Is there anything more likely to get the tongues wagging than a Bitcoin forecast?
And doubly so when it's made by Australian investing royalty, in the shape of Magellan co-founder (and billionaire) Hamish Douglass?
And triply so when he says it's worth… zero?
Bring out the laser eyes. And the diamond hands. And the HODL crowd. (No, me either, but they're just some of the memes and schemes used by the snarks on social media.)
Bring out the 'OK Boomer' and the 'Look what I've made on Bitcoin' lot.
The true believers and the momentum lovers.
The diehards and the new-world-order lot.
Yes, in some corners of the virtual world this morning, Hamish is Public Enemy Number 1.
"He doesn't get it"
"He's gunna get steamrolled"
"What would he know…"
Now, let's put aside the fact that the last people you should listen to are the true believers.
I mean, if you have no room for doubt in your investment thesis, frankly, you're a mug.
Let's ignore the meme-lovers and the professional haters.
Let's actually look at what Hamish said, courtesy of the AFR yesterday:
"There are millions and millions of people participating. Some of the people, they've never invested before and the only bandwagon they've ever got on is the cryptocurrency bandwagon and it's almost like a religion."
And not just that…
"I can't tell you when that will happen by the way. It could happen shortly, it could happen quite some time into the future … I think when we look back in 20 years it will be the case study of the irrationality."
Well, I guess that's clear.
Man the barricades!
The 'intrinsic value' mob on one side.
The 'Bitcoin will take over' crowd on the other.
Ready, set…
Stop.
See, there's no need to take an investment view on this one.
It's very reasonable to simply put cryptocurrency in the too hard basket.
It's worth adding here, by the way, that I bought $100 worth of Bitcoin some years ago, to follow along with 'skin in the game'.
And The Motley Fool purchased $5 million worth of Bitcoin earlier this year.
So you might expect me to be all-in.
Not so fast.
One of the luxuries of working for The Motley Fool is that we're not forced to take a 'house view'.
So while our CEO thought we should invest in Bitcoin, I wouldn't have done the same.
And that's cool.
But that doesn't mean I think Bitcoin — and the broader crypto category — is worth zero.
At least, not necessarily.
It definitely has no intrinsic value — at least not in the way that term is understood.
It makes no profit. It has no cashflows. It can't be valued on either basis.
And so — at least as the term is understood — it has no intrinsic value.
Does that mean it should be priced at zero?
Not necessarily.
Gold has no intrinsic value.
But it has sold for — sometimes a lot — more than zero in the past.
And still does today.
So just because something technically has no intrinsic value doesn't mean people won't pay good money for it.
Does that mean you should invest in it?
Not so fast.
I've never been a fan of investing in gold.
I'm still not a fan of investing in Bitcoin.
But that doesn't mean there's no price for either.
Here's the problem, though:
Let's say you understand the technical specifications of Bitcoin / blockchain.
Let's say you can see how Bitcoin might be used either as a store of value.
Let's say you can see it might be used as a currency.
And let's say, for the sake of the argument, you're right.
Tell me, as a result and with some objective rationale, what it's worth.
You can't?
Me either.
Which is specifically why Bitcoin isn't an investable asset.
The Australian dollar is more widely used than it used to be. It's not valued in the tens of thousands of dollars.
Yes, yes, more dollars have been issued. Yes, I know Bitcoin is theoretically limited.
But what will the future demand for Bitcoin look like?
Will people hoard it? Spend it? Divide it?
Move on to the next big thing?
And if any or all of those things are true, I still have the same question: so what will the price be… and why?
I absolutely hear the case for why Bitcoin could be used a lot more in future.
I guess I think it's possible, but not likely.
But even if I'm wrong, I'm yet to see a single person give me a reasoned basis for some future price.
I can't help but draw an analogy to air travel.
The number of passenger-miles has exploded exponentially over the last 40 or 50 years.
And the result?
Airlines have gone broke — some repeatedly — over the last few decades.
The demand-will-skyrocket fans were right.
It didn't help profitability.
Yes, it's an imperfect analogy.
But you take my point.
Getting part of the thesis right doesn't (necessarily) mean you'll be able to extrapolate the financial result.
Again, I'm not joining Hamish in his prediction that the price will go to zero.
It may.
Or not.
But his broader point is unavoidable — there's simply no objective way to know what it'll be worth in the future.
Which is why (other than my token $100 purchase) I'm giving it a miss, and I prefer to invest in shares in operating businesses, instead.
