- Jeffrey Wernick is an independent investor whose portfolio includes early holdings in Uber and Airbnb. Wernick was also an early investor in bitcoin. He started buying it in 2009, the year it was created.
- Wernick says that people misunderstand bitcoin because it is often explained as a payment mechanism instead of as a store of value. He thinks many investors ignore the philosophy behind it.
- Wernick says bitcoin is a “people’s money.” He sees cryptocurrency as the only way to object to a financial system which he believes is responsible for the growing wealth inequality in America.
Jeffrey Wernick is a hard money advocate and an independent investor. His angel investment portfolio includes early holdings in Uber and Airbnb . Wernick serves on the advisory boards of DataWallet and Qtum . He started his career at Salomon Brothers and the National Bank of Detroit. Wernick founded, then sold, the risk management firm AVI Portfolio Services Company, Inc. before focusing on his private investment portfolio. Following is a transcript of the video.
Sara Silverstein:What do you think most people get wrong about bitcoin or cryptocurrency?
Wernick:I think for many people it’s-the concept seems very abstract and I think the hardest thing is for people to understand,and to the extent that they get it wrong, I think probably it’s because not enough people are explaining it very well,because most ofit,people are explaining it as a payment mechanism, not as a storeofvalue, and why it might be a goodstore of value. So I think people don’t understand the philosophy behind it, because the people now in the business were not there in 2009 and 2010, they didn’t care about the philosophy. Peoplewho havegot into it now talk more about blockchain than bitcoin, because they’re just looking for an alternative model to make money and they don’t care about-they’re agnostic to the initial philosophical framework that drove people to adopt bitcoin to begin with and kept it alive from 2009 through 2013 or’14,when all of a sudden,adoption started to grow. There was a small universe of people that actively worked to keep it alive by continuing to mine and continuing to buy and they were doing it because of the concept that they believed in, and that it’s a people’s money.
You know, from-and even what I told you years ago when I said,”If you buy crypto,all yougot tosit back and think about is – don’t think about how it’sgoing tobe priced today or tomorrow.” First,be prepared to lose everything you invest in,and wait until-and wait for five years and don’t even think about trading it. If bitcoin’s alive in five years,it’sgoing tobe significantly higher than it is the day you buy it.
Since bitcoin has been created in 2009,it’s outperformed every currency,even with governments hostile to it,and a regulatory regime that’san uncertain regime and the governments have been designing, have been managing it in a way so people cannot know what to expect. So it’s amazing the valuation it has today given the fact that it only faces, it only faces headwinds, no tailwinds. Every government throughout the world is trying to figure out how to stop and kill bitcoin.
I think over five years,you’regoing toaccumulate a lot more wealth than you would in any other alternative investment, but again, you don’twant tobuy more than you can afford to lose, because I could be wrong, and you’d be making a statement to the government that says,”What you’re doing is completely unacceptable.”Becauseif you think about how the financial system works,the financial system punishes the saver and benefits the borrower, but only benefits a small classification of borrowers.
You know, I calculated-and you know and I have a pretty good net worth-I calculated that if I wanted to buy like a trophy property in Manhattan,that the cost of capital advantage that-like Blackstone has to me, I would have to generate 30% more in cash flows in the building to just- to be able to compensate for my cost of capital disadvantage relative to Blackstone. So we have to take a look at why is so much wealth concentrated? So much wealth is concentrated because certain-only a small universe of people have access to a cost of capital that’s so much cheaper than just about anybody else and that cost of capital difference is so great that basically it means that they can win in every bid on any, any asset that they’re interested in buying. And so there’s no competition for buying the best assets because only a small group of people have access to the type of cost of capital that essentially zero in nature. And that’s a product of this financial system. It’s a product of the government, the government policy, it’s a product of the tax code.
So right now – it used tobe you could accumulate some wealth through the power of compound interest, but at zero interest rates,you can’t compound any wealth anymore unless youwant totake the risk of goingintothe markets, and everywhere,everybody is warning that the markets might be overvalued. So given the fact that thecapital markets are overvalued because they’re subsidized bythoselow interest rates,that the biggest institutions that have the biggest access to leverage at cost of capital significantly cheaper than anyone else can produce. Then the question is, is what, what for a typical middle class person-how do they accumulate wealth? And I think their only answer is to put a certain percentage in crypto. There have been some studies that show that now, that if you put5-10%of your money in crypto that actually on a risk-adjusted basis it improves your total portfolio returns.
So I think everybody should put something into crypto. And the people who move first will make more money than those that move second, who’ll make more money than those that move third,and – andeventually when crypto is broadly adopted, then people start using it as an exchange,and it will no longer be volatile in pricing, it’ll be stable in pricing. But Iwant tobe very clear is a lot of the volatility in pricing has to do with uncertainty on government policy towards it. So the government is creating this-while the government is trying to mitigate volatility in ordinary capital markets,they’re trying to exacerbate volatility in cryptomarkets.