I was very late to the bitcoin party. But Howard Lindzon, probably one of the best-known investors anywhere on the internet, was right on time. I’ve been a follower of Lindzon’s for years. First, because of Wallstrip, an irreverent take on the hottest stocks of the day, which was sold to CBS Corporation (NYSE:CBS) in 2007. Then, through StockTwits, which he founded in 2008. It’s the investor’s version of tweeting.
And now I primarily just read his daily thoughts on the markets emailed to me each morning. Needless to say, he’s a really bright guy who provides a ton of valuable insights for free. That’s how you create a following.
Anyway, Lindzon’s been a big believer in bitcoin for as long as I can remember — at least back to March 2013, probably earlier than that, but a lot longer than anyone I know.
“The bitcoin, or something like it, is now here to stay,” Lindzon’s March 13, 2013, blog post stated. “Trust has truly jumped the shark and combined with the cloud, our lunatic monetary global policies, mobile phones and explosion in startups and apps without business models, barter is back.”
On Oct. 12, I predicted that it would hit $10,000 within a year … it did it ten-and-a-half months early. It seems I’m either late or early to the bitcoin party but never on time. Look, my biggest reason for believing in bitcoin is that if it makes the banks squirm, it’s got to have some redeeming features.
I might not fully comprehend what those are, but if I keep reading Lindzon’s thoughts on the subject, I’m sure I’ll eventually figure it out. However, not everyone is as sure about bitcoin as Lindzon is; other’s are downright terrified. If you’re on the fence about bitcoin, these opinions from some of the brightest and best Wall Street has to offer could sway your stance.
Reasons to Avoid Bitcoin: Jack Bogle
When the champion of low-cost investing speaks, investors listen.
Vanguard Group founder Jack Bogle recently railed against the cryptocurrency suggesting it’s baseless and possessing “no underlying rate of return.”
Speaking at a Council on Foreign Relations event in late November, Bogle made it clear where he stood.
“You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing,” Bogle said. “There is nothing to support Bitcoin except the hope that you will sell it to someone for more than you paid for it.”
I don’t know about you but should North Korea fire off a few nukes starting a World War, gold and bitcoin might be two of the most valuable assets anywhere.
Reasons to Avoid Bitcoin: Jamie Dimon
Speaking of gold, apparently, JPMorgan Chase & Co (NYSE:JPM) CEO Jamie Dimon thinks bitcoin is the next great precious metal, and not in a good way.
“People are very good at manipulating the press these days and getting news out. Every day, you have CNBC, nonstop bitcoin — Who cares about bitcoin?” Dimon said in September. “The world economy’s so big, JPMorgan alone, $6 trillion, we move all this money, and bitcoin in total, all these currencies, $50 billion dollars, maybe a billion dollars trades a day.”
Almost as much as Dimon’s annual compensation.
Seriously, all seven of these naysayers have one thing in common: they all view bitcoin as something in the ether that doesn’t exist. Except, if you think back to what Lindzon wrote about it in 2012, it’s really a form of barter.
If I want to sell my car and believe that it’s worth $20,000 and you offer me two bitcoin as payment for the car and I think a bitcoin is worth $10,000, how is that not a real transaction? The banks hate the fact that they’re being cut out of any potential business.
Dimon’s opposition has little to do with concern for the average bitcoin owner and everything to do with controlling customers.
Reasons to Avoid Bitcoin: Howard Marks
The value investor who co-founded Oaktree Capital Group LLC (NYSE:OAK) and understands a thing or two about currencies, has a difficult time getting behind bitcoin. He even committed several paragraphs to his September 7 memo.
“Serious investing consists of buying things because the price is attractive relative to intrinsic value,” wrote Marks in his previous July 26 memo. “Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price, solely because they think others will pay more for it in the future.”
Well, I don’t want to argue with an investment guru, but one could make a strong case that the “intrinsic value” of a stock doesn’t exist. Sure, you can come close, but it’s impossible to pin down to the exact penny.
In Marks’ September 7 memo he begrudgingly accepts that it is a digital currency but then proceeds to argue why it might fail.
“Finally, bitcoin isn’t alone. There are hundreds of digital currencies already — including eleven with market capitalizations over a billion dollars – and no limits on the creation of new ones,” he wrote. “So even if digital currencies are here to stay, who knows which one will turn out to be the winner?”
He sounds like a naysayer that can be turned into a supporter. At least he’s not a hater.
Reasons to Avoid Bitcoin: Joseph Stiglitz
The last economist that I remember being any good at investing is John Meynard Keynes who oversaw the King’s College (Cambridge University) bursar for 22 years until his death in 1946.
Averaging 12% compounded annually over more than two decades, 200 basis points better than the markets as a whole, economists generally should stay out of discussions involving investments.
John Kenneth Galbraith famously stated, “The function of economic forecasting is to make astrology look respectable.”
So, the fact that Nobel Prize-winning economist Joseph Stiglitz is bashing bitcoin is a huge reason why the digital currency is real and has staying power.
“So it seems to me it ought to be outlawed,” Stiglitz said in late November. “It doesn’t serve any useful function.”
There’s a big difference between saying the crypto asset is overvalued and suggesting it should be outlawed. Again, it all comes down to control. People like Stiglitz can’t understand something that’s not regulated by governments.
If Adam Smith were alive, I suspect he would be a bitcoin fan.
Reasons to Avoid Bitcoin: Warren Buffett
I’m going to go easy on the Oracle of Omaha because the famous investor is known to say one thing and do another opting to keep his true intentions to himself.
Back in 2014, Buffett warned investors that bitcoin was merely a method for transmitting money much like a check or a money order and possessing no intrinsic value, not much different than Howard Marks’ take on the digital currency.
As far as I can tell, Buffett’s only new statements about bitcoin since then were in October while speaking to university students in Omaha.
“People get excited from big price movements, and Wall Street accommodates,” Buffett said. “You can’t value bitcoin because it’s not a value-producing asset.”
To me, that’s Buffett-speak for “I don’t understand bitcoin enough to pass judgment on it, but since I’m Warren Buffett, everyone expects me to have a position on anything of a financial nature, so there, you have my opinion.”
In other words, he’s not too concerned about it, and it’s definitely not keeping him up at night.
Reasons to Avoid Bitcoin: Prince Alwaleed
Although there’s no official confirmation from the Saudi Arabian government, Prince Alwaleed bin Talal, whose holdings include investments in American companies such as Citigroup Inc (NYSE:C) and Lyft, is still being held in a “five-star jail” in Riyadh.
Before Alwaleed’s arrest in early November, the billionaire appeared in a CNBC interview in which he discredited the digital currency.
“It just doesn’t make sense. This thing is not regulated, it’s not under control, it’s not under the supervision [of any central bank],” Alwaleed said Oct. 23 on CNBC. “I just don’t believe in this bitcoin thing. I think it’s just going to implode one day. I think this is Enron in the making.”
Here, again, is another wealthy individual questioning the regulatory oversight and control of bitcoin. If I had a dollar for everytime a detractor uttered the word “control” while speaking about the cryptocurrency, I might not be a rich man, but I think I could buy myself a nice lunch.
What do you expect a billionaire who owns a piece of a big American bank to say about something that threatens his very livelihood? Alwaleed depends on the banks to help carry out his global ambitions.
The last person in the world to go to for a primer on bitcoin is the Saudi prince.
Reasons to Avoid Bitcoin: Steam
It appears that the video-gaming community is backing off its support of bitcoin with the announcement by Steam that it will no longer accept the digital currency as a method of payment.
“In the past few months, we’ve seen an increase in the volatility in the value of bitcoin and a significant increase in the fees to process transactions on the bitcoin network,” the company wrote in a recent blog post.
“The value of bitcoin is only guaranteed for a certain period, so, if the transaction doesn’t complete within that window of time, then the amount of bitcoin needed to cover the transaction can change. The amount it can change has been increasing recently to a point where it can be significantly different.”
According to Steam, transaction fees a year ago to process bitcoin payments were 20 cents. Today, they’re 200 times that with no ceiling in sight.
While this is something that ultimately will get fixed, it highlights the newness of bitcoin relative to traditional currencies. I understand Steam putting the brakes on these payments until it can reign in costs, but anyone who thinks this is a reason to “just say no” to bitcoin is missing the point.
Steam’s not so much a detractor as it is a frustrated participant. There’s a big difference.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.