Chris Burniske - How to Value a Cryptoasset

**Patrick O'Shaughnessy** (0:00)
This episode of Invest Like the Best is brought to you by Paxos. I have personally interviewed Paxos' CEO, Chad Cascarilla, on this podcast before, and I'm excited about how they're changing the crypto landscape. Whether you're a small fintech or a large financial institution, with Paxos crypto brokerage, you can offer your customers crypto buying, selling, transferring, and more, all with Paxos' easy to integrate APIs. Paxos takes care of everything in the backend, from licensing and compliance to custody and exchange.
You can start offering crypto to your customers within months. I've gotten to know Paxos over the years and have been personally impressed with their track record. With clients that include PayPal, Venmo, Revolut, and Bank of America, they are the most trusted infrastructure provider for crypto and blockchain. I'm excited that more fintechs and banks are starting to offer crypto features, and Paxos crypto brokerage is the best way to get to market quickly and safely. To learn more, visit paxos.com forward slash Patrick. That's paxos.com forward slash Patrick.
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (1:23)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:55)
This episode is a continuation of the Hash Power series. It is the first of what we will call a Hash Power single, a series of conversations, each with a single guest on a specific topic. In this case, my guest is Chris Burniske. The topic is cryptoasset valuation. This conversation is loaded with information. I think you're going to love it.
Like the Hash Power documentary, this episode and other Hash Power singles are brought to you by Fidelity Investments, a company that is constantly researching and experimenting with emerging technologies like cryptoassets and blockchain to improve the lives of their customers. Fidelity provides a comprehensive set of products and services to individual investors, employers and financial advisory firms. For more information, please visit fidelity.com. Before we get to Chris, a quick story. This morning, I spoke with a friend who sends part of his paycheck to his family in China. He used to do it this way. He'd send US dollars from his bank to his father's bank for a fee of $40 on the US side and more fees on the Chinese bank side. This process would take two to three business days at best, but often took longer because of random issues which my friend would then have to spend time sorting out as a middleman because the banks wouldn't communicate directly with one another. Then his father, who can't spend US dollars in China, would have to physically walk to a bank and exchange the dollars for local currency, a process that would take three to four hours and incur another set of fees via an imperfect exchange rate which eats some of the value. So at best, two days, a little bit of hassle later, my friend's family has the money. Now he does it differently. He takes US dollars, buys Bitcoin or Ether on an exchange like GDAX or Gemini and sends the cryptocurrency to China. A few months ago, he could have sent it directly to his father who could have then sold the Bitcoin on an exchange for local currency, but China shut down the exchanges. Well, my friend and God knows how many others quickly figured out a way around that. My friend is part of a large WeChat group of 500 people, which is the maximum number of people allowed in a chat group. WeChat is similar to WhatsApp. The group is a way of trading cryptocurrencies OTC or over the counter off the exchanges. My friend posts the price at which he's willing to sell his Bitcoin for local currency and lots of others do as well. So there's an order book. He finds a price usually very close to the current Bitcoin price plus or minus half a percent, at which a counterparty who he usually doesn't know is willing to buy his Bitcoin or Ether and then they transact via a group leader. The group leader serves as a sort of trusted exchange party, almost like an escrow account who takes a 0.1% cut of every transaction from both sides.