An entrepreneur won a lunch with Warren Buffett. Now he's looking to beat him with cryptocurrency

Key Points
  • Chinese entrepreneur Sam Ling and his partner spent $2.35 million bidding on a private lunch with Warren Buffett in 2015.
  • Buffett, who Ling calls his "idol," has expressed skepticism about cryptocurrencies.
  • Ling, nonetheless, says he is willing to bet that his cryptocurrency index will outperform Buffett's portfolio over the next 10 years.
Warren Buffett and Sam Ling at a lunch that the Chinese entrepreneur won at a charity auction.
Courtesy Sam Ling

In 2015, Chinese entrepreneur Sam Ling and his partner spent $2.35 million bidding on a private lunch with Warren Buffett, hoping to get some investment advice from the legendary investor.

Three year later, the 31-year-old businessman still uses his photo with Buffett as his phone's wallpaper.

"Buffett is my idol," Ling, founder and CEO of Supwin Financial Services Group based in Guangzhou, China, told CNBC in Chinese. "I have been looking up to him and studying his investment strategies for so many years. I'm a loyal fan of his."

But that loyalty isn't stopping him from betting big on something Buffett — the world's third-richest person — has publicly projected "will come to a bad ending": cryptocurrency.

Cryptocurrency indexes

If there's anything Ling learned from Buffett, he said, it is an appreciation for index funds. Ling, however, wants to apply that outlook to the digital currency realm.

"Cryptocurrencies like bitcoin are too volatile, and that's why we are launching cryptocurrency indexes," Ling told CNBC. "Over the past six months, our index has a lower decline than bitcoin during corrections, but has outperformed bitcoin by 50 to 80 percent during upsurges."

Ling is launching the "BB Index" family of 26 cryptocurrency indexes. They're grouped by market capitalization, category and strategy, ranging from a "Blockchain Top 7 Index" that covers the largest cryptocurrencies to a "Blockchain Top 50 ex top 20 Token Index" that covers mid-cap assets. All BB Indexes are updated every three minutes on its official website, Ling said.

"Think about the risk management, (and) think about the correlation. Actually we have different indexes to help people find the desired expected return they pursue," said Jerry Cao, chief scientist of BB Index and a former assistant professor of finance at Singapore Management University.

"Rather than thinking, 'Hey this cryptocurrency will rise 10 percent tomorrow,' that's a very short-term view," Cao added. "What we are really thinking is to extract from the short-term movement and think about one year or five years — what will be the application of those cryptocurrencies and their underlying blockchain?"

A 10-year bet

When asked what was the most memorable advice that Buffett shared with him during that $2.35 million lunch, Ling gave his answer without hesitation.

"Buffett touched on lots of issues during that lunch, but in the end, he said, 'Focus on what you are doing and you are already successful,'" recalled Ling. "This quote really left me with a deep impression and I followed his advice."

However, Buffett has made it clear he believes the craze over cryptocurrencies won't end well.

"In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending," the chairman and CEO of Berkshire Hathaway said during an interview with CNBC's Betty Quick in January 2018.

But Ling disagreed with his idol this time, saying he is confident that BB Index returns will beat any traditional portfolio manager, including Buffett.

"Warren Buffett just won a 10-year bet that an index fund would outperform a collection of hedge funds over that time," said Ling. "And I want to make a bet with him that my cryptocurrency index will outperform his portfolio over the same period."

CNBC reached out to Warren Buffett's office for comment, but did not receive any response by the time this article published.

"We can understand why he doesn't touch cryptocurrencies. As long as we understand and focus on what we are passionate about, we are following his philosophy," said Ling.

Plenty of competition

To be sure, the market for cryptocurrency index funds is getting increasingly crowded, with major players flooding in.

Coinbase, the leading U.S. marketplace for cryptocurrencies, announced in March it was releasing a weighted index fund to give accredited U.S. investors access to crypto assets.

Earlier this month, U.S.-based Cryptos Fund launched a new entity to track its CCi30 index of the top 30 cryptocurrencies, accepting subscriptions from qualified investors starting from $10,000.

Additionally, Bitwise Asset Management, which claims to be the creator of the world's first crypto-index fund, HOLD 10 Private Index Fund, announced in late March that the fund now supports investment from self-directed individual retirement accounts (IRAs).

In Asia, meanwhile, the competition is heating up.

Upbit, the largest cryptocurrency exchange by trading volume in South Korea, has announced the launch of the country's first domestic cryptocurrency index, Upbit Crypto Index.

But for BB Index's Ling, the ever-crowding battlefield could also mean opportunities for the market.

"Only with so many players launching cryptocurrency indexes together can we push the market to grow bigger as a whole," said Ling. "The entire cryptocurrency index will eventually become a $5 trillion market in 5 years."

Asian demand

According to Ling, a BB Index fund will soon be available on MatrixOne, a crypto trading platform launched by his company Supwin. Meanwhile, the index fund is aiming to launch soon on international exchanges, including Abu Dhabi Global Market in the second quarter of 2018, Huobi, a leading Chinese cryptocurrency exchange, and Bitwin Korea, a South Korean crypto exchange in which Ling invested.

Ling told CNBC that the index fund's over-the-counter pool size has reached $50 million and investment commitments of institutional and individual investors imply an additional capital inflow of $200 million after the fund's launch.

"Actually, most of these so-called 'committed funds' come from rich Chinese investors based overseas, but from my perspective, we want to basically introduce the index to institutional investors and that would be the future backbone of our users," Cao told CNBC.

The former professor said he sees a strong demand in Asia and BB Index aims to focus more on markets such as Singapore, Japan, South Korea and the Middle East.

With BB Index's official launch on the horizon, both Cao and Ling know it's going to be all about timing.

"We can't wait. We have to act fast," Ling said.

But indeed, he is waiting for a big market.

The China Market: Waiting for the right timing

There's been a lot of interest from Chinese investors in BB Index, according to Ling.

However, as China has banned cryptocurrency exchanges and initial coin offerings, crypto enthusiasts from the world's second-largest economy can only legally use coins or assets parked overseas to invest in crypto funds.

Ling said China's regulatory policy is very clear at this moment, but there may be a chance in the future.

"China has a huge population — 1.4 billion people, and 99 percent of crypto projects there just don't have the proper technologies to keep themselves on the right track, so the government can't allow good and evil people mixed up," said Ling. "But it's just temporary. China is waiting for the right time window and it's indeed a big market."

China's asset management industry is set to expand five-fold to $17 trillion by 2030, making it the second-largest market in the world, up from $2.8 trillion in 2016, according to a report by asset management strategy consultancy Casey Quirk, a practice of Deloitte.

And that would be a pie everyone wants to grab a piece of.

"It's like the internet, Wechat and mobile payment," said Ling. "It's just a matter of timing. When the timing is right, China will be okay with the technology and that's when we will launch (BB Index) there."