Bitcoin, the top cryptocurrency by market share, is a fraud, per JPMorgan (JPM) CEO Jamie Dimon. There’s a number of Wall Streeters calling into question the long-term viability of Bitcoin – from Howard Marks to Ray Dalio.
Is it a “fraud”? No. Will it revolutionize banking and transactions, maybe. That means bitcoin is likely worth somewhere between $0 and $100,000. It’s highly volatile, which scares Wall Street - understandably. However, that doesn’t mean it’s completely useless. It doesn’t have the backing of any government, but trust is building for the digital currency. And the appeal of a currency that can’t be devalued by a government is very appealing.
There’s plenty of rebuttals to Dimon’s claims, from big-name publishers like WSJ, Bloomberg, and NY Times. All have similar article headlines, ‘why Jamie Dimon is wrong about bitcoin.’ They’re all great but they all simply argue for why bitcoin is a currency when at the end of the day, anything can be currency.
The upside for bitcoin, is that it moves away from the ‘currency’ tag and figures out a way to keep the blockchain as the topic of conversation. For now, the media is gravitating toward negative headlines when it’s bitcoin related. Fear is what gets clicks and readers. Plus, talking about bitcoin positives - such as Coinbase (the primer bitcoin exchange) hit 10.5 million users. Adaptability and general population acceptance is a key catalyst for bitcoin.
I still believe that much of Wall Street, big banks and older investing generations are afraid - in part because it’s new and not all that easy to understand.
I take solace in the fact that there’s still plenty of misunderstandings among investors. I admit that regulation risk is the big overhang for bitcoin. Many worry that if the U.S. follows China’s lead, bitcoin is dead in the water. However, the key to remember is that China isn’t banning bitcoin, it’s merely forcing exchanges to that aren’t formally licensed to shut down. The likes of Jamie Dimon and U.S. monetary system leaders would see a weakened grip on the money system in the U.S. if bitcoin continues to gain traction. But regulators in developed countries are facing a catch-22, if they do put in place some sort of regulation, then they’ll likely face a huge backlash that may well force more people into bitcoin.
If U.S. regulators step up and try to regulate exchanges then it would be validation that they are in fact worried about bitcoin becoming reaching a level of mass adoption, and not that it’s a fraud - as Dimon claims. Bitcoin doesn’t have to replace the dollar. It can merely co-exist as a decentralized payment mechanism. But the real way investors should be looking at bitcoin is that ... bitcoins are “shares” that gives you a stake in the blockchain, which serves as the “company” in our metaphor. So, if you’re buying bitcoin on the promise that it can overthrow big government and the dollar, you’re doing it wrong. Previously, a fall in bitcoin from $5,000 to $3,000 could crush the cryptocurrency.
The idea is that individuals holding bitcoin are ‘weak hands’ that would act irrationally and sell at the worst possible time. But now, with a major dip like that, you have big buyers coming in and taking advantage of the selloff, such as Chamath Palihapitiya. Chamath, the owner of the Golden State Warriors and former Facebook (FB) executive, has been an early adopter of bitcoin. In 2013, when there was much speculation over whether Dimon would have to step down as JPMorgan chairman, Chamath wrote, "Why does anyone even care, and why do we believe we are still beholden to people like this?" His sentiment rings strong among many bitcoin owners today.
If bitcoin doesn’t overtake the dollar, can it really hit $100,000? Probably not. But is it a zero? That too, is farfetched. The blockchain, and the fact that large banks and companies are building applications on top of it adds a floor to the price of bitcoin.
The real beauty of bitcoin is the investability from various perspectives. Either you’re investing for the blockchain, on the hope of it becoming a more accepted payment method, as the new digital gold, or for a myriad of other reasons. Among Wall Street and the conventional financial advisory industry, bitcoin is a mystery, but among younger generations, this is their future. They are rallying behind a decentralized form of investing/transacting without big government.
Bitcoin is over 8 years in the making, we’re well past the amateaur hour now. The network effect is in play now, as bitcoin gains more attention, its price and usability increases. The discussions surrounding the fact that bitcoin can’t overtake the dollar are tired. It’s well baked into the price of bitcoin at this point. The versatility of bitcoin drives that network effect - from being a payment processor (in whatever capacity it can), store of value, and network. The near inability to “value” bitcoin makes it hard for Wall Street and others to justify it as an asset class. But, much like the valuation for gold, the bull case for a higher bitcoin price is higher demand, whether it be from new use cases, applications on the blockchain or investors. Interest in bitcoin continues to grow, with the big overhang being more regulation - specifically the U.S. stepping in.
While the U.S. may well have to take a stance on bitcoin, it likely won’t be until 2019, where, for now, bitcoin’s market cap is less than 1% of gold’s market cap. Assuming there’s a 33% chance the government steps in and wipes out bitcoin -- which is hugely unlikely -- and assuming there’s a 33% chance bitcoin can continue its trajectory, hitting $10,000 by 2019 -- or a 33% chance it stays flat -- the upside is nearly 20%, which is still a lot better then you’ll do in the stock market. So investing a small amount, most say 1%, of your investing assets here is still a strong value proposition.