We view investing in bitcoin as a highly speculative bet on an emergent technology that has very little current utility, tremendous potential regulatory overhang, questionable liquidity and transparency, but which may nevertheless find much greater use in a range of new fintech applications as its network expands. Just because an investment cannot be “valued” does not mean it cannot be “priced.”īitcoin – Not (yet) a currency, not a safe haven, but a bet on technology Yet they remain appropriate investments for some who possess the requisite knowledge, skill, and the stomach for illiquidity. Many popular investments-art, antique furniture, classic cars-have little or no intrinsic value, whether defined as a positive cash yield, an ultimate use value, or a net present value of future cash flows. Much of the debate has thus far been centered, we believe wrongly, on bitcoin’s “intrinsic value”. But neither of these facts mean that cryptocurrencies are uninvestable. Bitcoin also has regulatory and scaling issues that gold, as the most widely held base metal, lacks. With annualized volatility in excess of 100%, bitcoin and related technologies are, in our opinion, neither efficient mediums of exchange nor reliable stores of value as proponents claim.
The bitcoin debate is polarizing, but with a nearly trillion-dollar “market cap” and a sharp increase in mainstream interest, its suitability as a financial investment should be thoughtfully considered by those building portfolios for the long term. A host of prominent bitcoin enthusiasts believe it will one day replace gold, while Warren Buffett and Charlie Munger, never fans of the yellow metal, have likened it to rat poison. Bitcoin believers will credit its recent parabolic price chart to legions of new “smart money” investors and an influx of dollar bears, while doubters may cite artificial price inflation caused by “painting the tape” schemes and stablecoin manipulation. Bitcoin’s price has quadrupled over the past six months, minting many more crypto millionaires and intensifying “fear of missing out” (FOMO). The fervent religiosity of the digital currency’s fanbase has never dimmed, but a recent uptick in institutional interest has reignited the debate over its staying power. “We view investing in bitcoin as a highly speculative bet on an emergent technology… which may nevertheless find much greater use in a range of new fintech applications as its network expands.”Īvoiding discussion of politics and religion at the dinner table is generally wise, but this past Christmas you might have done well to abstain from mentioning bitcoin, too. WMS Partners is unable to make investment recommendations concerning cryptocurrencies and cannot effectuate any transaction due to issues with custody of such assets. The paper was written in early January 2021 and it is likely that the price of bitcoin will have fluctuated dramatically by the time you read it. Disclaimer: In this paper readers will find neither bitcoin price targets nor buy/sell recommendations.
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