The Value Investor’s Case for Bitcoin

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“It’s a fraud. It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.” — Jamie Dimon, CEO of JP Morgan Chase (2017)

“The blockchain is real.” — Jamie Dimon (2018)

“Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.” — Larry Fink, CEO of BlackRock (2017)

“Crypto is potentially transcendent. It’s an international asset.” — Larry Fink (2022)

“I’d rather have bananas than bitcoin.” — Mark Cuban (2019)

“I have a lot of Ethereum as well … I wish I had bought it sooner.” — Mark Cuban (2021)

“Something that moves 20% [in one day] does not feel like a currency. It is a vehicle to perpetrate fraud.” — Lloyd Blankfein, Former CEO of Goldman Sachs (2017)

“I look at the crypto, and it is happening.” — Lloyd Blankfein (2021)

“I look at Bitcoin as a solution in search of a problem … I don’t understand why we need this thing.” — Stanley Druckenmiller, billionaire investor and hedge fund manager (2019)

“I don’t own any bitcoin, but to be frank, I should.” — Stanley Druckenmiller (2023)

“Bitcoin is a bubble.” — Ray Dalio, Founder of Bridgewater Associates (2017)

“Bitcoin is one hell of an invention.” — Ray Dalio (2021)

All these professional money managers missed the boat on bitcoin, but there’s one who didn’t.

This week I discovered a hidden gem called “The Value Investor’s Case for Bitcoin?!” Note the outlandish punctuation, which is unusual for professional fund managers.

Even more unusual, the investment memo was written in 2015 (!!) by Bill Miller IV, the Chief Investment Officer at Miller Value Partners, a firm known for its long-term value investing approach (!!!).

MVP (great initials) was founded by his father, Bill Miller III, and the firm famously beat the S&P 500 for 15 consecutive years. Like all value investors, their approach was to find undervalued companies and hold onto them for the long term. Safe and boring.

Value investing and bitcoin are like orange juice and toothpaste: they don’t mix. But somehow, back in 2015, Bill Miller IV — the heir to the hedge fund — believed in bitcoin.

I’ll simplify BM4’s reasoning: imagine bitcoin becomes an alternate store of value, like gold. Back in 2015, that seemed highly unlikely, so he gave it a 0.25% chance of happening. But, he reasoned, the total market cap of gold was $6.4 trillion, so:

$6.4 trillion / 21 million bitcoin * 0.25% probability = $762 per bitcoin

Bitcoin was selling at just $230 at the time (?!), so $762 would be a 231% return. And so BM4 bought the bitcoin.

I imagine this decision took a great deal of courage, but man oh man what a great bet. What incredible foresight this kid had, even before all the haters started hating on crypto.

This week he published a followup post called “Why I’m Still Betting on Bitcoin,” in which he references his father’s original philosophy that humans are notoriously bad at predicting new technologies.

“Who the Hell Wants to Hear Actors Talk?”

We all know the stories of famous people who got new technologies hilariously wrong.

“There’s no chance that the iPhone is going to get any significant market share,” pronounced Microsoft CEO Steve Ballmer in 2007. In 1946, Darryl Zanuck at 20th Century Fox declared that television was a passing fad: “People will soon get tired of staring at a plywood box every night.” And Harry Warner, one of the founding Warner Brothers, famously snapped, “Who the hell wants to hear actors talk?”

I imagine a caveman, just introduced to the new technology of fire, who was like, “Fire hot. Like cold. Meat raw.”

The difference with crypto is that it’s a financial technology. It’s a problem to listen to the financial experts about a technology, which is like taking fashion advice from a nudist.

Here’s how Bill Miller IV’s dad, the appropriately-named Bill Miller III, put it in 2017 (?!):

I think the strongly held negative views on Bitcoin fall under the rubric “new things, old thinking.” Whenever we are confronted by something we haven’t seen before we try to understand it by assimilating it to something we have seen before or that we think we understand. We reason by analogy, or we employ metaphors that seem to fit … As we gain greater understanding and experience, our thinking becomes (hopefully) better and more accurate.

BM3 points out that many investors thought that Google was a terrible idea when it launched its IPO in 2004. The Wall Street Journal was largely negative, in part because Google priced their shares via Dutch auction, which prioritized investors over Wall Street. Imagine this: people shorted Google stock!

The celebrated investor publication Barron’s ran a cover story in 1999 called Amazon.bomb, pronouncing that “this storybook stock has problems.” Yes, Barron’s actually suggested that Amazon stock was overvalued … back in 1999.

(Meanwhile, a tech-savvy investor who had bought AMZN at that time, at the price of $3.31, would now have holdings of $7,444: a 225,000% return over 25 years.)

Such is the power of not listening to financial experts about new technology.

New Things, Old Thinking

Crypto represents a new thing. It’s not just finance, it’s not just technology, it’s a mashup of both.

At Bitcoin Market Journal, we have pioneered the “value crypto investor” approach, merging the old thing (value investing) with the new thing (crypto). While most traditional value investors laughed at us — just as they laughed at Bill Miller IV — our approach is gradually just becoming common sense.

You don’t hear the pronouncements that “bitcoin is a fad” anymore. The haters seem increasingly out of touch. Now it’s more about the role that bitcoin — and, gradually, the rest of crypto — should play in an investor’s portfolio.

Our approach doesn’t change: we hold a well-diversified portfolio of stocks, bonds, and a small amount of high-quality crypto assets (up to 10%). Invest the same amount, each month, regardless of price. And hold onto them for the long term: 5+ years. (Read more on our investing approach here.)

My favorite quote of all is from the legendary VC Marc Andreessen, who has made his own big bets on bitcoin.

“The historical track record of old white men who don’t understand technology crapping on new technology is, I think, 100 percent.” — Marc Andreessen, Founder, Andreesen Horowitz

That, I believe, is a quote that Marc won’t ever need to backtrack.

Disclaimers: I am not a financial advisor, just a 10+ year crypto investor who’s written two books and several hundred columns on crypto assets. The future may look different than the past. All investing involves some risk; see our investing approach for how we manage risk through diversification. Never invest more than you’re willing to lose, and see losses as learning.