Gold, Bitcoin, and Pokémon Cards, Who Is the "Perfect Collateral" of This Era?

Source: Bonnie Blockchain

Compilation & Translation: TechFlow

Guest: Jeff Park, Trader at Bitwise Asset Management

Host: Bonnie & David Lin

Podcast Source: Bonnie Blockchain

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

Air Date: July 24, 2025

Key Points Summary

Traditional Investment Allocation is Dead! Jeff Park, a Trader at Bitwise Asset Management, publicly revealed for the first time in the Chinese-speaking world: The 60% Stocks/40% Bonds Portfolio is just an outdated script!

The stock market has long turned into a casino, bonds have lost their hedging function, and young people are no longer willing to participate in the rotten game of the old financial system. As an investment expert who once broke through at Morgan Stanley, he broke free from the system's shackles with a single rule and rebuilt investment logic. Jeff Park proposed the Radical Investment Theory and designed a new set of survival rules for this uncertain new era.

Key Highlights

· "Resistance Assets" can hedge 100% of compliant assets (these assets rely on brokerage firms and leverage operations), "Resistance Assets" are hard to obtain, they are not something you can easily buy in the stock market, they have characteristics of non-fungibility, and cannot be leveraged.

· Scarcity itself is where the value lies. In a world full of financial repression, we need to look for assets that are not artificially created, which is why Bitcoin appears particularly important today.

· If you truly want to achieve diversification from the traditional financial system, then assets that do not rely on the system and are entirely under your control are truly valuable. The key value of these assets lies in their "system detachment" characteristics.

· 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-fungible characteristics, meaning they cannot be easily replicated or standardized; and another key factor is that these assets need to have a certain level of censorship resistance, meaning they do not rely on the traditional financial system.

· If you truly want to achieve diversification from the traditional financial system, then assets that do not rely on the system, fully controlled by you, are the ones that are truly valuable. The "detach from the system" characteristic is the most important source of value for these assets.

· People often confuse the relationship between value and price, but the difference lies in the fact that price reflects someone's willingness to pay for something, while value is the intrinsic value of something itself, 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 rising; sometimes it is actually betting on the value of fiat currency decreasing.

· Our culture is increasingly inclined to simplify things, either it is "right" or "wrong"; either it is "left" or "right," with hardly any space left for subtle differences. However, in reality, the world is full of nuances, and options trading can train you to focus on possible outcome distributions, thus enabling you to have a more comprehensive view of the issue.

· The altcoin market is now noticeably less active than it used to be. If you are looking for a high-risk experience, instead of buying some meme, you might as well try Bitcoin options, which can achieve a similar effect.

· If you are bullish on Bitcoin, investing in Bitcoin through options is a very worthwhile direction to explore, especially for those with a long-term investment perspective.

· I learned a lot at Morgan Stanley, and the first rule is "Don’t get it wrong," while the second rule is "Always remember the first rule." These lessons are also very applicable to the cryptocurrency field.

· RWAs have mainly two development directions. The first is the tokenization of existing financial assets. The second is the tokenization of assets that have never been traded or securitized.

The Traditional 60/40 Portfolio No Longer Applies & The Theory of Aggressive Investing

David: Today, we have invited Jeff Park, who is the Alpha Strategy Lead at Bitwise Asset Management and also a senior portfolio manager. Jeff, welcome! It's great to see you, and we are looking forward to hearing your views on Bitcoin and the cryptocurrency market.

Bonnie: Jeff is very popular on Twitter, especially his posts about the "Aggressive Investment Portfolio," which have sparked widespread discussions. Jeff, can you tell us what an Aggressive Investment Portfolio is?

Jeff: This is a great question. I have been studying traditional economics and finance since I was young, and it has been a significant part of my entire life. When I first entered the workforce, the global financial crisis hit, and I found that the theories I had learned seemed unable to explain reality. After the crisis, we entered a long period of "financial repression" (where the government intervenes through policy to lower interest rates and restrict capital flows), topics that are not found in textbooks.

The concept of an "Aggressive Portfolio" is actually a summary of my personal experience, redefining how a new generation of investors should allocate assets. The traditional 60/40 portfolio, with 60% in bonds and 40% in stocks, was considered a balanced-risk and return strategy. However, in reality, the correlation between bonds and stocks is higher than imagined, and this combination has not truly achieved diversified risk management. The core of the Aggressive Portfolio is to fundamentally rethink what constitutes diversified asset allocation and how to redefine the sources and distribution of risk.

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

Jeff: Yes, we have to start by addressing why the traditional 60/40 portfolio has failed. As you delve into this issue, you will find that since the global financial crisis, most securities' price fluctuations have actually been caused by government interventions and cross-border capital flows.

Currently, the global monetary system is undergoing massive fiscal spending, leading to a distortion of the GDP concept. For example, GDP includes government spending, but can this truly be considered economic growth? This distortion has shifted bonds from a safe haven asset to a risky asset.

Once people realize this, they will see that the so-called 60/40 combination is actually 100% of a certain asset. So what is this 100% exactly? I believe it is 100% of "Compliant Assets". These assets are traded in our highly financialized world, relying on brokerage firms and leverage.

This global arbitrage system's operational mode is the foundation of traditional finance. So, how do we hedge this 100% compliant asset? The answer is what I call "Resistant Assets". These assets are difficult to acquire, they are not something you can easily buy in the stock market, they are non-fungible, and cannot be leveraged.

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

Traditional bonds and stocks are considered less valuable because they can be infinitely printed. In contrast, those scarce collectibles like Pokémon cards, though sounding like a joke, indeed retain value for some. Moreover, luxury handbags like the Birkin bag gain value due to their scarcity, sometimes even outperforming some traditional assets in terms of retaining value.

David: It sounds like an alternative investment portfolio.

Jeff: You can think of it that way, but these alternative assets do not conform to our traditional investment language. Few people would consider buying Pokémon cards, handbags, or artworks as a way to diversify their portfolio because they cannot be easily traded like ETFs. You also can't easily buy scarce resources like biotechnology or legal intellectual property.

The value of these things comes from their scarcity, where scarcity itself is the source of value. I want to emphasize that in a world full of financial repression, our generation needs to keep our eyes open and look for assets that are not artificially created. This is also why Bitcoin appears particularly important today.

If I remember correctly, there is an extremely rare Japanese Pokémon card specially issued for Peter's birthday. This card is very scarce, especially in mint condition, and its value can reach nearly a million dollars.

Alternative Assets Are Outside the System

David: It sounds a bit ironic, but there is actually a methodology to finding value. For instance, the method you use to evaluate Pokémon cards can also be applied to evaluate an alternative coin or an artwork, right? Could you share with us your thought process?

Jeff: The key is that it must be a scarce physical asset that cannot be easily manufactured. If this asset also decreases gradually over time, that's even better because it further enhances its scarcity. For example, the value of Pikachu Pokémon cards is not due to their large quantity but because many cards got damaged or lost during use, making the remaining mint cards more valuable.

Another similar example is fine wine. People buy wine not only to store it but also because it will mature over time. If you can store it properly, the value of wine may increase exponentially. This demonstrates that scarcity is a core determining factor of value.

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

David: Have you used any particular model to determine how to allocate funds?

Jeff: This is more about my personal investment preference. I like to collect some unique artworks, such as I am a big fan of Daniel Arsham's work. His art combines street culture and high-end art, garnering much acclaim. His works also frequently appear in prestigious galleries. Similar artworks not only enrich the diversity of the investment portfolio but also provide long-term value appreciation.

Additionally, another key factor is that these assets need to have a certain level of censorship resistance, meaning they do not rely on the traditional financial system. In the stock and bond markets, your assets are usually traded through brokerage firms, and you are not the direct owner of these assets. Even if you hold Microsoft stock, those stocks are registered in the name of a custodian, not directly in your name.

Even if you own Microsoft stock, it is often not held in your name but in the name of a custodian on your behalf. Therefore, true ownership is crucial. That is why the distinction between gold and GLD ETF is essential. If you truly want to diversify away from the traditional financial system, then assets that do not rely on the system and are entirely under your control are genuinely valuable. The "system disintermediation" feature is the most critical source of value for these assets.

Many people confuse value with price

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

Jeff: Allow me to respond with a famous proverb that I believe holds true: "People nowadays know the price of everything and the value of nothing."

We live in an era of abundant information where we can see real-time dynamics of every transaction and the opportunities brought about by high-frequency trading. While these transactional data may seem to reflect some form of value, they merely represent the behavior of trades at a particular moment and do not necessarily signify true value.

In reality, truly valuable things are often not traded frequently. The value of some assets lies in their suitability for long-term holding rather than quick buying and selling. For example, many billionaires nowadays invest in sports clubs or franchise rights, assets that are not actively traded on the market. These are usually large one-time transactions that may even be passed down through generations, creating and transferring real value.

Therefore, I believe people often confuse the relationship between value and price. The distinction lies in the fact that price reflects someone's willingness to pay for something, while value is the intrinsic worth of the thing itself, which you usually do not fully understand until you experience it.

Youth Don't Want to Play the Old Financial Game

Bonnie: Is it necessary for everyone to reach a consensus, such as the majority agreeing that this thing is worth $2000?

Jeff: It could also be that everyone is mistaken, as its value largely depends on individual preferences. This is similar to why older people prefer gold while younger people lean towards Bitcoin. Ultimately, these choices boil down to personal preferences. However, another reason I am optimistic about Bitcoin and other hedge assets is that young people have realized that the traditional financial system is somewhat manipulated, and they generally have low trust in the stock market.

Frankly, I believe our financial system has not done an adequate job in establishing a fair and healthy market. For instance, the volume of zero-day expiration options trading has exceeded that of the S&P 500 index and NASDAQ options trading by 50%.

Zero-day expiration options are essentially a financial instrument akin to a lottery. What's more concerning is that this highly financialized phenomenon is happening with the regulators' tacit approval, making the entire market look increasingly like a casino.

When young people see this situation, their reaction is entirely understandable. They might say, "I don't want to engage in this game because I don't even understand how it operates. Instead, I will buy what I like, what I believe in because at least to me, it holds value, and other young people will also recognize its value."

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

The Value of Gold

David: Let's talk about your overall view on these assets. You mentioned gold earlier, so let's compare gold and Bitcoin. I read an article yesterday stating that a Goldman Sachs analyst predicted the price of gold to rise to $4000. He believes that gold is more suitable as a hedge compared to Bitcoin and expects it to reach $4000 in the midterm.

Gold has a very limited supply, with the vast majority of gold already having been mined. Bitcoin also has a supply limit by design. I think this characteristic of "limited supply" reassures investors concerned about runaway inflation.

Furthermore, the article also mentioned the geopolitical factors behind gold. After 2020, many investors started flocking to gold, partly because the US dollar has been "weaponized," and partly because trust in US Treasury bonds has diminished. Previously, people would typically choose Treasury bonds and the US dollar as safe-haven assets, but now, with shaken confidence, they are turning to gold. This is one perspective.

What are your thoughts on what I just mentioned? And the Goldman Sachs analyst's prediction?

Jeff: I think the value of gold mainly comes from its long-standing recognition in human history. This brings us back to the question of the source of value you mentioned—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 gave gold. Behind these traditions, the reason is that gold is seen as a "hard asset." It gives people the opportunity to step out of the fiat currency framework when necessary. Especially in some extreme situations, the portability of gold makes it a good asset protection tool.

From this perspective, the psychological value of gold does exist. At the same time, geopolitical factors cannot be ignored. After the dissolution of the Bretton Woods system in 1971, although not too long ago, for a generation, the memory of gold as the basis of capital remains profound. Many still yearn for an economic system based on real assets, rather than a model entirely dependent on national credit.

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

Comparison Between Gold and Bitcoin

David: When comparing gold and bitcoin, gold is seen as a more secure hedge. Bitcoin exhibits greater volatility, is prone to price retracements, and is highly correlated with the tech sector. Bitcoin and stocks perform well when investor risk appetite is high, which may explain its high-risk nature. What are your thoughts on these points?

Jeff: Many people tend to view volatility as a negative characteristic, but in reality, younger individuals are more willing to accept volatility. This is related to generational differences. They understand that without embracing a certain level of volatility, achieving wealth growth is challenging, with the opportunity cost being too high. However, ultimately, volatility is just part of the investment journey; what investors truly care about is the final returns.

If you believe that bitcoin will appreciate in the long run, then volatility is not as daunting. On the contrary, what concerns me more is that bitcoin falls short in certain aspects compared to gold, such as the issue of asset self-custody. Most people are actually not good at managing their assets; they prefer to entrust this responsibility to others, such as banks or custodians, as they are afraid of taking risks. This is a very normal human trait. Bitcoin, however, completely disrupts this model.

To truly own bitcoin, you need to custody it yourself, which means you have to accept the risk of potentially losing everything if a mistake is made. Many people cannot handle this kind of pressure. Gold also has similar risks, but the possibility of losing gold is not as extreme as forgetting a bitcoin private key or being hacked. After all, gold is a physical asset, existing tangibly in the real world.

So, when people compare gold and bitcoin, I am not really concerned about volatility or price fluctuations; I am more focused on the self-custody issue. Many people still prefer to own a tangible, visible asset, which makes them feel more secure. Bitcoin, being a digital asset, appears somewhat abstract, which is why some people still do not believe in its value.

Bonnie: So, if we were to entrust our bitcoin to a bank for custody, wouldn't that simplify things? Then everyone wouldn't have to worry, right?

Jeff: Yes, I think that's a very interesting direction. We need to explore how to integrate bitcoin into existing business models, reduce some of the extreme risks, such as lowering risks through insurance, while still not completely losing the characteristic of bitcoin as a sovereign asset. Because once bitcoin is included in custody models, the ownership of the asset no longer belongs to you, reverting back to the old ways of the traditional financial system. By then, banks and exchanges may engage in rehypothecation and re-collateralization, which is no different from the problem we originally sought to solve. Therefore, we need to find a way to make users feel secure and convenient when using bitcoin while retaining ownership of the assets. I believe this is a crucial direction the industry can break through in the future.

Bonnie: Do you think we have a solution 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. In 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, can be used for margin trading and lending. Directly lending out Bitcoin would face counterparty risk, but lending out Bitcoin ETFs doesn't 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 some Bitcoin in cold storage. Cold storage is an offline storage method with higher security. I believe everyone should try both methods to truly understand their respective strengths, weaknesses, and use cases.

Bitcoin ETF Expected in 2026

David: Recently, Bitwise Asset Management released a report. You predict that the inflow of funds into Bitcoin ETFs will significantly increase, reaching $300 billion by 2026, and is expected to reach $120 billion by the end of this year, showing a significant growth from last year. So, why do you think the growth of Bitcoin ETFs in the next year will be so significant?

Jeff: This is related to the point you just mentioned. Bitcoin's risk attributes used to have a strong correlation with risk assets, but now this correlation is weakening. We found that Bitcoin's price trend is beginning to decouple from stocks. People are starting to realize that Bitcoin not only performs well in positive market sentiment but may also perform well in dominant risk aversion sentiment.

I refer to this phenomenon as "positive Bitcoin" and "negative Bitcoin." "Row" is a term in options used to describe how asset value fluctuates with changes in interest rates. Typically, if interest rates rise, the market environment becomes more challenging. In this hedge 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 fight inflation. The key is whether Bitcoin can have both of these characteristics at certain times. In the long run, Bitcoin's price trend has proven that it can be both "positive" and "negative" in different market environments. This unique feature is where Bitcoin's value lies. The emergence of Bitcoin ETFs allows investors to enter this market more systematically. Financial advisors are also increasingly recognizing that Bitcoin is no longer a controversial topic but an asset class worth attention. Especially against the backdrop of U.S. credit rating downgrades and increasingly prominent fiscal spending issues, this discussion is particularly important.

David: I may not have expressed it clearly earlier. Not only is an ETF the primary source of funding, the total inflow of funds into Bitcoin is expected to reach $400 billion. However, this is actually what I want to ask next. Can you briefly elaborate on the breakdown of this $400 billion among ETFs, spot, futures, and other aspects?

Jeff: I believe the ETF market will become very important globally. It is important to note that many countries currently do not have a Bitcoin ETF, such as South Korea. Therefore, there is still a lot of room for the global development of ETFs.

The attractiveness of ETFs lies in the fact that many investors do not want to take on the risk of self-custody of Bitcoin, and ETFs address this issue perfectly. Meanwhile, those who wish to hold Bitcoin directly can continue to do so because they believe it aligns with the ethos of Bitcoin. However, most investors are more focused on how to maximize their returns. Through ETFs, investors can leverage more financialized tools, such as basis trading. In simple terms, you can hold spot Bitcoin while shorting Bitcoin futures, thereby profiting from the price difference between the two. This type of trading is easier to accomplish in the traditional financial system as it can be done through prime brokers for cross-margining. 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 $100,000 an Extreme Event?

David: If we incorporate Bitcoin's price trajectory before 2013 into the model, assuming Bitcoin reached $100,000 in 2013, would this be a three-standard-deviation event?

(TechFlow's Note: A "three-standard-deviation event" is a statistical concept used to measure the rarity or abnormality of an event. In this context, a "three-standard-deviation event" implies that Bitcoin reaching $100,000 is an extremely rare event, far beyond the usual price fluctuation range.)

Jeff: That would even be a 15-standard-deviation event (almost considered "impossible"), and yet it has occurred. Many would argue that achieving this requires a considerable amount of time, effort, and focus. However, in reality, we are still on this journey, and we still cannot determine where Bitcoin's price ceiling lies. Nevertheless, I often tell people that investing in Bitcoin is not always betting on its price rise; sometimes it is actually betting on the devaluation of fiat currency. This may sound counterintuitive, but the fact is that Bitcoin's value growth is largely due to the continuous depreciation of fiat currencies. I believe that since the global financial crisis, the depreciation of fiat currencies has been much faster than most people expected.

Why Are Altcoins No Longer in Vogue?

Bonnie: When it comes to Bitcoin, I think everyone is quite familiar with it. So, if I were to replace Bitcoin with an altcoin, would that model still work?

Jeff: Personally, I think we have now entered a "Bitcoin or Bust" era. Bitcoin's popularity is very high, while altcoins seem to still be finding their own place. However, I believe that as the market structure gradually matures and financial use cases become more clear, altcoins may find their value in the future, not just relying on hype and meme trading.

From the current situation, most people buy altcoins because of their leveraged volatility. For example, when Bitcoin goes up by 5%, people may think that altcoins could go up by 15%, so they buy altcoins. However, in 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 just a leveraged bet on Bitcoin.

Part of the reason behind this is the launch of ETFs. When Bitcoin ETFs were approved, since December last year, investors have been able to trade options on these ETFs directly. If you want a higher leveraged Bitcoin exposure, trading Bitcoin call options directly would be 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, instead of buying some meme coins, I'd rather try Bitcoin options, which can achieve a similar effect.

Jeff: Exactly, through Bitcoin options, you can enjoy the same high-risk experience while also gaining leveraged exposure. It's also safer because you no longer have to worry about the complex relationship 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, such as MicroStrategy, whose stock volatility even exceeds that of Bitcoin itself. I believe that the rise of these companies, like MicroStrategy and Meta Planet, is also attracting more trading volume, diverting market share that originally belonged to altcoins. Now, ordinary investors are more inclined to speculate through these companies and securities because they provide a clearer underlying risk and can achieve the Bitcoin exposure you desire.

Altcoin Treasury Companies vs. Bitcoin Treasury Companies

Bonnie: Did you know? Some companies are now attempting to mimic Solana and Ethereum's strategy. Do you think this approach is viable?

Jeff: I'm looking forward to seeing whether this approach will succeed. Personally, I'm optimistic and think it may find some suitable market demand. I would say, the reason Bitcoin succeeded is because everyone believed Bitcoin had value, right? So, you can use Bitcoin for lending because people are willing to attribute a certain credit value to it.

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 collateral assets have value, and Bitcoin has already proven successful in this regard. You might say that currently in the cryptocurrency space, no other asset has reached this level, such as Ethereum or Solana. Some may disagree with this view, but some may support it.

This is an issue worth exploring. I'm very interested to see how people will underwrite these assets in the future. However, I can tell you why these financial strategies are effective. In addition to credit collateral, another reason is that if the underlying asset is highly volatile, this strategy will also work. Because the leverage effect of volatility can create more value for corporate treasuries. And Ethereum and Solana have greater volatility compared to Bitcoin, which is an advantage for them.

Furthermore, Bitcoin is currently a relatively static passive asset. People usually just store it in a cold wallet, much like putting money under a mattress. It cannot generate income or be used for staking. But Ethereum is different. Everyone knows that in the Ethereum network, you need to participate in network security and earn additional income through the proof-of-stake mechanism. For example, restaking has become a hot topic. In addition, there are other ways to earn returns using Ethereum, not just storing it in a cold wallet. Although ETFs cannot yet achieve these functions, some operating companies may be able to.

Therefore, I believe these assets may become more productive in an operating company structure, while Bitcoin does not need to rely on these mechanisms. Combined with volatility, these factors may become a potential advantage in the competition between proof-of-stake tokens (such as Ethereum) and proof-of-work tokens (such as Bitcoin).

Derivatives Trader Extraordinaire

David: You previously worked as a derivatives trader at Morgan Stanley, primarily trading which products? I would like to see how these experiences relate to your current work.

Jeff: My career started at Morgan Stanley, where I focused on Exotic Options. These financial instruments were so complex that even the traditional Black-Scholes Model couldn't accurately price them. The Black-Scholes Model is a relatively deterministic model, but Exotic Options require a more sophisticated approach.

For some Exotic Options, you need to use a stochastic model that depends on the asset price's path and considers multiple 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 model couldn't accurately capture extreme events. Extreme events are challenging to predict using models. Even with a stochastic volatility model, the correlation between some key parameters may not be fully reflected. For example, when the spot price rises, it usually affects volatility, and when the spot price falls, we know that volatility often increases. You need to incorporate these correlations and path dependencies into the model, but these factors can sometimes become very unstable.

Perhaps it was this experience that sparked my interest in Bitcoin. My work essentially involved pricing events that were almost impossible to occur, such as Tail Options. The core of Exotic Options is to imagine the worst-case scenario, which is often considered unpriceable. You need to assume that those tail events (e.g., three standard deviations events) are more likely to occur than most people imagine. When I first encountered Bitcoin, most people were skeptical, thinking, "This thing looks strange, might be somewhat interesting, but probably worthless and will eventually go to zero." I naturally thought, "But what if it doesn't go to zero?" If it doesn't go to zero, then it could become very valuable. Calculating this probability is a challenge for many because the outcome is either zero or extremely high value, and the probability of this scenario is very low.

David: When did you first encounter Bitcoin?

Jeff: It was around 2010 when I first heard about Bitcoin in the trading floor. That's when I bought my first three bitcoins.

Options Trading is a Super Important Skill

David: Do you have any advice for retail investors who are watching, such as some who feel they can try options trading and are interested in entering this market? What advice would you give to these beginners?

Jeff: I would like to say to every beginner that at this stage, learning options trading is a very important skill. The reason I say this is that options trading is not just an investment method, but also a mindset. It teaches you to view the world from a probabilistic perspective, which is very helpful. Our culture is increasingly tending to simplify things, either it is 'right' or 'wrong'; 'left' or 'right', leaving almost no room for subtle differences. But in reality, the world is full of nuances, and options trading can train you to focus on possible outcome distributions, thus allowing you to take a more comprehensive view of the problem.

Options trading is a significant advantage for retail investors because it provides tremendous leverage, a benefit that institutional investors find hard to enjoy. In my opinion, options trading is the only area where retail investors can outperform institutions. The reason is simple: institutions usually need to operate on a large scale when trading options, and large scale can impact market prices. However, retail investors are different; by simply buying a small number of option contracts, you do not influence the price, nor do you force others to adjust their strategies based on your position.

In fact, I have always said that individual retail investors find it challenging to surpass institutions in many ways. The rules are not friendly to retail investors; for example, you do not understand order flow, nor do you know what the central limit order book in the market looks like. However, options trading is an exception, where the small scale of retail investors is actually an advantage. So I think everyone should take some time to learn options trading.

Additionally, Bitcoin is one of the most leptokurtic assets in the world. Leptokurtosis refers to the asset's price distribution being very concentrated and volatile. If you are bullish on Bitcoin, I believe that investing in Bitcoin through options is a very worthwhile direction, especially for those with a long-term investment perspective.

An Asset that Can "Monetize Time"

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

Jeff: That's a great question. I believe time is a form of energy, and this energy can be transformed into value. To some extent, Bitcoin exemplifies this concept well through Proof of Work. In simple terms, mining Bitcoin requires a significant investment of time and effort to ultimately receive the block reward. It's like a battery storing effort; you invest time and energy, and the system rewards you with value.

The underlying logic here 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 through proper utilization, it can generate significant value.

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

Take poker, for example. If you are an excellent poker player, you usually have a positive Expected Value (EV). This means that your time and energy are valuable, and this type of income is unrelated to the stock market or interest rate policies. It relies entirely on your human capital and skill. Another example is sports betting. Sports betting is considered one of the most complex markets because information advantages (such as in-depth research on match outcomes) can help savvy bettors win. Some professional sports bettors can even outperform betting companies. In fact, betting companies rely on these top bettors to help create market balance. If you are a professional sports bettor, this income is also earned through hard work and skill. I believe that this way of earning income through dedicating time and effort should be a significant part of your investment portfolio.

Asset Tokenization

Bonnie: Earlier, you mentioned art and cards. If these items could be traded via blockchain, would it be more convenient? Does this indicate your belief in Real World Assets (RWA)? However, some people disagree and think art should be hung on a wall, and gold should be touchable. What are your thoughts?

Jeff: I think RWA is a very attractive trend, with different people having different understandings of it. In my view, RWA primarily has two development directions.

The first is tokenizing existing financial assets. For example, assets traditionally low in liquidity, such as private equity or private credit, can become more easily tradable through tokenization. This way, assets that previously could not circulate in the secondary market may now become more flexible, with tokenization being key to achieving this goal. This is a typical application of RWA.

The second direction is more interesting, involving assets that have never been traded or securitized. For example, trading cards or sneakers. These items have significant trading volumes but were not designed for trading. If we could find new liquidity for these assets through tokenization, it would be very meaningful.

For example, a company like StockX focuses on sneaker trading, but logistics is a significant cost, including transportation, storage, and insurance, which are ultimately passed on to consumers. Through on-chain tokenization, you can imagine a whole new business model. For instance, with digital certificates, you can transfer ownership without physically moving the asset. This would greatly improve transaction efficiency and save costs.

Another example is the watch market, a large and valuable market with prevalent fraud. Therefore, ensuring authenticity is crucial. Through tokenization, you can create a market where buyers can trade ownership of a watch without the need to physically move it each time. If the eventual buyer is purely investing or trading and not wearing the watch, this method becomes highly efficient. Additionally, the physical asset can still be reclaimed, and its tangible nature gives it value.

David: I'd like to offer a counter perspective. A few years ago, there was an attempt to tokenize physical assets like Rolex watches. However, most of these digital assets ended up worthless, while the price of a Rolex watch remained at $25,000. So, do we really need this digitization? Do we need to tokenize existing physical assets? This is a contrarian view. What's your take? Looking at past cases, many digital assets ended up worthless, right? Meanwhile, those real physical assets retained their value?

Jeff: I think what you're trying to say is that these digital assets did not provide ownership of physical assets, right? They were more like virtual assets in the metaverse. If that's the case, they are indeed metaverse assets. I'm discussing a different scenario here, which is making the trading of physical assets simpler through NFTs. This model hasn't seen significant success in the crypto space yet, but I believe it's worth exploring at the right time. Of course, the costs associated with this approach need to be considered.

Lessons Learned at Morgan Stanley

David: What lessons did you learn from your time at Morgan Stanley? How do these lessons apply to your current trading?

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 relevant to the cryptocurrency space. The cryptocurrency market is full of experimentation and speculation, where many opportunities may seem enticing but come with significant risks. Therefore, I approach these new opportunities with more caution, as the market faces many external risk factors, and even seemingly reliable protocols can encounter issues. These rules from Morgan Stanley act as a constant reminder, urging me to think twice before making decisions. This is also why I consider myself to some extent a Bitcoin extremist.

Bonnie: So you also went through a phase of buying shitcoins, right?

Jeff: Of course, I have also bought shitcoins. Interestingly, when you engage in these trades, you will find that the cryptocurrency code is "alive." They change with protocol upgrades and tokenomics adjustments. Sometimes you need to swap one token for another, and if you don't act promptly, you might miss the opportunity. Cryptographic assets do not have a service agent reminding you like in traditional finance, such as sending a letter telling you that you need to complete certain actions by a certain deadline. They usually only tweet on social media, and if you miss it, you could miss important information.

This is also why many investors face challenges in the cryptocurrency field. The crypto market requires investors to constantly monitor the dynamics, unlike traditional finance, which has a clear notification system. Sometimes, when you realize two years later that you forgot to stake a certain token, you will regret it.

The cryptocurrency field changes too rapidly, and many once-prominent projects have experienced ups and downs over the years. This made me realize that investing in cryptocurrency requires not only patience but also continuous monitoring of market changes.

What will you give when your child gets married?

David: I have another question. Let's try to make this topic more fun. I'm not sure if I can do it, but let me try, the pressure is on. You mentioned receiving 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 on the gold to them, but I also hope to incorporate a bitcoin element into this conversation. Speaking of that, I thought of something interesting. My son is five years old now and is often around me. He has heard my wife and me talk about bitcoin. Sometimes, we talk about bitcoin at the dinner table, and he would ask me, "Daddy, how much is bitcoin worth now?" But he doesn't quite grasp big numbers yet, so he doesn't understand the concept of hundreds of thousands or tens of thousands.

David: You can use Pokémon cards to explain to him, like telling him how many Pokémon cards this money can buy.

Jeff: That's right, that's indeed a good way. But I didn't do that. However, I do have a very interesting story to share. Recently, my son was trading Pokémon cards with his friends, and he exchanged some authentic cards for fake cards that can be bought on Amazon. Those fake cards were made in China, and even though they were fake, they looked very pretty, shiny, and even seemed more valuable, right? So he proudly showed me and said, "Dad, look, these golden cards are so beautiful!"

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