On May 30th, Dr. George Cao, founder and CEO of BitMax.io, visited the ChainNode live room and talked to Babbitt editor Tang Xialing.
The blockchain may reproduce all the gameplay in the traditional financial field, and even it may break through the limitations of traditional finance. This has become an important background for a large number of practitioners of traditional financial institutions in 2018. Cao Jing is a member of this "wave". He is a Ph.D. at the University of Chicago and has many years of experience in quantitative trading and venture capital on Wall Street.
How to play the cryptocurrency market? How to hedge investment risks through financial derivatives? Is the Buddha holding the currency, or is it chasing the rise and falling? The mainstream currency has risen, and the altcoin currency is as stable as a rock. Is it worthwhile to follow up? He has shared these topics.
The following content comes from a conversation between two people, organized by Babbitt.
Financial derivatives: a yardstick for cryptocurrency market maturity
Suppose that you bought the stock of Apple, a US stock company, which has the following risks. First, the risk of the broader market, individual stocks rise and fall with the broader market. Second, the risk of the sector, the technology sector fell, and Apple will fall. Third, company risk.
Hedging is not a hedge against all risks, but a selective hedge. For example, a hedged market can sell a dollar of money when buying a ten-dollar apple stock. Similarly, investors can hedge the risk of the sector from the ETF of the short-selling technology sector. The only remaining risk is Apple. As a result, Apple's benefits are good, making money, Apple's profit is poor, and losing money.
How does the cryptocurrency area hedge risk? Also, such as futures, options. Investors expect the market to fall, they can buy put options, so even if the bitcoin plummets, it can recover some of the losses. Anything else? Gone.
You are optimistic about a certain currency, but there is a possibility that the market will fall. You have no tools to help you hedge the risk of the market. Therefore, the emergence of financial derivatives is therefore an inevitable trend. Cao Jing said.
In mature markets, financial derivatives can provide investors with a richer investment approach, while also providing a more comprehensive risk hedging tool.
Volatility Card: A Simple Hedging Tool
The development of cryptocurrency transactions has been very large today, but the trading tools are very small. The trading volume is large except for the spot derivatives. Only the futures volatility products are the more commonly used hedging methods for investment, but this The market is still blank.
On June 1, the BitMax.io exchange launched the first currency volatility product, the Turtle Card and the Rabbit Card. Users can predict the rise and fall of Bitcoin within 24 hours. The fluctuation of the turtle card is small, and the fluctuation of the rabbit card is large. Each card has a corresponding "face value" and "sale price". It has nothing to do with the ups and downs, only the price fluctuations. If the prediction is successful, the card will be awarded the “face value” reward. If the prediction fails, the current card will be invalid.
Cao Jing said that the value of volatility products is the risk of hedging. There are many people in the currency circle who are convinced that bitcoin can rise to hundreds of thousands of dollars in a few years, so they became the "Buddha Fried Coins Party". Do not move, the market is skyrocketing.
Assuming that investors can judge that Bitcoin may go up and down, but don't want to sell a position, then the volatility card is a very good tool. It can protect both positions and short-term investments.
Compared with the volatility products of traditional financial markets, the setting of turtle card and rabbit card is a very simple volatility product, even like “spinach”. The reason for this design is that the complex derivatives of the traditional financial market are not highly accepted in the currency, but the simpler the product, the better. Advanced volatility products include multiple options such as volatility swaps, variance swaps, and volatility indices, and it is clear that users of the currency circle will be blind.
Gaming will dynamically adjust prices based on the proportion of participants. Behind the volatility product is a mathematical model based on historical data. For example, a face value of $50 is priced at $10, which means that if the probability is less than 20%, the return will be higher. This probability comes from the historical fluctuation data of Bitcoin. When a person reaches a certain level, the group will inevitably produce different opinions. Some people want to buy, and some people want to sell. Our exchange itself provides an open and fair platform for users to buy and sell.
Exchange: The “killer” at the top of the food chain?
The exchange is currently the strongest force in the entire blockchain industry chain, and no one can make the cryptocurrency market skyrocket. It is also the area with the most conspiracy theories in the whole circle. The price of the currency, the IEO cuts the leeks, the needles… The exchange at the top of the food chain is the “ban” of the currency circle?
As the head of the exchange, Cao Jing believes that the top of the food chain stems from the fact that the exchange has gathered too many functions, including brokerage, custody, liquidation, and even declaration.
This form is temporary and unhealthy. The exchange has too much power, no restrictions, no supervision, and naturally there will be many moths. At present, it is only self-disciplined by practitioners. Regulatory intervention, to achieve greater protection for retail investors and institutional investors, large-scale institutional funds can enter. There are too many negative news, and the security of funds cannot be guaranteed. Who will come in? This is also the opportunity for the cryptocurrency industry to integrate into the entire financial industry and is the only correct path.
Altcoin: Most will disappear
In the bull market in 2017, the altcoin coined a counterattack in the Jedi, and the rally was fierce. In 2019, this round of rise basically became a one-man show of a few head currencies such as Bitcoin and Litecoin. why?
Cao Jing said that the value of most digital currencies is much lower than the market's valuation of it.
Why is entrepreneurship a life of nine deaths? Because it is difficult for startups to get venture capital.
A normal startup team in Silicon Valley is valued at $3 to $6 million, and a 20% stake can raise $60 to $1 million. In the 17-year blockchain project, a white paper can melt thousands or even hundreds of millions of dollars. This is not normal, and the valuation of different channels will inevitably return to the essence. The valuation of a team on both sides of the financing costs will not be much worse.
99% of the blockchain projects have no cash flow, no income, you send a coin, the purpose of the currency is not clear, and there is not much use. What do you mean by its value? It is difficult to value projects using traditional financial methods. Of course, bitcoin is different. It is a collection of many things, including currency, commodities, and safe-haven assets. It has formed a consensus. There is no consensus on the pricing of certain projects in the market, which has led to price fluctuations in blockchain projects that are much larger than stocks.
I can't kill a stick first, but I don't think a lot of altcoin has value. It will be replaced by a better project in two or three years.
Copywriter: Wang Jiajian