After Charlie Munger said Bitcoin annual meeting, some may get the idea that all value investors must hate the world’s largest cryptocurrency.
Miller also invested his personal money in Bitcoin and is now a Bitcoin billionaire after having purchased the cryptocurrency back in 2014-2015 at an average price around $350 per share, which he continues to hold.
Yet a recent profile in Barron’s showed Miller is back, with his current fund, the Miller Opportunity Trust, in the top 1% of its peers over the past one-, three-, five-, and 10-year periods.
For Bitcoin and other types of commodities without high industrial value, Buffett can’t escape the fact that these assets don’t actually “produce” anything.
It’s far superior to gold as a store of value, not just because it’s gone up 200% a year for 10 years, but because you can’t flee your country with millions of dollars’ worth of gold, as it’s bulky and hard to divide, whereas you can send Bitcoin anywhere in a fraction of a second at very low cost, and it’s almost infinitely divisible.
For the record, Buffett is not the biggest fan of gold either and has said similar things about gold as he has about Bitcoin: He believes it’s of limited utility, notes that isn’t used in many industrial applications, and disagrees that it’s a good store of value or mode of exchange.
While gold can’t really be used as an efficient medium of exchange these days, more and more companies are allowing for you to pay for things with Bitcoin.
Are checks worth a whole lot of money just because they can transmit money? I hope Bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways.
Lower transaction fees not only enable buyers and sellers to transact at prices that are better for both parties, but they could enable micropayments in markets that are not otherwise compatible with a $0.15 surcharge on low-price, low-margin goods and services.
One pitfall is that bitcoin may be too good a medium of exchange, so much so that it becomes a preferred solution for kidnappers and extortionists, displacing suitcases full of cash.
As with investing in things like sugary drinks, oil, cigarettes, gambling, or alcohol companies, every investor needs to draw his or her own moral lines when investing, taking into account of costs and benefits each security brings to the world.
It’s been a very speculative kind of Buck Rogers-type thing, and people buy and sell them because they hope they go up or down just like they did with tulip bulbs a long time ago.
Harking back to Tulipmania of 1637 Holland, Buffett is basically saying Bitcoin is only as valuable as tulips — in other words, however much someone is willing to pay.
When Bitcoin’s volatility approaches that of Treasuries, its market cap and price per bitcoin will be immensely higher and leave little room for excess return.
Following on that topic in a recent interview, Miller claimed that Bitcoin’s recent rise had made it less risky, not more.
In Miller’s mind, the recent rise in Bitcoin’s price is validation of institutional demand and the mutual agreement across institutions that Bitcoin is the de facto cryptocurrency for the world.
Meanwhile, Miller sees current demand so far outstripping supply that it doesn’t really matter what utility Bitcoin will ultimately have: It’s going higher regardless because institutions have decided it’s worth something.
One of the more intellectual arguments for Bitcoin is that it’s a hedge against the fall of major governments and their currencies, a scenario that could lead to hyperinflation.
Bitcoin is the solution to a problem that’s bedeviled economies since there were economies, which is government monopoly over the money supply and the banking systems, leading to serial defaults, confiscation with nationalization, inflation, and 25% money growth even in the U.S.
This argument probably makes the most sense for Bitcoin as an intrinsically valuable financial asset.
But again, remember that Buffett doesn’t have much affection for gold, even as an inflation hedge.
The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else — who also knows that the assets will be forever unproductive — will pay more for them in the future.
So what would Buffett prefer to own as a hedge against inflation, instead of gold? He prefers stocks of productive businesses that have pricing power and don’t require much capital investment.
The final verdict has not yet been rendered on Bitcoin, and it’s unclear whether Buffett or Miller will be proved right.
As they say regarding investments in high-risk, high-upside assets, if it goes up a lot, you don’t need much, and if it goes to zero, you won’t want much.