Crypto Investing #91 – What Are Martin Weiss Cryptocurrency Ratings?

Tai Zen: This is Tai Zen. I’m broadcasting from the Miami Bitcoin conference. And with me today we have Mr. Martin Weiss. Is that correct?

Martin Weiss: Absolutely!

Tai Zen: So that’s from Weiss Ratings. What they do is they rate stocks In the traditional stock market and now they’re stepping into the Cryptocurrency space. And they want to share some of the rating systems that they’re using In the Cryptocurrency space and I thought it was interesting because they’re just new to the Cryptocurrency space and I was wondering how they were able to rate the Cryptocurrencies for investment purposes if they just got into space.

So before we get to that how they do that, let’s just a little bit background of what Martin and who he is. And then that way our audience will know where you come from. So can you talk a little bit about who you are and what you do?

Martin Weiss: Absolutely I have founded the company I have right now and Weiss ratings at 46 years ago. And we have been focusing on rating financial institutions, insurance companies, banks, credit unions and then stocks, ETFs and mutual funds. We rated a total of 55,000 different institutions and investments but we’re not like Moody’s, S&P and Fitch.

Tai Zen: That’s what I was going to ask you like what makes your rating system different from Moody’s and all the other guys.

Martin Weiss: It’s a totally different business model. They accept very large fees per rating per company for the sake of rating that same company.

Tai Zen: So you believe something basic has a conflict of interest because they’re being paid by the company that their rating. The more you pay them the higher the rate you.

Martin Weiss: Well not quite tit-for-tat but there is definitely an egregious conflict of interest that has been recognized by the SEC, by the US Congress and others. Our business model is totally different. We never accept a dime or any compensation in any form from the companies or entities we rate.

Our business is exclusively for the individual investor, the individual consumer, individual policyholder and they are the customer. We sell our information directly to them.

Tai Zen: So basically with your rating company, you make money off of selling the rating research that you do to investors. Whereas like with Moody’s, S&P Standard & Poor and all the guys, they make money off of the people that they are rating.

Martin Weiss: If you were to actually ask your daughter or a young woman or a young boy to go to the movies and given permission to go movies and you know that the rating is bought by the Hollywood firm that produced the movie then what you wouldn’t have much trust in that rating.

Or if you went to a restaurant and found out that the restaurant is paying Zagat or Michelin for their 5-star rating, you wouldn’t want to go to that restaurant but yet millions of investors are risking their hard-earned funds to invest and buy stocks and buy insurance policies and put their saving money in banks despite the fact that they’re using that kind of a Paola kind of system.

Tai Zen: So let me ask you this like what were you doing like at some point your life you were doing something that would have had nothing to do with ratings and what got you into the rating business?

Martin Weiss: Well we started in 1971.

Tai Zen: And that was before I was born.

Martin Weiss: That was before I got out of college and got my degree so, at that time, that was my initial concern. Back then, I was worried about the serious conflicts of interest between rating agencies and investors because I was concerned that ratings would get overinflated which in turn would aggravate or even cause stock market crashes, financial failures, and the investors would get caught and trapped in that. And that’s exactly what happened.

Tai Zen: So you saw your stock-rating service and how did it gain traction over the years because obviously you‘ve been doing it for a few decades now. So how did you gain traction as the independent stock-rater?

Martin Weiss: Well in the field of stock ratings, we are not the only ones that are independent. There are other independent research organizations besides ourselves. In the field of insurance ratings, bank ratings, credit type ratings, we are the only ones that are independent. So I don’t want to over talk what we do.

The Cryptocurrency space is especially interesting. Never before in my lifetime have I seen a greater opportunity and never before my lifetime have I seen a greater need for the kind of common sense, basic rigorous research and that would help benefit investors to separate the Pipe from the fact.

Tai Zen: The real Crypto! On our channel, we caught the real Crypto from the bullshit Crypto.

Martin Weiss:  There you go.

Tai Zen: I’ll say that since you probably can’t say it on your channel.

Martin Weiss: Today’s the day I think I can say a lot of things I couldn’t use to say just a few months ago.

Tai Zen: So here’s the thing that I asked your assistant when we were booking this interview here that you know I have some skepticism because we started the first Bitcoin and Cryptocurrency trading investing channel on the internet that I know of. We did this like four and a half years ago. We were the first channel to recommend the Cryptocurrency blockchain 2.0 project like NXT, like Ethereum when everybody thought we were crazy, we were nuts and now they look at us and they call us Legends for bringing that up to the community back then.

So my question to you is this, is that you are new to the Cryptocurrency space and that doesn’t mean that you’re incompetent or anything like that but I would be hesitant and my audience would be hesitant to say like you might be really good at rating stocks but you’re new to the Cryptocurrency space so what makes you qualify to rate Cryptocurrencies.

Martin Weiss: Well you know it’s interesting. It’s the same question the US Congress asked us when we start to rate insurance companies and we were new to that field. And the primary advantage we have is threefold.

Number one, massive amounts of data that we crunch. Number two, intelligent models that are experts build and I’ll talk about the experts in just a moment.

And number three, unbiased, impartial and based on that our ratings, according to a study by the U.S Government Accountability Office, beat S&P Moody’s and Fitch and all the others, AM Best by a factor of three to one. There are two things that went into that. First was impartiality. The second one was drawing from the expertise that’s in the industry.

Tai Zen: So that’s where I think that my audience would have. But I don’t think they have a problem with you being impartial because when we told our channel that made us popular in the Cryptocurrency trading investing space was that the audience trust that we are doing our best to be neutral, unbiased and impartial.

And I don’t see any reason to suspect that you would not be impartial in your ratings on Cryptocurrencies but when it comes to being an expert or being knowledgeable about the Cryptocurrency space.

Martin Weiss: Let me talk about me personally. I have enough knowledge of the technical space in Cryptocurrencies to understand the limitations of knowledge in the Cryptocurrency.

But I have a team that It has more knowledge than I do and they have been very good at drawing from the knowledge in the public domain including your channel. And we have also worked very hard in bringing in consultants that are in the space.

Tai Zen: So basically you’re saying that you yourself may not be the expert but you know how to assemble a team of experts that can research the space.

Martin Weiss: I am looking into this space. I recognize that even my best developers being that they’re not specialist in the blockchain it disqualify them from doing that kind of analysis that would be necessary. But by drawing from experts in the field and our in-house team, I think we’ve been able to assemble a model that captures the primary differences and variations in the technology of each Cryptocurrency and we’re talking about blockchains.

We are not rating ICO, at least not at this stage. And so let me tell you about our model. So the model is based is to create a single final conclusion, a letter grade. But it builds from the ground-up in order to achieve that goal.

The first thing is the data. The second, we have a second layer we have formulas, a whole series of formulas that work together and those formulas then build-up to the third level which we call sub-indexes or you might say sub in the model. And then that those submodels then build-up to the final grade. And if you look at those submodels, the second model is where you understand better how our system works.

The first we call the risk index and that’s based on recent price movements. Kind of things like an average drawdown, total drawdown, various formulas that measure risk and volatility. The second index is a reward index which looks at potential return also based on price history, price volatility and a whole series of another factor.

And those two concepts, a risk Index and reward index are pretty familiar to investors. We developed them over the years for stocks and ETFs and they are applicable to any investor. But you have to go beyond that. Cryptocurrency is a different animal. To rate the value of the investment, we have to look at the technology.

And therein is where I have to bring in experts from outside that I am not familiar with personally and the technology index look at the source code, looks at all the features of the source code, looks at the weaknesses and strengths.

Is it sustainable? Is it scalable? Does it have governance? Does it have Treasury? How does that actually work and so on. That’s really a qualitative analysis but we converted to a quantitative model by creating a Query tree and the tree is like a questionnaire.

Sometimes if you answer yes to a questionnaire, it’ll open up a whole series of subsidiary questions. If you say no, it closes that tree. So that’s essentially how it’s structured and it creates a point system that effectively rates the technology. So do you want to ask a question about that or should we go to number four?

So we all know and I do understand that what’s in the white paper for the blockchain, what’s in the code, what’s in the commentary and all the critiques on that blockchain is all theory in a sense.

It’s mostly theory because until that currency is tested in the real world, there are things we don’t know that we can’t be sure of so we developed the fourth index. We call it for lack of a better term, a fundamental index. And that is to try and capture the relevant data on adoption usage, on security, in the real world. So it’s that kind of a real test of the technology index.

Some Cryptocurrencies may rate high in technology but they’re too immature to rate high in the fundamental index or vice versa. Some Cryptocurrencies are out there and they have a pretty good acceptance but there are issues in their technology in this state they can’t fix or haven’t fixed yet. And so putting all four of those together into a supermodel that looks at in terms of if-then-else kind of logic, we come up with a final grade. And by the way, the final grade is never going to be perfect after everything.

Tai Zen: Because I’m talking about the letter grades A, B, C, D, E, F.

Martin Weiss: That’s right, just like school grade. That’s the way we rate insurance companies, the way we rate stocks, the way we rate everything. It easy for the average person to understand and you can have a plus or minus in there as well. After all, is said and done, all the objective research, all the data and the impartiality, in the fight ultimately that letter grade represents our opinion so the end all be all.

Tai Zen: So here’s the first that comes to my mind so one of the things that our audience and viewers trust us and like about our channel is that were straight shooters and we don’t screw around when it comes to trading and investing.

So like I’ll give you an example, like when I do my technical analysis on our channel with my team, my business partners, I have one that my business partner Leonfu.com. He’s the other co-host of this channel. He is not here with us today because he’s expecting his first child today, tomorrow, the next day so he couldn’t make it to Miami this year but he’s made it every year.

But for example, on our team, he gives me Carte blanche meaning that he’s giving me permission that if I do some technical analysis on any Cryptocurrency, I can drop $100,000 on that trade for him without even having to call him and ask. So I’m always asking myself this is that when somebody does analysis, how are they willing to put their money on it?

So like when you do your ratings in your analysis on a Cryptocurrency, are you putting your own money on the line because when I do my analysis that I share with our audience, not always not 100% of the time but the majority of the time I put my money on the line on that trade. So I don’t just analyze it but I put my money into that Crypto that I analyzed and so do we on our team.

Martin Weiss: Let me tell you what we do with our stock Portfolio because we haven’t launched a Crypto race. It will be launched on Wednesday, January 24th. It is the next Wednesday. So I don’t have a Portfolio setup with my own money in Cryptocurrencies yet but let me tell you what we do with stocks.

We raise stocks and I have invested. I put a Portfolio of my own personal money with Fidelity. I take the statements from Fidelity, all the confirmation statements and I post them online for our subscribers to see exactly what I’m doing. I follow exactly to the letter all the recommendations that are in the letter that I published.

Tai Zen: So the analysis that you do in the stock market you’re saying that you put that on the newsletters but you all also put your real money on the line, not simulated money, not demo money, not Monopoly money, real money.

Martin Weiss: I have an expert who is making that final selects based on the rating. So he’s always looking to buy the top 10 ranked Stocks in the entire universe. But he has some discretion. He’s not just a machine and as soon as he makes a recommendation, 2 things happen.

First, the recommendation goes out to the investors so they have an opportunity to buy or sell that instrument. The people in my office who trade my account who send the orders to Fidelity for a minimum of 2 hours to give everyone else an opportunity to buy or sell before we do.

Then the trade is executed from my personal account and it’s posted online. Total transparent, totally for the sake of the investor’s. Now can we do the same thing with Cryptocurrencies? Well, Cryptocurrencies are hypersensitive not just to rumors but to chitchat. I mean that the market is so easily manipulated and I am very concerned that if we’re the only ones coming out with these kinds of ratings, what is that going to do?

Tai Zen: Well that’s my question is that you know.

Martin Weiss: I have a plan to set up a Portfolio online hard money on the line. Putting my money where my mouth is, where our ratings are. Before I do that, I am going to establish a Blanket prohibition for trading Cryptocurrency.

Anyone was involved in the process of creating those ratings until I have a better sense of what impact the ratings are having or not on the marketplace. As soon as I can assess that then I will set up a Portfolio with rules that protect the public. It is fair and equitable.

Tai Zen: I understand that you don’t want to…

Martin Weiss: I won’t put my money where my mouth is, where I ratings are but I also don’t want to raise any even suspicion or question…

Tai Zen: That you’re pumping a Cryptocurrency and you respect that.

Martin Weiss: Even inadvertently.

Tai Zen: Yeah maybe because that’s one thing is we have a lot of people online that do analysis and they do broadcast on YouTube on laws and everything. Do a ton of analysis. But when it comes down to it when I meet these people in person and I asked him how much money did you put on that, why I just do analysis. Well seem to me that’s bullshit because if you do analysis but you can’t put real money on it or real Bitcoins are ethers on it then to me that’s just nothing.

Martin Weiss: You need to think of those issues though and if you’re doing analysis before you put money into it, you have to think of what impact your analysis is going to have on your Investments and make sure there’s no conflict of interest. And the first thing that helps you with there is disclosure. You tell your subscribers what are you doing right?

Tai Zen: Keep in mind that my subscribers when they follow us I’m not charging them anything, it is free. I’m just sharing it like a diary or document of what we do in our team. So to me, it doesn’t matter what the audience does. I’m just hey look, this is what we did when we originally start a channel.

There were wallet issues, there are all kinds of issues that we didn’t know like hey we lost money, I hope that somebody doesn’t make the same bonehead mistakes that we did. So that’s why we made these videos to share with people. We’re not licensed, financial advisors. We’re not telling people what to buy, what to sell, what to hold or none. It is just purely hey this is what we did like I’m interviewing you right now.

Martin Weiss: Let me ask you this. Can you name a specific occasion in which you had a discussion about a particular coin and as a result of that discussion the coin moved up or down significantly in value?

Tai Zen: I have seen that happen with myself, with other YouTubers that talk about a coin and it was not our intention to pump it or anything. But there are enough people out there that trust us that when they see us talk about a project that it may motivate them or it might prompt them.

I don’t know what the reason is. I talked to one trader before where he said that he likes to pay attention to what we do and uses algorithms every time we talk about what we trade and stuff. So I don’t know what people actually do until I see them do with real money. I don’t know, you know.

Martin Weiss: But we have very high confidence in our work and we do put money where our mouth is. Within a structure that prevents exactly the opposite of front-running because we would be buying and selling only after the subscriber has the opportunity to do so.

Tai Zen: So let me ask you this, what are some of the downsides of your ratings or some of the things that you wish that you could do better because I mean you’re stopping in here not everything is going to be perfect. What do you think about what are some of the things that you wish that you had? More information or more technology to make your ratings better?

Martin Weiss: In the future, it would be ideal if we had a team of developers in Bitcoin.

Tai Zen: Good luck with that.

Martin Weiss: And the good ones are already very busy. So that in the ideal world and to actually benchmark test every new project to comes out, that is not our goal. At least not at this stage, we recognize limitations in doing that but in a perfect world, that would be ideal.

Another limitation that we all have to recognize in the space is you can’t go to the S&P or the FDIC or whatever and asked and just buy a big database it’s ready-made and then crunch the data. Data is a challenge and I think by creating that manual process I mentioned you earlier, we convert qualitative analysis into quantitative formulas. I think it we’ve been very good at that.

Tai Zen: So if someone wants to check out your site and information, could you go ahead and state clearly where they can go to learn more information about your rating system and then also send me that afterward, I can make sure it’s spelled correctly and put it in the description of this video. So just say clearly.

Martin Weiss: Our website is www.WeissRatings.com and at the top of the pages is a banner that will direct you to the Cryptocurrency section. The ratings will launch on January 24th. Until that time, you will see some information about it but the full information will be more readily available on January 24th.

Tai Zen: So if you want to learn more about what Martin Weiss is doing, go to his site Weiss Rating with an S dot-com and why is it spelled Whiskey Echo India Sierra Sierra Ratings. Alright, so thanks for taking the time out to share your rating system with us and how you’re going about doing it. I know that some of those questions with talking all because you knew in the Crypto space and the audience expects us to answer those questions.

I appreciate you taking the time to answer them and if you guys want to learn more about what Martin is doing obviously you know nothing I say it should be considered financial advice or recommendations or anything. I met Martin here, sounds interesting. I thought it was interesting what he shared with them offline. That’s why I brought it online for you to check it out.

So thanks for watching this video guys if you guys like it give me a thumbs up If you want more of these boots on the ground type investing videos Go to www.Cryptocurrency.market/newsletter. And you can follow me on Twitter and I’ll see you guys in the next video.

 

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