Asset Management released a report. You predict that the inflow of Bitcoin ETFs will increase significantly, potentially reaching $300 billion by 2026, with an expected $120 billion by the end of this year, showing significant growth from last year. So why do you think the growth of Bitcoin ETFs will be so significant in the coming year?

Jeff:

This relates to the point you just mentioned. The risk attributes of Bitcoin have historically been strongly correlated with risk assets, but this correlation is now weakening. We have found that the price movements of Bitcoin are beginning to decouple from stocks. People are starting to realize that Bitcoin can perform well not only when market sentiment is positive but also when risk-averse sentiment dominates.

I refer to this phenomenon as "positive Bitcoin" and "negative Bitcoin." "Row" is a term in options that describes the situation where the value of an asset fluctuates with changes in interest rates. Generally speaking, if interest rates rise, the market environment becomes more challenging. In such a risk-averse environment, Bitcoin may be seen as a store of value. However, historically, Bitcoin has been more like a risk asset, right? When interest rates fall, Bitcoin is the fastest tool to combat inflation. The key is whether Bitcoin can possess both characteristics at certain times. In the long run, Bitcoin's price movements have proven that it can be both "positive" and "negative" in different market environments. This unique characteristic is the essence of Bitcoin's value. The emergence of Bitcoin ETFs allows investors to enter this market in a more organized manner. Financial advisors are also gradually recognizing that Bitcoin is no longer a controversial topic but rather an asset class worth paying attention to. This discussion is particularly important against the backdrop of the U.S. credit rating downgrade and increasing fiscal spending issues.

David:

I may not have expressed myself clearly earlier. It's not just that ETFs are the main source of funds; the overall inflow into Bitcoin is expected to reach $400 billion. However, this is actually what I want to ask next. Can you briefly discuss the proportions of ETFs, spot, and futures within this $400 billion?

Jeff:

I believe the ETF market will become very important globally. It is worth noting that many countries still do not have Bitcoin ETFs, such as South Korea. Therefore, there is still significant room for development for ETFs worldwide.

The appeal of ETFs lies in the fact that many investors do not want to take on the risk of self-custodying Bitcoin, and ETFs solve this problem. At the same time, those who wish to hold Bitcoin directly can continue to do so, as they believe it aligns with Bitcoin's original intent. However, most investors are more concerned with how to achieve returns in the most optimal way. Through ETFs, investors can utilize more financialized tools, such as basis trading. Simply put, you can hold spot Bitcoin while shorting Bitcoin futures to profit from the price difference between the two. This type of trading is easier to implement in the traditional financial system because it can be done through prime brokers with cross-margin operations. In the current crypto asset space, capital efficiency remains a challenge. Therefore, from a financial operations perspective, ETFs currently have an advantage over directly holding spot assets.

Is Bitcoin breaking through $100,000 an extreme event?

David:

If we incorporate Bitcoin's price movements before 2013 into the model, assuming Bitcoin reached $100,000 in 2013, would that be a three standard deviation event?

(Deep Tide TechFlow Note: "Three standard deviation event" is a statistical concept used to measure the rarity or abnormality of an event. Here, a "three standard deviation event" means that Bitcoin reaching $100,000 is a very rare occurrence, far exceeding the usual price fluctuation range.)

Jeff:

That would even be a 15 standard deviation event (which can almost be considered "impossible"), and it has already happened. Many people might say that it would take a lot of time, effort, and focus to achieve this. But in reality, we are still on this journey, and we still cannot determine where the price ceiling for Bitcoin lies. However, I often tell people that investing in Bitcoin is not always about betting on its price going up; sometimes it is actually about betting on the decline of fiat currency value. This may sound counterintuitive, but the fact is that Bitcoin's value growth is largely due to the continuous devaluation of fiat currency. I believe that since the global financial crisis, the pace of fiat currency devaluation has been much faster than most people expected.

Why are altcoins no longer favored?

Bonnie:

Regarding Bitcoin, I think everyone is quite familiar. So, if I were to replace Bitcoin with altcoins, would that model still work?

Jeff:

Personally, I feel that we have entered an era of "Bitcoin or bankruptcy." Bitcoin's popularity is extremely high, while altcoins seem to be still searching for their positioning. However, I believe that as the market structure gradually improves and financial use cases become clearer, altcoins may find their value in the future, rather than relying solely on speculation and meme trading.

From the current situation, most people buy altcoins because their leveraged volatility is very attractive. For example, when Bitcoin rises by 5%, people think altcoins might rise by 15%, so they go and buy altcoins. But over the past nine months or even longer, we have found that this correlation has completely broken down. Now, Bitcoin can rise while altcoins may fall. In other words, altcoins are no longer a leveraged betting tool for Bitcoin.

Part of the reason behind this is the launch of ETFs. When Bitcoin ETFs were approved, starting in December of last year, investors could directly trade options on these ETFs. If you want higher leveraged exposure to Bitcoin, trading call options on Bitcoin directly is more convenient.

David:

The altcoin market is clearly not as active as it used to be. I guess if I want to pursue a high-risk experience, it would be better to try Bitcoin options rather than buy some memes, as that could achieve a similar effect.

Jeff:

Exactly, with Bitcoin options, you can enjoy the same high-risk experience while also gaining leveraged exposure. And it's safer because you no longer have to worry about the complex relationships between Bitcoin and other altcoins, such as the correlation between Bitcoin and Helium or Solana. Therefore, Bitcoin options are indeed a good choice. Additionally, there are some Bitcoin-related companies, like MicroStrategy, whose stock price volatility even exceeds that of Bitcoin itself. I believe the rise of these companies, such as MicroStrategy and Meta Planet, is also attracting more trading volume, diverting what would have been the altcoin market. Now, ordinary investors are more inclined to speculate through these companies and securities because they provide clearer underlying risks while also achieving the Bitcoin exposure they desire.

Altcoin treasury companies vs. Bitcoin treasury companies

Bonnie:

Did you know? There are now some companies trying to mimic the strategies of Solana and Ethereum. Do you think this approach will work?

Jeff:

I am looking forward to seeing whether this approach will work. I am personally optimistic that it may find some suitable market demand. I want to say that Bitcoin's success is due to the belief that Bitcoin has value, right? So you can use Bitcoin for lending because people are willing to assign it a certain credit value.

Because of this, this strategy can enter the credit market. As long as you hold a certain amount of Bitcoin, lenders will consider these assets valuable and recoverable.

First, you have to believe that these asset collaterals are valuable, and Bitcoin has already proven successful in this regard. You might say that currently, there are no other assets in the cryptocurrency space that can reach this level, such as Ethereum or Solana. Some may disagree with this view, but others may support it.

This is a question worth exploring. I am very curious to see how people will underwrite these assets in the future. However, I can tell you why these treasury strategies are effective. In addition to credit collateral, another reason is that if the underlying asset has high volatility, this strategy can also work. Because the leverage effect brought by volatility can create more value for corporate treasuries. And the volatility of Ethereum and Solana is greater than that of Bitcoin, which is an advantage for them.

Additionally, Bitcoin is currently a relatively static passive asset. People usually just store it in cold wallets, like stuffing money under a mattress. It neither generates income nor can be staked. But Ethereum is different. Everyone knows that in the Ethereum network, you need to participate in network security to earn additional income through the proof-of-stake mechanism. For example, re-staking has become a hot topic. Moreover, there are other ways to utilize Ethereum to earn income, not just by putting it in a cold wallet. Although ETFs currently cannot achieve these functions, some operating companies might be able to.

Therefore, I believe these assets may become more productive within the structure of operating companies, while Bitcoin does not need to rely on these mechanisms. Coupled with volatility, these factors may become potential advantages in the competition between proof-of-stake tokens (like Ethereum) and proof-of-work tokens (like Bitcoin).

Exotic options traders

David:

You previously worked as a derivatives trader at Morgan Stanley; what products did you primarily trade at that time? I want to see how these experiences connect with your current work.

Jeff:

My career began at Morgan Stanley, where I focused on exotic options in equity derivatives. These financial instruments are so complex that even the traditional Black-Scholes model cannot accurately price them. The Black-Scholes model is actually a relatively deterministic model, but exotic options require a more complex handling approach.

For certain exotic options, you need to use stochastic models that rely on the path of asset prices and consider various inputs of local volatility. These tools include hybrid options, barrier options, and knock-out options. You may not have heard of these names, but they are essentially some of the most complex products designed in the field of financial engineering to meet various insurance or speculative needs.

As an exotic options trader, my biggest concern was that the models could not accurately capture extreme events. The occurrence of extreme events is difficult to predict with models, even when using stochastic volatility models, as some key parameter correlations may not be fully represented. For example, when the spot price rises, it usually affects volatility; conversely, when the spot price falls, we know that volatility tends to increase. You need to incorporate these correlations and path dependencies into the model, but these factors can sometimes become very unstable.

Perhaps it is because of this experience that I became interested in Bitcoin. My job essentially involved pricing events that were almost impossible to occur, such as tail options. The core of exotic options is to envision the worst-case scenarios, which are often considered unpriceable. You need to assume that those tail events (like three standard deviation events) are more likely to occur than most people imagine. When I first encountered Bitcoin, most people were skeptical, thinking, "This thing looks strange, it might be interesting, but it is likely worthless and will eventually go to zero." But I naturally thought, what if it doesn't go to zero? If it doesn't go to zero, then it could become very valuable. This probability calculation is a challenge for many people because the outcome is either zero or extremely high value, and the probability of this happening is very low.

David:

When did you first get involved with Bitcoin?

Jeff:

I first heard about Bitcoin in 2010 while in the trading floor, and at that time, I bought my first three Bitcoins.

Options trading is an extremely important skill

David:

What advice do you have for retail investors who are watching? For example, some people feel they can try options trading and are very interested in entering this market. What kind of advice would you give to these beginners?

Jeff:

I want to tell every beginner that at your current stage, learning options trading is a very important skill. The reason I say this is that options trading is not just an investment method; it is also a way of thinking. It teaches you to view the world from a probabilistic perspective, which is very helpful. Our culture is increasingly inclined to simplify things, either "right" or "wrong"; either "left" or "right," leaving almost no room for nuance. But in reality, the world is full of nuances, and options trading can train you to focus on the distribution of possible outcomes, allowing for a more comprehensive view of issues.

Options trading is a significant advantage for retail investors because it offers tremendous leverage, which is difficult for institutional investors to enjoy. In my view, options trading is the only area where retail investors can outperform institutions. The reason is simple: institutions typically need to operate on a large scale when trading options, and large-scale operations can affect market prices. But retail investors are different; as long as you buy a small number of options contracts, you won't impact the price or cause others to adjust their strategies based on your position.

In fact, I have always told everyone that retail investors find it challenging to surpass institutions in many aspects. The rules are not friendly to retail investors; for example, you may not understand order flow or know what the central limit order book looks like in the market. But options trading** is an exception, where the small scale of retail investors can actually be an advantage.** So I think everyone should spend some time learning about options trading.

Additionally, Bitcoin is one of the assets with the most leptokurtic distribution in the world. A leptokurtic distribution means that its price fluctuations are very concentrated and intense. If you are optimistic about Bitcoin, I believe investing in Bitcoin through options is a very worthwhile direction to try, especially for those with a long-term investment perspective.

Assets that can "convert time"

Bonnie:

Going back to what you mentioned on Twitter, you said some assets can "convert time." What does that mean?

Jeff:

That's a good question. I believe time is a form of energy, and this energy can be converted into value. To some extent, Bitcoin embodies this concept well through Proof of Work. Simply put, mining Bitcoin requires a significant investment of time and effort, ultimately resulting in block rewards. It's like a battery that stores effort; you invest time and energy, and the system rewards you with value.

The logic behind this is that both time and energy are scarce resources, and scarcity itself can create value. I think this concept can also be applied to other areas, such as human capital. Human capital is also scarce, and when utilized properly, it can create considerable value.

I often use professional gambling as an example. Here, gambling does not refer to games of pure luck like slot machines, but rather professional gambling, which is a way to achieve positive returns based on skill.

For example, poker. If you are a skilled poker player, you can usually achieve a positive expected value (EV). This means your time and effort are valuable, and this type of income is entirely unrelated to the stock market or interest rate policies. It completely depends on your human capital and skills. The same goes for sports betting. Sports betting is considered one of the most complex markets because information advantages (such as in-depth research on game outcomes) can help savvy bettors win. Some professional sports bettors can even outperform bookmakers. In fact, bookmakers rely on these top bettors to help create market balance. If you are a professional sports bettor, this type of income is also earned through effort and skill. I believe that this way of generating income through time and effort should be a very important part of your investment portfolio.

Assets on the blockchain

Bonnie:

You just mentioned artworks and cards. Wouldn't it be more convenient if these things could be traded through blockchain? Does this mean you believe in the concept of RWA (Real World Assets)? However, some people disagree, thinking that artworks should hang on walls and gold should be tangible. What do you think?

Jeff:

I think RWA is a very attractive trend, and different people have different understandings of it. In my view, RWA mainly has two development directions.

The first is tokenizing existing financial assets. For example, traditionally illiquid assets like private equity or private credit can become easier to trade through tokenization. This way, assets that previously could not circulate in the secondary market may become more flexible, and tokenization is key to achieving this goal. This is a typical application of RWA.

The second direction is more interesting: those assets that have never been traded or securitized. For example, trading cards or sneakers, which have high trading volumes but are not designed for trading. If we can find new liquidity for these assets through tokenization, that would be very meaningful.

For instance, companies like StockX focus on sneaker trading, but logistics is a significant cost, including transportation, storage, and insurance, which ultimately gets passed on to consumers. Through on-chain tokenization, you can imagine a whole new business model. For example, with digital certificates, you can complete ownership transfers without physically moving the assets. This would greatly enhance trading efficiency while also saving costs.

Another example is the watch market, which is a very large and valuable market but also has many fraudulent activities. Therefore, ensuring authenticity is crucial. Through tokenization, you can create a market where buyers can trade ownership of watches without needing to move the physical items each time. If the final buyer is only interested in investment or trading rather than actually wearing the watch, this method becomes very efficient. Moreover, physical assets can still be claimed, and this tangible attribute gives it value.

David:

I want to discuss this from an opposing perspective. A few years ago, some people started trying to tokenize physical assets like Rolex watches. But most of these digital assets ended up going to zero, while the price of Rolex watches remains at $25,000. So, do we really need this digitization? We don't necessarily need to digitize existing physical assets. This is an opposing viewpoint. What do you think? If you look at past cases, many digital assets ended up going to zero, right? While those real physical assets have maintained their value?

Jeff:

I think what you are trying to express is that these digital assets do not provide ownership of the physical assets, right? They are more like virtual assets in the metaverse. If that is the case, then they are indeed metaverse assets. What I am discussing is a different situation, which is using NFTs to make the trading of physical assets simpler. This model has not yet achieved significant success in the crypto space, but I believe it is worth exploring at the right time. Of course, the costs of this method also need to be considered.

Lessons learned from Morgan Stanley

David:

What lessons did you learn from your experience at Morgan Stanley? How are these lessons applied in your trading today?

Jeff:

I learned a lot at Morgan Stanley, especially some rules that left a deep impression on me. For example, the first rule is "Don't make mistakes," and the second rule is "Always remember the first rule." These lessons are also very applicable in the cryptocurrency space. The cryptocurrency market is full of experimentation and speculation; many opportunities look enticing but are actually very risky. Therefore, I am more cautious when facing these new opportunities because there are many external risk factors in the market, and even some seemingly reliable protocols can have issues. The rules from Morgan Stanley act like "devils" that constantly remind me to think twice before making decisions. This is also why I feel that, to some extent, I am a Bitcoin extremist.

Bonnie:

So you also went through a phase of buying altcoins, right?

Jeff:

Of course, I have bought altcoins. Interestingly, when you participate in these trades, you find that the code of cryptocurrencies is "alive," changing with protocol upgrades and adjustments in token economics. Sometimes you need to swap one token for another, and if you don't act promptly, you might miss the opportunity. Crypto assets do not have the same kind of agency services as traditional finance that remind you, like sending a letter to tell you "you need to complete certain actions before a deadline." They usually just tweet on social media, and if you miss it, you might miss important information.

This is also one of the reasons many investors face challenges in the cryptocurrency space. The crypto market requires investors to stay constantly aware of dynamics, rather than having a clear notification system like traditional finance. Sometimes, when you remember two years later that you forgot to stake a certain token, you will feel regret.

The cryptocurrency space changes too quickly, and many once-prominent projects have experienced ups and downs over the years. This made me realize that investing in cryptocurrencies requires not only patience but also continuous attention to market changes.

What would you give your child for their wedding?

David:

I have one more question. Let's see if we can make this topic more interesting. I'm not sure if I can do it, but let me give it a try; the pressure is on. You mentioned that you received gold as a gift when you got married. So if your child gets married, what would you give them?

Jeff:

According to family tradition, I would pass down gold to them, but I also hope to incorporate Bitcoin into this conversation. Speaking of this, I thought of something interesting. My son is now five years old and often around me. He has heard me and my wife talk about Bitcoin. Sometimes at the dinner table, he asks me, "Dad, how much is Bitcoin worth now?" However, he doesn't quite understand big numbers yet, so he doesn't grasp the concept of $100,000 or $90,000.

David:

You could use Pokémon cards to explain it to him, like telling him how much money could buy him Pokémon cards.

Jeff:

Exactly, that's indeed a good way. But I haven't done that. I do have a very interesting story to share. Recently, my son was trading Pokémon cards with his friends, and he traded some genuine cards for fake ones that can be bought on Amazon. Those fake cards were made in China, and although they are fake, they look very nice, shiny gold, and even seem more valuable, right? So he proudly showed them to me, saying, "Dad, look how beautiful these gold cards are!"

I didn't want to directly tell him that those cards were fake, so I used the concept of Bitcoin to explain it to him. I told him that the blue cards are the real original cards, just like Bitcoin, which is scarce and a perfect collateral. He is familiar with the concept of "perfect collateral" because I had previously used that term to describe Bitcoin. So now he understands that the blue cards are the most valuable, and he said, "This is the perfect collateral; I won't trade it anymore."

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