Howard Marks’ bitcoin admission: “I didn’t see the supply demand side”
Legendary value investor Howard Marks famously labelled Bitcoin a pyramid scheme in 2017. But he now says he’s becoming “more open-minded” about the cryptocurrency and has admitted to being a “knee-jerk skeptic”.
“I came out very negative about cryptocurrencies when they first emerged in 2017. I spent a lot of time in the pandemic with my son who’s an investor and, of course, he’s much younger than me and he understands things I don’t understand but he made me conclude a few things,” said Marks
“Number one, that I had been a knee-jerk skeptic, because I’ve seen a lot of financial innovation that failed and I’ve seen a lot of credulous investors who accepted the new.
“And (number 2) because I thought that the cryptocurrency had no intrinsic value… They don’t throw off cash, you can’t value them, you can’t say a Bitcoin is worth $55,000 or $78,000 or $42,000. There’s no way you can justify that with hard analysis.”
The billionaire co-founder of Oaktree Capital Management went on to explain why he’s now more opened-minded about Bitcoin in the interview with Lynn Thoman on the 3 Takeaways Podcast.
“Believe me, we had some serious discussions. He (Marks’ son, Andrew) convinced me that I didn’t see the whole picture because I didn’t see the supply and demand side. And there are lots of things in life that don’t have intrinsic value, but are very valuable in society.
“Art, for example. What’s the intrinsic value of a Picasso painting? It’s $100 for the frame and $20 for the canvas, and then it sells for $80 million. Why? Because people accord it value.
“So, Andrew talked to me about that and about the fact that the supply is capped and demand may grow if people like it as a substitute for dollars or even gold.
“I want to stop being a knee-jerk skeptic. I’ve made a lot of money in my life being skeptical of things appropriately, but it shouldn’t be done as a knee-jerk and I’m applying that to cryptocurrencies also.
“So I don’t have a strong opinion either way. I certainly am not knowledgeable enough to do that, but I would hope I’m more open-minded than I used to be,” Marks concluded.
“It’s a pryamid scheme”
The comments are in stark contrast to Marks’ views expressed in 2017 when he warned clients against investing in cryptocurrencies in a memorandum.
“In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it. But this isn’t the first time. The same description can be applied to the Tulip mania that peaked in 1637, the South Sea Bubble (1720), and the Internet Bubble (1999-200),” wrote Marks.
“Serious investing consists of buying things because the price is attractive relative to intrinsic value. 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.
“It isn’t unreasonable for someone to use Bitcoin to pay for something – or for a seller to accept Bitcoin in payment – based on an agreement between the parties: barter takes place all the time. But does that make it “currency”?
“The price of Bitcoin has more than doubled since the start of the year. Can something that does that seriously be considered a “medium of exchange” or “store of value,” rather than the subject of a speculative mania? Maybe not, but Bitcoin looks staid in comparison to Ether, which has appreciated 4,500% so far this year. The outstanding Ether is now worth 82% as much as all the Bitcoin in the world, up from 5% at the beginning of the year.
“The New York Times notes that together, the outstanding Bitcoin and Ether are worth more than Paypal and almost as much as Goldman Sachs. Would you rather own all of the two digital currencies or one of those companies?
“In other words, are these currencies’ values real? They’re likely to keep working as long as optimism is present, but their performance in bad times is far from dependable. What will happen to Bitcoin’s price and liquidity in a crisis if people decide they’d rather hold dollars (or gold)?”
You can read that memo in full here.