To The Moon With Cryptocurrency! But How? [Chills 25 with Gemini]

Cryptocurrency seems to be the hype and making waves these days with many people gaining crazy returns from their crypto investments. It certainly sounds very exciting but before we pour our life savings into cryptocurrency, we need to ask ourselves some fundamental questions: how should we form our investment strategy when it comes to cryptocurrency, how do I go about investing in it and how do I make money in this space? For this week’s Chills With TFC, we have Eugene Ng from Gemini (one of the largest cryptocurrency exchanges in the world) to tell us more!

While the premise of cryptocurrency aims to decentralise traditional financial systems, Eugene emphasizes on going back to the fundamentals when it comes to investing in them. In his own words: do you view crypto as a short term speculative play, or do you view it as a long-term paradigm shift in the way the world is operating and crypto is going to be highly important and integral to this paradigm? That is indeed something to consider.

Listen to this episode as Reggie and Eugene discuss different aspects of cryptocurrency such as staking, DeFi protocols, the regulations governing cryptocurrency and many more. Eugene even shares some investing advice for retail investors looking into investing in cryptocurrency! 

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podcast Transcript

Reggie: There are many ways to make money from crypto. If anything, I’m pretty impressed by the innovation in this space but how do we actually make money? That’s the real question everyone wants to ask. If we want to borrow some of these standard investing talking points, the question will definitely be… how do I know which crypto will be the next 10 bagger? Essentially 10 X growing multiple folds, how do I know which crypto project is worthy of my time? Lending them some liquidity in the form of staking, AKA staking… which is just putting money with them, putting your crypto with these crypto projects, hoping that they make money and then you get back some sort of returns. What have you? It’s pretty interesting, a lot of things are happening. But the base question is… how do I know what is a fair value? 

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Welcome to another Chills with TFC session. In this series, we hope to bring on interesting, relevant people to have us learn better from various perspectives. Life is not always about learning from people that you already agree with. Perspectives shape a rounder thinker in our pursuit of the life we love while managing our finances well. 

Our guest today is someone that used to work in the derivatives trading desk in some of the biggest banks out there. Essentially he is one of the highest paid guys. But he quit despite the absence of blessing from the family, to join a fast growing cryptocurrency space. He is the APAC Head of Business Development from Gemini. Gemini is one of the world’s largest exchanges for cryptocurrencies headed by high-profile founder. Just go and search who are these guys. But they do more than just that, they have developed a whole range of products on payments, to wallets, to sticking your cryptocurrency with them. Let’s welcome Eugene Ng from Gemini. 

Try to help us understand as a retail investor, how do I then invest in the crypto space? Long-term investments and something that’s a little bit more short term, like cyclical and value play. If we want to put it into what most people would understand in a retail investor environment. How do I then make money in crypto today? If let’s say, I don’t mine, I don’t trade… what are some ways as an investor of cryptocurrencies I can actually profit from? 

Eugene: This is a great question. I think that’s really going back to the fundamentals. In most investing 101, you really have to look at the fundamentals and if that fundamentals tie in with your long-term narrative and your thesis… if you think the world is going to be digital, like streaming, you should be buying Netflix 5, 10 years ago. Similarly, with investing in crypto, the view in crypto is really… do you view crypto as a short term speculative play, or do you view it as a long-term paradigm shift in the way the world is operating, that crypto is going to be highly important and integral to this paradigm? 

To me when I look at crypto, I’m not betting because I’m thinking that the price of Bitcoin or any other crypto will rise by more than two folds in the next one year. I’m looking into investing in crypto because I think in 5 to 10 years time, this is my 10 X, my 20 X, my 50 bagger. This is going to be a part and parcel of mainstream adoption. For me when I look at investing, it is no different from investing in speculative stocks like SPACs (Special Purpose Acquisition Company), high growth names, junk bonds, you name it. We’re seeing all those jazz and so with crypto, I also view crypto as an asset class where you want to be betting for a long-term if you want to be making money. If you’re trying to time a market, I feel like it’s not necessarily the easiest market to play, just so because there’s so much noise and nuance differences between traditional markets and crypto markets. 

Reggie: Okay, interesting on that. 10 baggars, 20 baggers, essentially it’s 10 times, 20 times, right? That’s what we’re trying to seek for. What you’re saying is very overarch, very big market trends, macro view and that is very… it’s like index investing. You buy the whole market, you’re expecting the whole market to move. But is there actually index funds in the crypto space? Can I actually own the whole market? Is there something like that here?

Eugene: There are actually a few open and close ended ones that is listed. But I would say that they are rather illiquid, perhaps because we don’t even have an ETF (Exchange Traded Fund) in the US. The only regular ETF, which also uses Gemini as custody and execution is the Canadian regulated Bitcoin ETF. We doubt…

Reggie: Canadian regulated bitcoin ETF. That’s the name.

Eugene: Yeah. The name is actually… the first one is actually called Purpose Bitcoin ETF. 

Reggie: Purpose Bitcoin ETF. Okay. Search for the ticker yourself! There are too many tickers out there cannot remember. 

Eugene: There’s actually more than five to date listed on the Toronto Stock Exchange. I think you can find them on Saxo or all your retail brokerages that you use here. So for me, going back to the question… yes, you can buy into a basket. I think there are a few, but they’re not easily tradable. Secondly, it may not necessarily be liquid. Thirdly, I don’t think it is readily available to retail investors as well. Those are three considerations you have to take if you are looking to investing in a basket of cryptocurrency. 

I would then argue and say that given that you have platforms like Gemini, you can literally buy a fraction of every top 10 tokens that is based on the market cap and just hold. That’s really essentially similar to holding an index and you pay less mention fee because if you buy index, they would charge you management fee. Annually that could be more expensive in the long term. 

Reggie: Fair. I did not know Toronto’s so exciting! I think Toronto very edgy… cannabis then now bitcoin, everything. So shout out to a Canadian’s Prime Minister, Justin Trudeau. But anyway on that note, that is the very big overarch. But as an investor, if I want to buy the 10 baggers, I want to hunt for these interesting coins, interesting cryptocurrency that can give me that 10 bagger… what are some core ideas that you have or what are some core frameworks that we should look at? 

Eugene: That’s a great question. It’s akin to really saying… I want to buy the next Amazon. I want to buy the next Facebook. But there are thousands of stocks out there. Similarly, with cryptos there’s thousands of them. How do you actually pick? It’s never going to be easy, even including me, who’ve been in crypto space for a while. I would say that it’s important to be knowledgeable in this space, having the necessary genuine knowledge and then ask yourself, “How is the world going to be in the next 5 to 10 years?”

With the case of Amazon, Facebook, the FANG (Facebook, Amazon, Netflix, and Alphabet) it’s always easy to say, “Oh, I could have, I should have.” You know that you could have made this 10, 20 bagger. But I think if we try to clarify our thinking and try to think about how the world might potentially look in the next 5 to 10 years. Would we have flying cars? Would we have all electric cars? Would we be using air conditioning? Would we be having ultrasound from using our mobile phones… being able to use ultrasound. I know all these sound crazy, but I think in 5 to 10 years time, this may be the norm. Looking at your thesis and looking at some of the major trends, and then taking that, and then looking at crypto, how would that potentially be relevant?

You’re trying to identify and the way I look at this process is really looking from a venture capital lens. When I look at investing, I look at based on trends. It is a top-down approach, you look at what may happen in the next 5 to 10 years. Once you identify the trend, you identify how the world may look the next 5 to 10 years, then you go down to a next stage. 

Let’s look at a segment of cryptocurrencies that will support this trend. After you look at the segment of cryptocurrencies that support this trend and narrative, you take a further dive, like a funnel down approach and say, “How do I differentiate amongst this segment of projects?”

Number one, I look at team. Remember I mentioned venture capital lens because in any project, and in any team and any business that you want to be investing in, you want to be investing in a founder that you feel inspired, that you believe in his vision and they can execute. In all these companies like Amazon, to Facebook, to Tesla… whether are they successful or not, maybe though as founders that can be argued. But we all have to cleanly agree that based on market cap, they’re all very successful in their own ways.

Reggie: Tesla is the only odd one, based on the examples that you put out. People have no doubt the FANGs and Microsoft, but everything has a caveat.

Eugene: The number one, team… and that’s why I say that founders are important because it sets the tone, the vision. Business is very… to me investing in a business, you need to invest in people. I look at founders as very critical part of your investment process. The second… 

Reggie: So how do you evaluate the quality of a founder? It is the same as brand, everybody tells me brand is important. But everybody has a very different way of evaluating that. Same as founders, same as team, these are very qualitative ideas. What do you look out for in a founder to know that… hey, actually I think these bunch of people can make it. 

Eugene: I look at… especially their background, especially for those with years on their hand. I look at what they’ve done in the past and I really like to see that they have failed in certain ways. You know, the story of Mark Zuckerberg having done that a few times. It’s that understanding of how you fail and how you can learn not to fail again, that really makes you a better founder than others.

I always like to go back to practice makes perfect. I like to see somebody in a very specialized seat, trying to develop something that gives a value proposition that no other companies can provide. From that, it’s like looking at this guy… how is this guy going to build a product that is going to kick ass, going to beat everybody’s products, because he has spent 10,000 hours on learning the segments so well that I’m so confident that he knows this market better than anybody else. So for me, I look at his specialization, his experience. Secondly, I look at his track record, have he executed. Even if he has failed like I mentioned before, it’s fine. As long there’s experience, it’s important. Thirdly, do you have a team. A lot of founders we see, they’re not necessarily superstar. You need to have a team, your team is there to support you. It’s always good to have a superstar founder, but if you can’t build a team, you’re never going to scale a business for a global company. For me, I will look at the team. Who’s supporting their team, are these guys equipped with the right skills or are they just high school friends coming together because they know each other. 

Reggie: Sounds like a lot of startups. 

Eugene: Exactly! 

Reggie: Is tech important within the founding team? Because much like investing in any other tech startup, I think the tech core is important. I’m assuming all cryptocurrencies is a tech business. Do you think having tech enabled founders are important?

Eugene: I think having tech enabled founder is important. But more importantly, you need to be able to understand your customers. While being very technically savvy, like I’ve met so many software engineers who are founders, but if you’re not close to your customers, you’re not building products for your customers, but instead building a product. What you think is great for your customer, but may not necessarily translate into success for your product, so that’s important. 

Reggie: Okay, that’s cool. Other than team, how do you evaluate the chance of success or the chance of getting a 10 bagger? 

Eugene: I like the team to demonstrate execution in their product. So if they built a prototype, what’s their run rate, how many customers do they have, how much assets they’ve grown, how much traction in terms of number of users? Things like that where it’s quantifiable by a measure of their success in their roadmap is something that I look out for. 

Reggie: Where can we find these kind of information for us outsider?

Eugene: For cryptos space, there’s a few ways. Depending on what segment they are investing, in one particular segment called decentralized finance, in short DeFi, where basically your long and short is trying to disintermediate traditional finance. Cutting the middle man, cutting banks, financial institutions, enabling a peer to peer economy.

A lot of times the DeFi works based on how much assets has been pledged and collateralize. In that process, a long and short is that you can see the total value being locked. You can see the total number of users who’s been interacting and those are good measure in how fast the product is growing. So on a very high level, that’s how we gauge on certain segment called DeFi. Instead for other segments like ethereum, you can look at the activity on the ethereum explorer, you can see how many transactions, you can see the guest fees, you can see the traffic and that is also an element of how do you measure the success of a protocol, which is like blockchains where decentralized applications can be built on.

If you look at something more like Bitcoin, which is more like a money, you can then also look at number of addresses, unique addresses, the number of transactions, the market value. Also, then you can say, has it had any success because it’s a form of money. I’ve just basically in this discussion already highlighted three major segments in cryptocurrency where you can use some very simple high level ways to quantify their traction in the market.

Reggie: Okay, interesting. Let us go into a little bit more about DeFi, a little bit more about protocols. You talked about DeFi. So I think decentralized finance is going round the media circuit these days. For lack of a better way to put it., I think for a lot of our listeners, if you don’t know, traditional finance has a lot of intermediaries, we have clearing houses, we have brokers, a lot of people that are doing the middle work just to validate the transaction and just to make sure that the whole system is working. So these guys are just oiling the whole financial system. The guys in DeFi are really trying to cut out all these middle man, like what Eugene said.

Essentially if you think about it, they are small little banks or they are really just doing a lot of payment channel, payment structure kind of things. Can you just give us more clarity as to how do I then evaluate a DeFi project? 

There’s always hindsight bias. Like what you said, a lot of people pledge their crypto into the DeFi project and that’s the whole staking thing which we can talk about. That is really just a commitment to the project, but it does not show the success of the project. It does not show that this project is going to get traction. How do I know that when I put my money with them, they’re going to succeed? I think fundamentally there are a little bit of differences because owning an equity is owning a part of the overall business. But in a DeFi project, when I stick it with a project, it’s really me lending money to the project.

How do I know that it’s going to be interesting, it’s going to work for me and it’s going to be successful in that sense?

Eugene: Here’s what I think, when we look at a crypto and let’s take a step back before answering that question. When we look at crypto, we’re investing in predominantly what we call token. That’s really a major departure to the way we used to look at investments because we typically invest in a share, in an equity of a company, where you can say based on the cash flow, that is generated, based on what I think the discount rate is. Then you can do your DCF (Discounted Cash Flow) and then say, “Hey look, the fundamental value of this company should be X dollars.” That’s how we were programmed to think of how do you value the company. So that’s really how we’ve been looking at markets and valuing companies from a fundamental standpoint. And for me, with cryptos it’s interesting because the company obviously is a company with equity who issue a token. How do you exactly value and why are you investing in?

If you’re investing in the company that issues a token, we will likely have to adopt a similar approach to how we value a company in today’s traditional finance, finance 101. If you’re looking at valuing a token today, let’s say a DeFi token, then we have to use an entirely new set of lens. Because a token at the end of the day does not represent an equity interest in that particular project or that company that issues that particular token. 

Taking a step back again, how do we then value a token? When I look at a token, I look at the economic token, which people typically describe as token economics, Tokenomy. And then I’ll look at… okay, the issuance of token, the supply curve, the projected demand, the use cases of token. So, demand supply use cases. From those three aspects, you can then decide and understand how does the token accruals a value and that’s what we are really trying to understand. When you pay for token today, what are you exactly paying for? What are you ascribing that value that you’re buying a token for? 

For me, I look at investing in token very differently from investing in Tesla or Amazon or Facebook. I will prescribe the value of token to a few different elements. One, like I mentioned to you, supply… is there burning? Do they have a fixed schedule? How is the token being distributed? Is it fairly distributed? How are they being distributed in next five, 10 years? Demand… can you look at the demand? Who is buying the tokens? Why is this price rallying? Thirdly, most important thing… use cases. What are the use cases that drive demand?

When I look at DeFi, I look at those three things. As a result, a lot of people like Reggie mentioned… you look at staking. You lend the token, you lend your collateral to this DeFi project that stakes more. But that does not necessarily ascribe value. I kind of think that it’s an indication because the more value being staked and really staking is an exchange or giving up the use of your assets, in return getting interest on the tokens being pledged. And to that regard, the fact that somebody is giving up that opportunity cost of investing and using that crypto asset today, but tomorrow he still wants to receive an interest, is indication that there is a value being ascribed to that protocol. 

So for me, I actually argued that the total value locked in any DeFi protocol can constitute as a form of demand, because it displays the fact that there are users out there who’s willing to forgo opportunity costs of owning an asset today. So that’s number one. Second is to really understand taking a step back as well. If everybody’s just looking at total value locked and say, “oh, this protocol requires 20 billion. That protocol has 50 billion, so the 50 billion portfolio cost probably more valuable than 20 billion.”

Reggie: Assuming market efficiencies…

Eugene: Exactly! But that’s not it because at the end of the day, what’s most important is that how are the fees being accrual? How are these fees… because at the end of it, every DeFi protocol they are making fees to allow their protocol to run? So you also want to understand, are these fees being paid to the stakers? How these fees be attributed? It’s really also the understanding of game theory and economics, a very deep level of understanding what actually accruals to a token value that you can ascribe and then back out and say, “In five years time, I’m going to get X amount of money because there’s so much total value locked and this is what it is.” 

Second is really understanding the game, carry behind the economics behind the DeFi protocol, which is really important in my opinion. Thirdly, more importantly what’s the use cases? What are these DeFi protocol driving? What are they exactly being used for? If you are investing in this token and this is the value of market cap of this token, do you think this value of token represents the value that it has disrupted in traditional finance? If I’m using this protocol, say for example, give you a good analogy… if the SWIFT (Society for Worldwide Interbank Financial Telecommunication) Network…

Reggie: Everyone attacking the SWIFT Network. 

Eugene: Yeah. If the SWIFT network charges everybody $50 for transferring money and every month it transacts and generates more than a billion dollars in revenue, just hypothetically. And you did invest in a DeFi protocol that is aimed to replace a swift network in moving money from one place to another place, do you think that you are investing at a value where is bigger than what the SWIFT Network is generating over the next one year?

That’s the way I look at it. Based on traditional finance today, what’s the value that you’re trying to disrupt versus the sort of value that you’re paying for the token today? That’s how I look at investing from a very long-term perspective in DeFi. 

Reggie: But that is the total addressable market way of looking at the thing. You’re telling me… because this market is this big and these guys are trying to go for this market. If they can dominate the market, you should value them equally to the traditional network, so and so. That’s one way of looking at it. 

But as an investor, let’s say if I were to put my money into a DeFi project, how does it look like? I’m actually buying a certain protocol and as a token form, and then I pass it over to this project. The project will give me interest, essentially like what you said, opportunity costs. Instead of me trading out there, I put it with these guys and then they give me my money. 

So then I don’t really have upside in terms of the token itself, because the value of the token is not directly tied to the success of the project. You know what I’m saying? Because it’s like I can be buying ethereum. Let’s say I buy ether and this guy is doing some DeFi project, they want ether. I pledge my ether to them and they give me 10% per annum interest or something like that. The success of the project, my upside is only 10%. So even if they’re successful or not, it does not affect in my max upside. I think people need to be aware of this. So how do I know that ethereum is going to continue growing that the valley of ether itself, which is my underlying asset that I actually own, will prosper, will grow, the price will go up.

Eugene: That is a great question Reggie. A lot of people are confused where the asset that you’re using to stake versus the DeFi protocol that uses the asset they’re staking. Those are two different things. 

Reggie: Not your problem, you know. After you put your money with them they have control. 

Eugene: Yeah. You usually get paid in the token that the DeFi protocol is, for example, Matic is one and there’s so many others like RV. So if I’m very bullish on a particular DeFi protocol, I’ll buy the underlying DeFi protocol token, that’s one thing I would do. Secondly, if I’m really very bullish, I can also use that token to stake and it’s obviously so many different types of DeFi protocols and some of them actually allow taking on a native tokens to do other interesting stuff. 

So point being is that if you’re very bullish on a particular DeFi protocol, my advice is to buy the underlying DeFi protocol token and hold it. Hold it and stick it or do whatever you want, but just hold it. I think that’s the best way to express your view on this protocol. 

Reggie: I can essentially own the token of that protocol and then grow with that, supposedly that’s what you’re telling me. Then I don’t need to hold some of the major tokens out there to be part of this. 

Eugene: Yes. It’s like stocks. You don’t necessarily have to buy the FANGs. You can always buy the growths, the more speculative ones. In my opinion again, DeFi represents the speculative part of crypto, because it’s such a fast growing space and it’s such a new space.

Reggie: To get the clarity out there for our audience, the process of staking is taking one of all these major protocols, major tokens… ethereum, whatever have you to pass to the DeFi project to use as liquidity and then they pay me an interest. That’s the main idea. But if I want to ride on this growth of this protocol, I can also buy their token directly.

Eugene: The other thing about staking is that in some protocols, when you stake, you get paid in their token. So you are still…

Reggie: You have interest in their success. 

Eugene: Exactly! So you have skin in the game as well. Investing even though you may choose not to own that token outright, you’re still having skin in the game because you’re receiving their token. So you also want to have a view on the DeFi protocol. 

Reggie: Important. Skin in the game… this is an interesting concept because this underpins the whole crypto space. Fundamentally, this is something that I try to ask everybody that talks about crypto. Maybe not everybody gives me the clearest answer, but I want to hear your perspective because when we’re talking about evaluating a company, like you said we’re owning a fraction of the company to an equity structure.

Depending on how well the company is doing and all that jazz, we will make our money from there. But when I’m investing in a token, I am actually just buying a part of the overall infrastructure, buying a part of the product. So then how does the skin in the game idea underpins this whole idea of okay… you’re not just, you don’t own the main thing, you don’t own the company that is running all these technology, but you’re owning a part of the technology itself because it needs all these to work. How does skin in the game kind of translates into this idea? I don’t know, am I making sense? 

Eugene: You’re absolutely right. From a layman’s perspective, skin in the game is being an equity holder. It is like owning… if you own a share of Amazon today, I have skin in the game. I want Amazon to be successful, I want to be a user of Amazon, I want to be promoting Amazon and passing my referral code to my friends. 

Similarly with token, I think it’s a bit of an abstract of departure to the way we think about having skin in the game, because tokens did not represent equity as we both agree here. Depending on their use cases, in my opinion, there are broadly three types of tokens.

Number one, you have tokens like bitcoin, tokens like Bitcoin cash. They are viewed more as a commodity or a stored value, or money, or payments. Traditionally those are viewed as such. Then you also have blockchain protocols like ethereum, dot where decentralized applications are built on them. Those tokens are used more like a utility. You own the token because you want to be able to use that protocol. It’s like your SQ KrisFlyer air miles that you can’t use today. The fact that you want to use your KrisFlyer Miles because you want to be using their services. That’s the analogy I’ll give. 

The last one is security tokens, which is very similar to only equity because you’re attributed to the underlying assets cash flow and equity interests. So security token is no different from owning equity. It’s just that the token exhibits certain characteristics, they are vastly different from owning a stock. For example, owning a token will allow fractional ownership. Secondly, everything will be on a blockchain. For example, today I buy a token of equity interest in a protocol, you know I can see which address actually sends to me that trait or that amount. But if you go to a brokerage today and buy Tesla or Amazon, you don’t necessarily know who you’re buying from or selling to. 

The fact that you can trace the history of whoever buy and sell, the entire history of transactions is amazing and it’s 24/7. So you don’t necessarily have to wait, you know at 9.30PM tonight to buy your stocks. You can transact on weekends. More importantly, for example, in countries like Indonesia, where you’re not allowed to buy US foreign equities, this basically opens the entire market to this space. Because I can be in Nigeria, I can be selling my token to somebody in Indonesia who wants a non-Indonesian asset. Lastly, most importantly, it’s going to release a very large segment of assets where I really deemed and define this asset as private assets that are not necessarily very liquid and tradable. 

Think of a Vietnamese fish farm that wants to raise capital, but cannot raise capital because it’s a rural area, there’s no access to banking and you have a bunch of Chinese investors who want to invest, who are very bullish in Vietnam fish farms. A token can literally help resolve that method because the Chinese can buy the token and the Vietnamese guys can then use the token to raise funds and give them equity ownership. So that whole segment of private assets, it’s hundreds of trillions of dollars, because we’re talking about agriculture, we’re talking about places where it’s not accessible, where people are interested to invest. 

So the way I look at investing in tokens is to break down into these three segments. We now understand what those three segments are, then I can understand what drives the value. So for example in terms of Bitcoin, the way I view Bitcoin being successful is adoption. How much people are using it and how much people are storing it as attributes for success.

Reggie: Is that why when we look at Bitcoin, a lot of people are looking at the inverse relationship with the stock market? It is not… there’s no real utility there. It’s a lot about sharp ratios, it is a lot about how they move as an alternative asset to the stock market. Because as a portfolio, as someone that is building portfolios, we need substantiate some sort of reason. I cannot be telling the people say, “Market cap is 10 trillion so it’s a good thing.” No, I need to know something here. How do I know what is the value of it and how do I invest in it to be smart?

Eugene: I think portfolio diversification, adding Bitcoin, everybody should have. And I must say this, even if you do not believe in Bitcoin, everybody should have Bitcoin because to Reggie’s point, that’s really portfolio diversification, increases your sharp overall because it’s just an uncorrelated asset. But to the point of how do you beat the general market or create alpha? And that’s really the question that Reggie is asking. It’s really to identify…

Reggie: Yeah, everybody wants to make money. 

Eugene: Yeah, everyone wants to make money so what do you invest in? The way I look at beating the market and this is what I suggest to most retailers is that… look at the top 50 market cap coins. You don’t necessarily need to go out to obscure names that nobody has heard off. Just look at top 50. Go read, go search, go look at them and then bet on those where I’ve mentioned earlier. Strong team, great token economics, great use cases that fits your top-down approach in what the world may look. And hold it, do not necessarily like… holding SMP (Standard Motor Products Stock Price) over the last 30 years would have outperform active trading.

So buy, hold and let it compound over the next five to 10 years. That’s my advice to all retail who wants to beat the market. 

Reggie: Okay, fair. You’ve put it out there. There are the commodities and then the utilities, which I understand, we’ve talked about the utilities quite extensively. Essentially when we’re evaluating utility tokens, we want to see increase adoption, we want to see functionality, cash flow generation and that would empower the whole network. Essentially, that’s what we want to see as a growth structure. And your base case is you want to see the amount of pledging into this network, so that will help to evaluate whether is this protocol going to be successful or whether this project going to be successful. Using it very interchangeably but they mean the same. 

Then there’s the third one was just security token, which runs very similar to equity, which is like what you said. This is the interesting part, which is all your NFTs (Non-Fungible Token) and all your weird private ventures that are not securitized into the IPO (Initial Public Offering) market. They’re not securitized in the stock market. They go through this process of tokenization, which we’re seeing an increase. Whether is it from properties, traditional businesses, art pieces and what, we’re seeing that happening. And people are also excited about it and they’re talking about all the future possibilities of this thing.

But I have one fundamental question. Who governs this whole structure? Because if I run an IPO, I list my company, there’s the SCC (Special Conditions of Contract), there’s all of them telling me and governing and assuring me that… I buy this share, this thing is actually there. But when I’m buying all these private company in the fringe parts of the world, or I’m buying these weird art pieces somewhere, that’s been tokenized, what am I banging on? There’s no legislation here. You can tell me technology and all that but what am I banging on that the real worth physical asset is actually there for me?

Eugene: I think that’s great. You really hone down to another very strong point. Like in stock market, if you buy Tesla, if you buy Neo, there is certain form of fraudulent type of activity.

Reggie: Rest assured SCC will double down. 

Eugene: Exactly. But in crypto, one may argue that there’s no governing body because it’s decentralized. You can have people in all parts of the world without real identity working on a project and we’re seeing time and time again, headlines after headlines that there are a lot of scams, cash grab in crypto. But increasingly I think regulators as what we have seen are starting to try or attempt to govern. There are instances in China, for example, where there were a lot of supposedly Ponzi schemes where the Chinese authorities have come after very hard on those Ponzi scheme.

Yes, I think there’s no strict governing body per se, but increasingly we are seeing the regulators taking a more proactive approach. Whether it is in China, whether it is in the US, or in Singapore, I think as long as it involves money, the regulators are going to be very careful. In the very recent cases, in Thailand, regulators now are actually looking into regulating DeFi, because there has been an uptick in scams or hacks that they want to ensure that the retail is being looked after by the small guy in the street. 

Reggie: Yes. So exactly about regulation, this is another very edgy question. Recently there’s a lot of regulation discussion coming in. We’ve talked about Theta in other podcasts before. Whatever the position, as of now it’s been cleared. Depending on whether will it unravel as we go along that is up to do it. But that aside, we are seeing increase in regulations. One of the main sell of cryptocurrencies is that it is decentralized, that you cannot track and your identity being kept and all, but the US government just took back some money from a ransomware and we are seeing governments actually having the ability to track if they want to. Because there’s a whole ledger that you can actually track one by one if you want to and these guys can. So then does that not fundamentally challenge the whole idea of decentralize is private? You cannot be checked, blah, blah, blah.

Eugene: I think there is a massive misconception where people say that you can’t be tracked, because the whole silk road was uncovered primarily because the founder was using Bitcoin as a form of payment. To that point, I think using Bitcoin is actually a very silly way of trying to conceal your transactions because it is a very public and transparent network. But there are other tokens, the privacy tokens like Monero, Zcash, they’re very focused in ensuring privacy where the level of privacy or encryption that’s involved in a single transaction would basically give a lot of privacy to the individual. 

So I think using crypto is more than just privacy. I think crypto embodies decentralization in the sense that… decentralization is not necessarily privacy. Decentralization is basically in my opinion and not Gemini’s opinion, is really the ability for different people, different parts of the world to interact. And that’s really in my opinion again, it’s really a buildup from the internet. You look at the internet, it’s streaming data, you look at music, streaming music, you look at YouTube, streaming videos. But money as a product isn’t streaming. Point being is that it’s really evolution to the way we interact in the monetary part of the economy. 

And then that brings the idea of decentralization because we are always being held hostage, not the nicest word, but it’s true, by the banks! When we send money, we get robbed from the transaction fees, FX. And this is also the reason why I was so deep into crypto because I was realizing that my domestic helper was getting ripped off by FX on transactions with Western Union. So for me, that’s mind blowing. We live in a world where with all these streaming of video data and yet money as a form of product hasn’t been innovated for the longest time. I think that’s really one of the biggest narrative and thesis behind the whole crypto revolution. 

Reggie: So you think that more regulation is better? Is it going to make it more legit? It’s going to increase the market cap? And then as an investor at the end, I’m an investor, right? It still links back to the question of, is it going to grow with more regulation and all that or are we going to… is it very political and all that jazz? 

Eugene: Like the internet, it wasn’t very regulated until very recently. I think regulation can hurt innovation, but because of the nature of blockchain that is decentralized, that if you are going to restrict innovation in a particular jurisdiction, innovation would then flow to other parts of the world where basically the governments allow and that’s happening already. You can see that certain countries are more restrictive.

Reggie: Like Singapore, Estonia…

Eugene: Exactly! I think those countries would be net beneficiaries of being more liberal, if the crypto does take us right into the direction that I think we will go into in the next 10 years. One of the good examples that I like to share is cars. In industrial revolution where UK was one of the superpowers and cars were being invented in 1940s, we have not heard of a massive or major car brand from UK that is your everyday car like Toyota, your everyday car like General Motors, or even the Japanese cars. 

In countries like US and Germany, they were allowing cars to take place because back in the days in UK, they were basically saying cars are more dangerous than horse carriages and more incidents, more deaths and you take two persons to operate a car in 1940s. UK was banning the use of cars as a form of transportation. US on the other hand, they didn’t ban the use of cars. As a result, the superpowers of car brands from Ford to General Motors above. So that’s also a good analogy to give to people that… yeah sure, you can restrict, you can ban, but countries who are going to be more open will be net beneficiary if that trump plays out in their favour.

Reggie: Okay, fair. I think that’s a very fair perspective and you’ve talked about it and I think a lot of people also know that when regulators come in means there’s a lot more scams, a lot more weird things happening in that space. They want to protect the retail guys, they want to protect the individuals. So how do I as an investor kind of veer away? I know it’s very specific to projects, but how do I know… what is the project that I put my money and then it turns out it didn’t do well. So that is a failed project, compared to what is an outright scam? How do I sniff it out? 

Eugene: I had a really interesting call with one of the listed company here who runs one of the biggest tech companies and they have this venture. Last night he was asking me… the firm’s actually now trying to allocate money and capital into the crypto space. As you would know, the NFT space is hot, tokens are hot and it’s trendy. He asked me how do you exactly invest in a non-scamish project? Because everybody just don’t want to lose their job or get fired by their bosses. One of the first things I say to him is… when you invest in a project, you want to be investing and looking at understanding who are the investors behind this project. We were looking at this particular project and there’s 20 investors that they have name job and some of the investors has rid out due diligence. There’s no website, we cannot find anything on the investors and that’s a massive red flag. 

If you can’t find anything about the investors that’s backing a project, the you should really be questioning your thesis. You want to be betting on projects where you have a recognized, or an established brand, or investment firm, or a person backing a project. So for example, if you have a great iconic hedge fund manager, or you have a big VC fund that is recognized, these guys wouldn’t be putting money in a scam. You’d like to think that they have a better DD (Due Diligence) process than the average guy. 

Reggie: Which means you, an average individual. 

Eugene: Yeah, exactly! So you want to be investing alongside with Sequire investing in it. You want to be saying, “Hey look, I trust your DD. I may not be able to be a LLP (Limited Liability Partnership) or investor of Sequire, but look, I trust your investment process and I want to be betting on the same project.

Reggie: Due diligence by the way, DD, means they did their study on the project. 

Eugene: So I think that’s quite easy for an average investor to really sniff up the rubbish and the scam from the really legitimate ones. Because a lot of these top-notch VC funds that I know of engage in very thorough due diligence because their reputation’s on the line and they’re a big firm with an army of analysts. You can trust them to do a better job than us sniffing out the scams and the 10 baggers. 

Reggie: Okay and I think at this point we really need to recognize that a lot of these crypto projects, a lot of these crypto protocols or DeFi projects and whatever it is, they are really at a very young stage. They’re like private investments, very VC way of looking at things compared to when you look at a listed company, a company that has already gone through all the growth phase and they’re going up in the listing. So you cannot compare like Tesla with these guys. Or you cannot compare your big tech guys with these guys, because when you look at investing in this space, you really have the VC mindset. The VC mindset is very different, they don’t just pick one or two. They pick like a hundred and hope that five make it, 10 make it. They’re very like team driven and it’s very trend driven, exactly like what Eugene has pointed out. That kinda sums up why you put up all these pointers as we are discussing. I think it’s pretty good. 

Overall, for all of you that are exploring this space, I think we’ve done quite a wide array of discussion, from staking to understanding utility, understanding protocols, what do they do and all that things. Last question, do you have anything else you want to add for our listeners as a retail investor, how do you make money from this space? 

Eugene: I think number one, really my advice is whenever you invest in anything in this space, like Reggie mentioned, use a VC mentality to approach. Be ready to lose all your money. In a VC, every 10 projects you invest, I think only two or three really…

Reggie: Two or three is considered very high hit rate.

Eugene: Be prepared to lose all your money or even your pants. Invest in accordance to your appetite. Which is if you’re going to put in X amount, be ready to lose X amount, that’s number one. Second, my advice is to look at tokens as a network. The way you value network value, what’s the total network value? How do you ascribe that value? Understanding that and then going back to having your top-down approach as that we lay back to your overarching narrative. The third thing is… be as emotionless when it comes to investing. In fact, this is really one-on-one right… and I always say this… if everybody is FOMO (Fear of Missing Out) and your taxi driver is telling you that it’s time to check that coin out, I think it’s time to sell. If it’s so easy, we wouldn’t be having a market. Point being is you always want to invest when you’re convicted. Not because you think everybody’s investing and it’s going higher, but only invest with that clarity and that confidence and that conviction that doesn’t shake you out. 

If you’re going to buy at 60,000, because you think it’s going to 70,000 and it goes down to 40,000, it’s going to shake you out. So better to invest from a set of beliefs that you hold dearly and that you can hold through to test of time and passage of time. I think that’s really important.

Reggie: For all of you that are exploring, you can always use the core satellite portfolio structure. Your core portfolio need not be in crypto and you can have a little bit… I think who is that Canadian guy, he said 1%. But either way, just decide for yourself, put a little bit if it’s something you’re exploring, if it’s not, it’s fine. Ultimately, everybody has their own way to make money and just live your life as you go along. 

Eugene: I want to add on something. Why do I think cryptocurrency can present a unique opportunity to most people today? In my opinion, and I know I’m biased again. 

Reggie: I love the self-awareness.

Eugene: I have to be, I’m in sales. When I look at investing in cryptocurrencies today, I look at it as akin to invest in real estate in Singapore, 20, 30 years ago when it’s really nation young, fresh…

Reggie: What do you think of real estate now? We can talk about this later.

Eugene: But really, if you think about it… in life you want to be investing in good risk and reward ratio type of products. For me, investing in cryptocurrencies will give you that symmetry risk profile where yes, you can lose your pants, you can lose everything. But the opportunity to make that 10, 20, 30 bagger is a lot higher than putting your money in the stock market. And look, stock market we’re seeing cases where beta stocks get crushed. A lot of spec stocks that you guys have invested in since last year have fallen more than, 50%, 60%. So if there’s a more of downside risk you’re taking is similar to investing in speculative stocks. Why not invest in something that gives you a higher return if your thesis play up? And in my opinion, of course, cryptocurrency has the embedded cop shit, which is going to deliver superior returns if you have that long-term view.

Reggie: Sales pitch. Go and listen through, learn your core, learn your frameworks, understand what’s going on. I think Eugene has shared a lot of good stuff in evaluating the value of certain cryptocurrencies. Of course they are not all the same, it’s not a blanket thing. So yes, thank you. Thanks for coming on. Awesome. 

Eugene: Thank you.

Reggie: Hey! I hope you learnt something useful today and truly appreciate that you took time off to better your life with The Financial Coconut. Knowledge is that much more powerful and interesting when shared, debated and discussed. Join our community Telegram group, follow us on our socials, sign up for our weekly newsletter. Everything is in the description below. If you love us and want to help us grow, definitely share the podcast with your friends and on your socials. Also sign up for our members’ backend for more investment related content, live discussions, curated content and most importantly, your commitment to us is a step forward for us to continue creating great content focused on you rather than advertisers.

For more information, check out https://thefinancialcoconut.com. With that, have a great day ahead. Stay tuned next week and always remember: personal finance can be chill, clear, sustainable for all.

We have last three questions that we ask everybody. Number one is what is the core life principle you hold closely to? 

Eugene: First principles in thinking. Always question your beliefs and really if you think that your belief is X today, two years down the road, question that. Is that the right belief? Is that the right thesis? I always believe in first principles. And I question myself many times, get my family, friends debate. So adopting a first principles in the way you operate from day to day gives you the ability to navigate and see through the bullshit I think. So that’s how I like to view my sort of core principle in life. 

Reggie: That’s cool. Number two is what is a personal finance advice that you feel needs to be further propagated? 

Eugene: My view is risk and reward. If you’re never ever going to put any risk, you’re never ever going to be rewarded and you want to be taking very well calculated risk reward. If I’m going to risk $5, I can make a $100, versus risking $5 to make $10. But in both scenarios, you lose everything. I’ll take the former, right? So for me, it’s really understanding risk reward and applying and creating as many core option in “opportunities” where you can meet that exponential return. And that’s going to pay off a lot in a long-term. 

Reggie: I’m seeing a lot of the derivatives underpin coming up. Shout out to all the TOTO aunties, can divert them to crypto. Number three is… which part of your life are you giving additional focus on now? 

Eugene: It’s my son. I’ve a 20 month old son, there’s nothing more important than family. Spending more time with him because the best years would be when he’s not asking me to pay for his video games. You know, now he’s listening to me. 

Reggie: I’m sure you’ve been through the game para. 

Eugene: So I know how I turn out as a boy, so obviously trying to spend as much time as possible when he’s obedient, before he turns out to be a monster like me.

Reggie: Nice, thank you. Well wishes to your family.

Eugene: Thank you.

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