Why Bitcoin Is the 'Ultimate' Value Play: Stahl

Most investors avoid bitcoin as a highly volatile and speculative asset, with no intrinsic value. But veteran value investor Murray Stahl, whose firm owns $100 million in bitcoin, says the digital currency represents "the ultimate value investment," according to Barron's.

The reason: Stahl says that, unlike bitcoin, global currencies can be debased by printing more money, sparking inflation. "If your money is being debased, what good is buying a bond that yields 2%? Let's say it has very high credit worthiness. You are going to get paid, but inflation is at least 2% and then you've got to pay taxes. It is a guaranteed negative real rate of return," Stahl told Barron's. You can't have inflation with bitcoin because "there will be only 21 million bitcoins ever made," he says, per Barron's.

As of November 26, there were 16.7 million bitcoins in circulation, according to Blockchain Luxembourg SA, meaning that only 4.3 million more have yet to be "mined."

Why Stahl Bet On Bitcoin

Founded in 1994, Stahl's firm, Horizon Kinetics LLC, manages about $5.5 billion, Barron's reports. Per Horizon's website, the firm pursues a "long-term, contrarian, fundamental investment philosophy." Stahl invested $7 million in bitcoin two years ago, Barron's says, a position that now is worth more than $100 million. Stahl says he plans to put more money into investments associated with cryptocurrencies. Horizon's website has a tab on cryptocurrencies in general​, which are a main focus of their research and commentary. However, through its separately-managed accounts and family of mutual funds, Horizon appears to invest primarily in publicly-traded stocks and bonds.

How High Can It Go?

Michael Novogratz, formerly a hedge fund manager at Fortress Investment Group, told CNBC that bitcoin easily could exceed $40,000 by the end of 2018, or more than four times what it's selling for today. The combined value of all 1,327 cryptocurrencies tracked by CoinMarketCap exceeded $310 billion as of November 28. Bitcoin, at $167 billion, topped the list, its price having crossed the $10,000 barrier. The top five on this list are Bitcoin, Ethereum, Bitcoin Cash, Ripple, and Bitcoin Gold. These combine for $256 billion of market cap, as CoinMarketCap calls their values.

Stahl would not share his own projection for how high bitcoin's price can rise, per Barron's, calling his estimate so high as to be considered "preposterous." However, he expects its ultimate value to be at least equal to that of all the government-issued fiat currencies in the world, and probably higher since it is non-inflationary. Barron's estimates that all the world's coins and paper money currently in circulation are worth about $7.6 trillion, meaning that, under Stahl's assumptions, 21 million bitcoins would warrant a value of $361,000 each.

Bitcoin Is No Bubble

Stahl's firm rejects the notion that bitcoin represents a bubble. In particular, Horizon looks at the distribution of the digital currency's ownership and notes that it is held in more than 22 million bitcoin wallet addresses, with 58% of those owning less than 0.001 bitcoin, per Horizon's November bitcoin report. "If we think of bitcoin as a network, it is the number of users that determine utility, and it is utility that determines purchasing power," they write, adding, "Ultimately, if bitcoin is broadly accepted, its purchasing power should increase dramatically."

Rather, Horizon's report asks whether the real bubble is in fiat money, and advises that investors who are concerned about "systemic risk" should hedge with assets "outside the system," such as cryptocurrencies. The rising value of bitcoin relative to traditional fiat currencies, they suggest, indicates declining confidence in the latter rather than a speculative bubble in bitcoin.



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