We’re back with another edition of True Doctor Stories. This one is a little different in the fact that the person highlighted isn’t technically a doctor yet, Kayee Tong is a second-year medical student. However, I felt his story was so interesting and timely that I felt that this would be a great time to interview him.
Cryptocurrency, in particular Bitcoin, has been all over the financial news and everyone claims to be an expert. I was excited to find someone who truly has a deep understanding of the subject. Kayee Tong has a very active Quora page that’s extremely popular and well-read (3.7 million views to be accurate). We started interacting in the Passive Income Docs FB group, and have had some fascinating discussions on the topic of cryptocurrency since. I thought people might learn from his perspective on the subject. Please note that none of this is investment advice, just him speaking from his own experience. Enjoy!
Tell me a little bit about yourself.
I’m studying at the University of Texas Medical Branch School of Medicine as a second-year medical student. I’m from Boston, MA and moved to Texas, since tuition with Texas residency is the most affordable in the nation and there is no state income tax. For college, I went to the University of Texas at Austin, majoring in Biochemistry. My fiancée and I are getting married after medical school.
What residency are you considering and what specialty are you ultimately interested in pursuing?
Everyone changes their mind but currently I am split between a Neurology or Psychiatry residency right now. I plan to continue with a fellowship in the FDA and engage in clinical trials, as that’s what excites me the most.
How and when did you get into cryptocurrency?
I got into cryptocurrency in 2012. During that time I was into cybersecurity research and I met a friend who moved from San Francisco after selling his company for millions. We started mining Bitcoin early on and then started an exchange together in 2014.
What interested you about it?
Frankly, I was extremely skeptical at first. I have always been wary about Ponzi schemes. On the other hand, I experienced first-hand how digital currency markets work on digital gaming platforms, such as Neopets and Runescape. I went straight to the open source code for Bitcoin and realized right away – this was the real deal. A truly decentralized digital asset that had a reasonable, finite chance of disrupting gold markets as a payment network with a strong developer base, infrastructure, and community support.
Tell me a little more about how you’ve gotten involved in cryptocurrency?
I’ve always been influenced by Benjamin Graham’s book Security Analysis which warns of the dangers of speculative markets. I’ve also read SEC 10-K reports voraciously. From a value investor’s perspective, at the time, Bitcoin did not fit this investment framework beyond pure speculation. However, with new tech businesses, such as Google and Amazon taking a large leap from traditional business models, I thought I should at least consider alternative business models.
Hence, I started looking at which Bitcoin-related businesses were being funded by the smartest venture capitalists in Silicon Valley. Coinbase was one of those companies that was in the exchange business, funded by Andreessen Horowitz. I realized their business model was extremely sound, and decided I would invest my time, creative energy, intellectual capacity, and passion in the cryptocurrency industry and blockchain technology. As of right now, Coinbase is a unicorn company – one that is valued at more than 1 billion dollars.
From the start, I have always strongly believed in positioning your business following the saying “sell the tools when there’s a gold rush” and strategizing to avoid competition unless necessary. I started with mining Bitcoin first and then moved on to starting an exchange. The exchange industry underwent a legal shift and I ended up with a cease-and-desist order from the SEC for lack of a money transmission license.
Since there was a change in the rules, I had to pivot my strategy. I started looking into arbitrage, derivatives, and margin lending – as well as writing on the subject to help others and provide objective and valuable content on Quora. As a result, consulting projects started flooding in, as well as investment from accredited investors.
Although speculation can be dangerous, I speculated on Bitcoin, Ethereum, Litecoin and some other coins. I always kept it at less than 10% of my net worth through rebalancing my portfolio. The coins ended up going up in value, but in hindsight, mining, arbitrage and consulting were much better risk-adjusted. My reasoning behind speculating on those coins was because there was and still exists a small finite chance that Bitcoin will disrupt gold markets as digital gold on a macro level. Keep in mind, if I am wrong, I have already made more than enough through rebalancing and my losses are limited.
How have you been able to balance between being a med student, investing and all your other hobbies or leisure activities? Where do you find the time?
Great question. Managing time is the most difficult part. I’m constantly thinking about what I am doing and how I can do it better. I realize you have to make some sacrifices and decide what is worth it. You can’t rely completely on yourself either. I’ve had a lot of help from virtual assistants, personal assistants, and owe too much to my supportive fiancée. As for leisure activities, I schedule it by mixing it in with socializing or work. It doesn’t feel like work if you enjoy what you’re doing.
What are those hobbies or leisure activities? How do you let off steam / deal with all the stress?
I work out at the gym, as I find it quite therapeutic. Exercising is a great way to deal with stress, and it increases your productivity. I also write a lot on Quora. It’s my hobby to write on what I’m passionate about. It also happens to help your communication skills, and once you’re a subject matter expert, opportunities always end up coming to you.
How has the income impacted your life? (student loans, traveling, enjoying med school)
The income has brought a lot of freedom. I don’t have to worry about student loans, as I’ve made more than the cost of attendance for college and medical school. I don’t have to worry as much about getting into a high-paying specialty, compared to some students in private schools in areas with a high cost of living. Money brings a lot of flexibility. I have been quite frugal from the start, but I believe the experience of traveling is worth the cost in terms of the global perspective it's given me. I’ve learned a lot about other countries, cultures and healthcare systems from traveling to less-developed areas of Asia and Latin America.
Do you consider any of it passive at all and what other investments have you made?
In my opinion, passive income is somewhat of a misnomer, unless you’re investing in low-cost index ETFs. Almost all investments require substantial amounts of due diligence if you’re chasing risk-adjusted returns better than the S&P500. There are many opportunities out there.
Cryptocurrency mining is as close to passive as it can get, if you have low electricity rates and a mining equipment retailer that has a great warranty or return policies. You have to run your profitability through a mining calculator, and also look into how much risk can be hedged off with Bitcoin futures contracts.
I currently run a private placement fund Bitquant Capital LP with accredited investors, which is also in essence “passive income”. I also run some other businesses, have bought real estate, and have been recently looking into real estate crowdfunding. That being said, I’m extremely conservative with real estate, as it’s not my field of expertise.
Are you optimistic about the future of cryptocurrencies?
The future is a tricky business. Are we in a tech and crypto bubble? Many would say yes and I believe there is some truth to the statement in some cryptocurrencies. Anti-bubble thought is probably somewhat more true, as evidenced by the fact that the people that hold most of the Bitcoin out there are quite intelligent.
As for my position on the matter, I am optimistic about the technology behind cryptocurrencies, and I also believe cryptocurrencies are here to stay. That being said, it is incredibly difficult to make accurate predictions in terms of the price range at a specific date range. I think there is a finite chance that digital gold will disrupt the gold markets, so I've made a speculative bet accordingly with a very small percentage of my net worth based on modern portfolio theory.
If others are thinking about getting into it, how could they do so?
I think anyone getting into it has the right to be skeptical. However, there is a lot of venture capital activity around Bitcoin-related businesses, so that’s a solid signal to also look into such investments. There are also billionaires such as Peter Thiel, the Winklevoss Twins and more that have invested in Bitcoin directly.
For most people, they should learn the technology behind it first, and do their own research to understand whether cryptocurrencies or Bitcoin-related businesses are suitable for their portfolio. I would recommend Mastering Bitcoin by Andreas M. Antonopoulos as a starting reference book or his online lecture series, as the author is one of the most reputable in the industry.
I would suggest looking into mining cryptocurrency with solar and possibly a hedge with a futures contract. That is what I currently am doing as a partnership with an ENT surgeon at my medical school. To assess profitability, check out mining profitability calculators. For Bitcoin or Litecoin miners, Bitmain is a decent manufacturer for ASIC miners with reputable warranty coverage. For other coins, you can find some refurbished GPUs in most retail locations, such as Fry’s or Microcenter. If it becomes too technical for you, perhaps partnering with someone you can trust might be a better route, as I've done with the ENT surgeon.
Do you think it’s too late for other people to get into it or too risky?
Timing any investment is quite difficult. I’ve heard Bitcoin being called a bubble and the media calling it dead more than 20 times over the last few years. If I followed their advice and ceased all operations, I wouldn’t be where I am today. Google and Goldman Sachs are some of the most active corporate investors in blockchain companies. I strongly believe blockchain technology is here to stay, so it is never too late to learn something that has such strong potential to disrupt the world.
Any piece of advice for other med students, residents, or physicians who are considering pursuing other sources of income?
For any specific advice, that depends on the individual. As for general advice, I would say that learning to be financially savvy is important early on. My previous boss in private equity told me that doctors were generally bad at managing finances and he often buys medical practices for $1. That says a lot.
It might be better for some students or residents to pay off their high-interest loans first, especially private student loans or credit card loans. Even the little things, such as buying a year’s worth of toothpaste when it’s on sale is already a substantial return.
Anything you would’ve done differently along the way?
Hindsight is 20/20 when it comes to investments. I’ve made a few mistakes such as a T-shirt business, but they’ve never been too costly. I just wish I learned more about human biases, the business mindset, and investment frameworks earlier. I also wish I learned valuable, transferable skills earlier such as marketing, consulting, management, social skills, and political knowledge.
[Editor: If you'd like to know more about Kayee Tong and some of the things he mentioned in the interview, check out his Quora page.]