Howard Marks, the billionaire investor and co-chairman of Oaktree Capital, appears to have softened his scathing stance on cryptocurrency. Although it isn’t quite a full volte-face, his revision of an opinion recorded in a July memo acknowledges digital currencies as being a store of value no different from fiat currency. Despite that, he remains averse to investing in bitcoin, due to the many alternatives which could potentially upstage it in the long run.
Marks put down his original views on digital currencies in a memo released in July entitled, ‘There They Go Again….Again.’ Here’s an excerpt that summarizes his thoughts on cryptocurrencies:
“Maybe I’m just a dinosaur, too technologically backward to appreciate the greatness of digital currency. But it is my firm view that the ability of these things to gain acceptance is just one more proof of the prevalence today of financial naivete, willing risk-taking and wishful thinking. 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 are willing to pay for it.”
Marks proffered various reasons for why he believes bitcoin and its kin are devoid of any real value. Among those is the apparent limitless potential value of the cryptocurrency, evidenced by the over 350 percent rise in its value just this year. The investor also points to the low barrier of entry as a point of concern, asking if people would rather transact on Bitcoin or a hypothetical cryptocurrency created by Amazon if given the opportunity. His conclusion: digital currency draws its value from people willing to believe that others will purchase it from them for a higher price in the future.
Marks released a client memo this Thursday detailing a change in his attitudes towards Bitcoin and similar digital currencies. He reveals that what caused the revision in stance was “bitcoin partisans” informing him that it should be seen as a currency enabling value exchanges and not an investment asset.
In the memo, Marks does a walkthrough of the various necessary characteristics any currency must possess. Bitcoin, he concedes, passes the currency test by virtue of ticking all those boxes. Most importantly, Marks notes, Bitcoin is recognized as legal tender by entities such as businesses, banks, and even some governments. Its value as a currency, he states, is based on the trust imposed in it.
Although Marks has come around to recognizing bitcoin as a currency, he is still far from seeing it as a smart investment. To the contrary, he continues to call the phenomenon a speculative bubble, much like the dot-com bubble of the late 1990s. During the time, hundreds of e-commerce startups had skyrocketing valuations based on the belief that the Internet would revolutionize the world. And it did, but most of the companies that rose to prominence during the time were rendered worthless by the end of that period.
Marks advises caution when it comes to investing in bitcoin because he believes it’s possible the currency doesn’t make it out a winner in the present cryptocurrency bubble.
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