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Weekend reading: Bitcoin is a bubble. Probably.

Weekend reading logo

What caught my eye this week.

People are increasingly reluctant to call bitcoin’s parabolic rise a bubble. With the price hitting $11,000 this week, those who dismissed it as a fad or a fraud at $100 look like idiots.

Those who own bitcoin get it. Those who don’t are antediluvian relics.

There’s nothing like a profit to turn people into prophets.

For what it’s worth (not much) I think bitcoin is in a bubble. Probably.

I’ve spent some time this year trying to understand bitcoin, cryptocurrencies, and blockchain – the distributed ledger technology that drives them – better.

I think I’ve succeeded. This summer I had a eureka moment when I finally got that bitcoin was a financial architecture as much as it was a currency or a store of value, and that owning some meant investing in that platform.

I even thought about buying a little. Alas, bitcoin had just hit $2,500 and I’m cheap.

So I didn’t.


Having nerdy friends from my university days means bitcoin bubbled into my consciousness years ago. I even have the archetypal friend who mined them when you could do so without a liquid nitrogen cooled garage full of Chinese programmers.

My friend used his self-mined bitcoins to buy an Apple iPad.


Eleven reasons why the price of bitcoin may be a bubble

I’ll spare you a primer on the technology (plenty exist – see the links below). Instead here are some random thoughts as to why I think it’s probably a bubble.

1. This graph

A graph showing how Bitcoin has inflated faster than any previous famous bubble.

Source: WSJ

There might be another widely traded security that has gone up like that and not come down. But I can’t think of it.

2. It’s too volatile to be a currency

A useful currency can’t go up and down 20% against the dollar in 24 hours. If it’s not (at least partly) a currency, then what (partly) is it? If it is a currency then it will have to stabilize. Have we happened upon the right price, right now? Seems unlikely. Are prices going up because they can? Seems likelier.

3. Its ascent is being talked about everywhere

Everywhere! Great sign of a bubble.

4. Seriously, even my girlfriend told me about her bitcoin

I’ve yet to see a woman quoted in an article about bitcoin, which does weaken the bubble case (it might suggest there are still huge demographics to be pulled in). Perhaps it’s begun, though. Plenty of women are into investing. Many are even readers of this blog. My girlfriend is neither. Yet this week she – well – boasted about the value of a fractional bit of bitcoin she picked up along the way. She’s never talked about shares, ISAs, bonds, interest rates, pensions – not even property prices.

5. The overnight wealth creation seems to defy common sense

At $11,000, bitcoin has a market cap of $185bn. Is it reasonable that $185bn has been magicked out of nowhere just because sufficient people believe their bitcoins are worth $11,000 a pop? Perhaps it’s not so ridiculous. Fractional reserve banking means High Street banks add to the money supply all the time. Or is it so different from a stock market being worth 1% more today than yesterday? While $185bn is a big number, it’s a tiny fraction of the world’s wealth. On the other hand, surely that valuation should be tethered to, well, something? States and fiat currencies at least have armies and taxes. And gold has rappers’ teeth. If bitcoin really is on its way to becoming a hybrid of gold and the US dollar, then I can just about accept its rapidly created market cap, except…

6. Governments will want a piece of the action

The bitcoin market is unregulated, and the bitcoin network is creating a store of wealth without governments getting any. Until governments are fully involved, I think the price can’t be trusted. What’s to stop them banning it? Fine, they’d fail, but is the average citizen going to risk breaking the law for an illicit floating world currency – let alone the average billionaire?

7. The price is self-limiting

The higher the price of bitcoin climbs, the less likely people will want to spend their bitcoins. Can it function as a currency then? Hmm, I say. It could still be a store of value though.

8. There are questions about the technology

Initially touted as incorrigible, the cryptocurrency has been splitting. Just keeping the show on the road already consumes as much energy as Ireland. Then there are the hacks that shake faith in a digital currency much more than a bank heist. (Although really stealing bitcoins from a digital wallet or store is just the same. The integrity of the blockchain is the important thing.) Questions about technology don’t mean it’s necessarily a bubble – and they don’t mean it (or blockchain) won’t succeed. Rather, this could be the equivalent of a video-on-demand Internet service in 1999 – right idea, wrong time. But for me these issues do make it harder to trust the price action.

9. Initial coin offerings

Do you know about ICOs? They are unregulated funding rounds for would-be the next bitcoins that have raised more than $3bn globally. Pretty much on the back of napkins. There’s now an estimated 1,200 new digital crypto-currencies out there. On the one hand they might seem to validate the concept – even the failure of all but a couple to gain traction might support the rising price of bitcoin, because it has gained traction. But on the other hand… really? Doesn’t this seem a little, well, nutty? Just a bit?

10. Company name changes

Companies are changing their names to mention bitcoin and seeing their valuations soar. (Here’s a British example, and a US one). Again, not slam dunk proof, but we’ve seen this movie before. Famously, adding ‘dotcom’ to a company name in the late 1990s spiked the price. More recently, I recall a tiny UK music technology firm that changed its name to something to do with rare earth mining at the top of the commodity cycle. At least, it suggests a speculative aspect at play.

11. I’m writing about it

I’ve mostly tried to keep cryptocurrency off this site because it just seemed too iffy. But here I am, adding my two pence worth. When the last blogger turns, you know a bubble is upon us.

True, some telltale signs are missing. For example I haven’t yet heard of babies named Bitcoin or Ethereum. [Update: Reader E. wrote to let us know that baby Bitcoin was recently born and named in the Crimea.]

Football managers are also getting in on the action.

A bubble does not mean a permanent bust

To end on a hypocritical ass-covering note, I’m not really sure bitcoin is a bubble.

It looks like one, smells the same, and has a letter from its mum. But occasionally the world does change. Perhaps this is one of those times.

I’m also not calling a top. Bubbles can keep climbing for years, and it’s easy to see more catalysts for bitcoin.

Think back to how the first exchange traded gold funds seemed to stoke that boom. Bitcoin futures will arrive in a couple of weeks, and I suspect ETFs will follow.

If bitcoin ETFs track the price by investing in bitcoins (rather than synthetically) then they’ll surely boost the price, at least initially. It’s still a hassle to buy bitcoin, compared to adding some alongside your trackers and bond ETFs on Hargreaves Lansdown.

Millions more punters could flood in and send the price skyrocketing! Or the ETF-afication of bitcoin could strip it of its mystique and the price could crash. Who knows?

A price collapse wouldn’t necessarily mean the end of bitcoin or blockchain, any more than the bursting of the dotcom boom halted the Internet.

Bitcoin could go on to be a household name for the rest of our lives, something we all might use. Perhaps it is the future of currencies? Maybe it is a new store of value?

It seems unlikely that blockchain technology will go away anytime soon – it’s too easy to think of applications. (As a would-be home buyer I’d love all the information pertaining to my potential purchase to have been recorded and distributed for everyone to see. It would save hundreds of emails, dozens of letters, and a wodge of money).

But bitcoin right now?

If it walks like a duck and talks like a duck, it’s a duck.

And Bitcoin is probably a duck.

I mean a bubble.


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

RBS to close 259 branches – Guardian

Tenancy overhaul in Scotland hailed as new dawn for renters – Guardian

UK housing stock tops £6tn for first time – Hargreaves Lansdown

UK consumer credit growth falls to 18-month low – Guardian

Goldman Sachs warns valuations are at their highest since 1900 – Bloomberg

Under-performing Neil Woodford also sees a bubble – Telegraph

Budget reveals the savings ratio crashing towards 30p in £100 – ThisIsMoney

Graph showing wind and solar already cheapest energy in US.

(Click to enlarge)

Wind and gas already beat coal on cost in US; solar close behind [PDF]Lazard (& WSJ)

Products and services

P2P platforms rush to launch innovative finance ISAs [Search result]FT

First time buyers: Use stamp duty drop to reduce your mortgage rate – ThisIsMoney

Fee-free mortgage deals could cost more than you think [Search result]FT

How does your bank’s app score for useful features and safety? – ThisIsMoney

Fidelity puts numbers on its innovative variable fee fund – ThisIsMoney

New secured retail bond to pay 5.25%, but there are risks – Telegraph

Electric cars are cheaper to run than petrol or diesel (with subsidies) – Guardian

How to buy a perfect Christmas tree and when to put it up – Guardian

Five ETFs that deliver an income – ThisIsMoney

Comment and opinion

This record low volatility is setting us up for a fall – Econompic Data

The problem with performance-based fees – The Evidence-Based Investor

Rich People’s Problems: How to survive being fired [Search result]FT

Destroy debt quicker: An easy and painless way to be more free – Financial Samurai

The downside of early diversification – Kitces

Markets don’t exist in a vaccum – Tony Isola

The FTSE 100 looks fair value – UK Value Investor

Getting your financial shit together is an emergency – The Escape Artist

John Kay on the meaning of the market [Podcast, three weeks old]CapX

FIREhub.eu is a new aggregator of European financial blogs – FIREhub.eu

Even a passive Vanguard investor is a factor investor – Alpha Architect

Using options to stay invested in a pricey market [Podcast, for nerds like me]Meb Faber

Off our beat

Taking back control [On Brexit]Simple Living in Suffolk

Why 45-54 year old men are grumpy [US, but relevant to UK I suspect]New York Times

“They don’t tell you why”: Threatened with removal after 52 years in the UK – Guardian

And finally…

“The main reason I invest is for the lifestyle and my hopes for the future. I am not talking about caviar or a nice house in the Caribbean. The stereotypical investor is usually summed up by things like that, but my experience has shown me the opposite is true. All the amazing investors I have met over the years share three traits: humility, frugality, and nerdiness.”
– (15-year old) Maya Peterson, Early Bird: The Power of Investing Young

Like these links? Subscribe to get them every Friday!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []
{ 78 comments… add one }
  • 1 Learner December 2, 2017, 1:40 am

    OK, that first chart is hilarious.

  • 2 Ermint Twizel December 2, 2017, 8:40 am

    Below is the best introductory resource I have found. I’ve listened to many. It is a good dive into the tech:


    All via a nice audio podcast, too. (The rest of the series is also great!)

  • 3 John B December 2, 2017, 9:02 am

    I’d not invest in bitcoin because

    1) If its a commodity, like gold, it has little intrinsic use, and I want my money to work, as I view value as integrated dividends.

    2) If its a currency, its not a good one because of its volatility, liquidity (the transaction rate means it could take a long time to sell an investment) and cost of operation.

    All currencies have an economic and environmental cost to run. The dollar has the US mint, much of the US banking system and arguably the Armed Services. Gold has all those people digging holes. Bitcoin seems to waste power, 3.4GW at the moment across the miner/verifying network, and the quoted 268 kWh per transaction, is it really that much for any transaction, like buying a coffee? I can see the logic in making bitcoins becomes exponentially more expensive in real world terms to stop inflation, but why is that linked to using the things. If that is intrinsic to the design, it should be shut down as an environmental evil, as there should be another way of funding a banking network.

  • 4 hosimpson December 2, 2017, 9:15 am

    South Sea Company.

  • 5 The Rhino December 2, 2017, 9:20 am

    268kwh per transaction! WTF!

    That’s nuts

    Does anyone actually know anyone who has become rich with bitcoin? I mean FI rather than iPad.

    I wouldn’t touch it with yours.

  • 6 arty December 2, 2017, 10:03 am

    “People are reluctant to call bitcoin’s parabolic rise a bubble.”

    Are they?

    There are thousands upon thousands of articles online calling bitcoin a bubble. Beneath any article of any type on bitcoin, there are comments about how it’s in a a bubble, with the obligatory comparisons to tulips or South Sea Co.

    I do tend to agree though (currently selling a portion each time it breaks another thousand USD barrier). Very much in the “iPad” rich category rather than becoming FI category though, having bought £50 worth in 2013, primarily out of interest in the technological, philosophical aspects of it. Obviously regretting not having bought more…
    First started selling when a homeless friend called me asking whether he should invest in bitcoin… Classic shoeshine boy tip moment I thought, but it’s gone up another 30% since.
    I do worry about the number of people who are quite likely to lose money (particularly after my experiences trying to actually get cash out – much more difficult than getting cash in, to say the least – another factor which convinced me I should be selling).

    P.S. Women and bitcoin:

  • 7 The Investor December 2, 2017, 10:09 am

    @arty — I originally wrote “increasingly reluctant” then edited it this morning on a final read through. I have now put “increasingly” back in. I am mostly referring to the “great and the good” (ahem) of the financial world, who for my sins I watch getting interviewed on Bloomberg all week. E.g. Lloyd Blankfein (CEO of Goldman Sachs) pointedly didn’t call it a bubble this week, he just said it “wasn’t for him”. I think even a month ago he’d have been more strident. That’s what I mean. (Also cheers for the link!)

    @all — I expect we’ll have a good debate about this, judging by the early comments! I’ve got official business (ha ha) all day so can’t add more now. Please keep it polite. (Not sure if bitcoin is yet attracting the sort of vehemence you see with gold bugs. Suppose we’ll find out.) I’ll be moderating as ever from my phone! 🙂

  • 8 UK Value Investor December 2, 2017, 10:11 am

    If my postman mentions Bitcoin I’ll short it.

  • 9 Andrew Knox December 2, 2017, 10:23 am

    Mined Litecoin for about 3 months as an experiment about 3 years ago while I had two days off when a contract of mine finished. Was about $3 dollars back then I think. Nice surprise to see all this craziness recently!

    Sold a few coins about an hour ago to add to the others I sold earlier in the week leaving me with about half the coins I mined. Will probably just keep them to see how long this bubble lasts and sell the odd coin along the way.

    Ok, it’s not Bitcoin, but a nice little profit for two days setup 🙂

  • 10 Guido Maluccio December 2, 2017, 10:42 am

    I found the article linked below a useful summary of asset prices, with regards to bitcoin.
    “Store of value” is a function rather than an asset class: something can only function as a store of value if it is naturally useful or desirable in some way. For example, commodities have value due to their employment in various industries and/or their intrinsic desirability, and equities generate an income. For bitcoin to act as a “store of value” it’ price should be anchored by its inherent value, which could always be volatile in dollar terms.
    In terms of broad asset classes bitcoin is a “currency” rather than a commodity because its primary function is as a means of exchange; I find the analogies to gold (e.g. mining) misleading. For a currency to be useful its price needs to show some stability with regards to what is being used to trade; while the price of bitcoin is rising rapidly it will not be used as a means of exchange because holders will expect it to be worth more tomorrow. This is hyper-deflation.
    Once bitcoin is primarily being used as a means of exchange rather than a speculative asset then it will gravitate towards its natural price, which could be very high in dollar terms if it is sufficiently useful as technology for trading. “How valuable is bitcoin as a means of exchange?” is difficult to answer at this point; nevertheless, it is an important question to consider.


  • 11 Matt December 2, 2017, 10:46 am

    I think the South Sea Bubble is very comparable. Back then you had this new piece of financial innovation (the publicly listed company that you could buy and sell shares in) that was very poorly understood, but everyone knew was a big deal and had the potential to make people a lot of money. Hence everyone piling in! I think Bitcoin is the same. I think digital currencies WILL be a big deal, but we don’t really understand how they work, or even if Bitcoin is the one that everyone will wind up using. Just like the South Sea company.

  • 12 Passive Pete December 2, 2017, 10:47 am

    For 268 kWh at 15p per kWh that works out at over £40 per transaction. Certainly no good for buying a coffee or even a tank of fuel. So not a very practical currency then.

    Also the storing of all information within the algorithm seems to me to be a bit of a scammers dream. @TI image those property details (address, name, DoB, previous address, bank account etc.) being passed up the line along with other innocent users’ details to someone intent on identity theft.

    Whether it’s a bubble or a kind of unplanned Ponzi scheme, I won’t be buying any time soon.

  • 13 Stefan December 2, 2017, 10:59 am

    The Kitces article about the downside to early diversification reads like an excuse for financial advisors to get their clients into high-risk investments, likely with a hefty fee. They can tell their clients that there is time for sensible investing later and now is the opportunity to strike it rich.

    Great for the financial advisor. Not so great for most clients who are gambling away money with little to show for it.

    I usually find Kitces articles informative, but this one rubs me the wrong way. Maybe the heavy use of tree-growing analogies contributed to that… 🙂

  • 14 The Rhino December 2, 2017, 11:42 am

    Interesting Sachs article. Correlation of equities and bonds and all that. I am thinking of taking on a bunch of mortgage debt on the future upsize if rates remain low as an inflation hedge. I see it as diversification.

  • 15 The Investor December 2, 2017, 12:08 pm

    @therhino — *spoiler* That’s 30-40% of the reason why I’m trying to buy a property right now. No assets are cheap anymore, debt is abundant, and inflation will be a tempting way to square the circle.

  • 16 Marcel December 2, 2017, 12:19 pm

    Great article and timing, especially like the first chart.
    I see lot of ordinary people thinking about bitcoin like a lottery ticket hoping to get rich one day. Also they are now being incorporated into hedge funds which drives the price up. If it was as easy to buy as click of a button on HL platform I would dip my fingers in this pie earlier this year through XBT tracker.

  • 17 Moggers December 2, 2017, 12:40 pm

    I support bitcoin and crypto for one reason.

    They are ideologically the closest form of a store of value to my own perfect idea of one.

    As a 30 something saver I’ve seen my pounds, gold, shares battered – all earned or bought with income – compared to those rewarded for taking on debt for housing etc. Bitcoin is the antithesis for that. It’s a savers dream.

    I’ve mined litecoin, I’ve bought btc and ethereum a while ago. I’m hodling forever. It’s now about 25% of my personal wealth, but about 4% of my family assets overall and as we always work as a team and are well diversified I see no reason to rebalance. At this point I don’t care if it all goes to zero but I’m glad to have been part of a movement that at least tries to bring some sanity to the financially corrupt world.

  • 18 A beta investor December 2, 2017, 1:04 pm

    Does it generate an income?
    If no, then its price is unsupported.

  • 19 Neverland December 2, 2017, 1:13 pm

    “The bubble logic driving tulipomania has since acquired a name: “the greater fool theory.” Although by any conventional measure it is folly to pay thousands for a tulip bulb, as long as there is an even greater fool out there willing to pay even more, doing so is the most logical thing in the world.” ― Michael Pollan, The Botany of Desire: A Plant’s-Eye View of the World, 2001

    Replace Tulip with Bitcoin and the quote from the dustjacket of the book makes perfect sense

    Of course bitcoin is a bubble…

    …and you can’t even plant a bitcoin

  • 20 P December 2, 2017, 1:51 pm

    > Initially touted as incorrigible

    I don’t think that word means what you think it means.

  • 21 K. December 2, 2017, 1:59 pm

    Bitcoin is a commodity with no carry costs.
    So its value is determined by the need to store the value which otherwise would be in something covered by national regulations and costs associated with it – currency, stocks, property, gold…
    With bitcoin, you create your identity like a number and buy bitcoins to be owned by this identity. There is no super authority who can confiscate the value, or even know your real world identity..
    There are risks though linked to tech advances:
    Forks, quantum computing advances breaking public key cryptography, constant increase of computational power, all of those makes bitcoins not a reliable store of value long term…

  • 22 Buzzz December 2, 2017, 2:21 pm

    You can buy exposure to bitcoin and Ethereum / Ether as an Exchange TRaded Note via UK based stockbrokers.

    I hold both in my AJBell SIPP. You have to do telephone order and they are euro denominated so expect to pay fees and charges.

    HL also offer the bitcoin EFN in their SIPP with online orders (I’ve not asked about the Ether EFT).

    Personally I’m more invested in Ether as it has more applications, more developers and a shared vision for growth.

  • 23 raj December 2, 2017, 2:44 pm

    I lost most of my respect for monevator when the author announced he did not buy house for last two decaded because he thought they were over valued.

    Whatever was left is gone now with him calling bitcoin a probable bubble. If this is not bubble than nothing is.

  • 24 Mathmo December 2, 2017, 3:37 pm

    Never mind gf mentioning btc, it’s ti mentioning gf that captures the attention. Hoping you’re sharing lots of bubbles of the right kind!

    Thanks for the links this week. I quite like James Max, have done some work with him and have chuckled at his Rich People’s Problems column in the FT. Thought this week’s one on being fired was very Alan Sugar perspective, but for this community, turning it upside down and thinking about FIREing the job, makes it very relevant reading.

    TEA expertly delivering his stock delivery this week. All very nicely put. Must get round to that budget…

  • 25 The Rhino December 2, 2017, 6:20 pm

    @TI – Well it would be irresponsible to live through the lowest interest rates of all time and not take on some debt, now seems as good a time as any with valuations and inflation being a bit high.

    I wasn’t going to go crazy though. Maybe aim to borrow somewhere between 10-20% of net worth (inc. primary residence).

    If i already had mortgage debt i certainly wouldn’t be rushing to pay it off.

  • 26 Richard December 2, 2017, 7:17 pm

    So, how do I protect against inflation these days? Is the only way to borrow as much as I can? According to that Sachs article, neither shares nor bonds are likely to protect, so what options are there?

  • 27 Guido Maluccio December 2, 2017, 7:50 pm

    @Richard. I’ve also been wondering how best to protect against inflation. Taking on debt – because rates are low – makes sense to me for acquiring real assets, the most obvious being a home to live in. However, I don’t think taking on debt to invest in financial assets seems sensible just because interest rates are low simply because many asset prices look quite richly valued and historically strongly correlated.
    For the investing portfolio I’ve stuck to wide diversification of mostly passive assets with an over-correction to be more defensive (i.e. more government bonds) than I was a few years ago. It’s not going to impress George Saros but I hope to conserve some dry powder if there is an equity market correction.

  • 28 Learner December 3, 2017, 3:45 am

    I feel like the reasons it’s probably a bad investment now are the exact same reasons it was a bad investment when it was $10 or $1, ie intrinsic value. Nothing has actually changed in that respect. The value has increased 1,000,000% (megapercent!) but predicting future movement is like reading tea leaves. I wouldn’t (didn’t) spend £1,000 on btc in 2013 and won’t in 2017. I’m comfortable with that. Friends who do own cryptocurrency are affluent enough to be able to throw some play money at it and laugh about the daily movements – no one is taking it seriously. Enjoyed the Reformed Broker take on it btw, thanks.

  • 29 Lord December 3, 2017, 7:06 am

    It’s maybe too late to enter bitcoin, but one thing I’ve learnt from this is that whatever the Winklevoss Twins touch turns into gold. I’m going to pursue a closely aligned stalking strategy from here on.


  • 30 Hodler December 3, 2017, 12:07 pm

    Too late to enter – that’s what I was afraid of when my parents in law asked me to assist them buying some Bitcoin early this year. And I again was afraid when just a couple of months ago, they again bought some Bitcoin.

    They are up 260 percent today. Soon, they will be able to sell a single Bitcoin, making good on their entire investment. Everything after that is pure profit.

    Too late to enter – many people, including myself, have thought so at one time or another, yet the fact that Bitcoin is again setting net All Time Highs implies that everyone that thought so, at any time since 2009, has been dead wrong. Bubble, perhaps. But, Bitcoin has been through many bubbles, has been declared dead more often then I care to remember, yet has always recovered.

    It is possible that Bitcoin will be worth zero sooner or later. True. But it is also possible that Bitcoin will be worth 10x as much in 2018. Looking at everything that is happening right now, with futures becoming a reality in 2 weeks, perhaps even an ETF next year, me, I’m betting that Bitcoin will only increase in value from here.

    In any case, what Bitcoin has thought me is not to panic in case of volatility in the market. Just hodle, and chances are everything will be fine. At the very least, holding onto Bitcoin has helped me become immune to any volatility the regular stock market may be able to throw at me. Bitcoin made me a better investor.

  • 31 Charles December 3, 2017, 12:13 pm

    Thanks for the excellent summary on Bitcoin.

    @TI / The Rhino – Why would you want to take on a load of leverage to buy a property when rates are set to finally increase from all time lows? I understand that if expectations of higher future inflation are realised that will erodes the value of the debt, but if you believe that real estate prices are linked to mortgage affordability, increasing interest rates (decreasing mortgage affordability) are bearish for property prices.

    I would think it would be better to buy when rates are higher but prices lower, rather than paying a lower interest rate on a bigger chunk of debt linked to a purchase made when mortgage affordability (and prices) were close to all time highs. Even more so for a buyer who has enough wealth in other assets not to be dependent on a high LTV mortgage to purchase a property.

  • 32 The Rhino December 3, 2017, 12:16 pm

    @Hodler – genuine or satire? I can’t quite tell, either way – entertaining 😉

  • 33 AncientI December 3, 2017, 1:32 pm

    Theres no reason why Bitcoin should be $11k when compared to all the other crypto’s that exist. Anything in the digital world can be copied. Bitcoins electricity consumption is going exponential and it currently has no function other than to sell it to someone else for a higher price I.E. greater fool theory.

    Theres a great saying from the gambling world that I love, “one way to stop a run-away horse is to bet on it”. Put some money into bitcoin and watch it crash 🙂


    I dont know anyone whose become rich with bitcoin and I think the reason is because…

    Those who bought bitcoin when it was $2 probably sold when it was $20

    Those who bought bitcoin when it was $20 probably sold when it was $100

    Those who bought bitcoin when it was $100 probably sold when it was $500

    you get the picture…..


    I agree no assets are cheap anymore that what I was saying in a comment I made here in an older post when trying to decide where to “invest” my money. Maybe its time to go back into dividend stocks? Ill be trying to buy property in the next 2-3 yrs need a bit more saving first.

  • 34 Hodler December 3, 2017, 2:08 pm

    @The Rhino – genuine. The overall gain is now 270 percent, and may or may not be higher or lower in an hour, or a week, or a year. Volatility and risk is extreme. The trend is up for the moment, and tomorrow Bitcoin could be down 30 percent.

    Any investment that will carry you through the decades comes with risk. We need to diversify and spread our risk, this is just common sense.

    I am convinced that Bitcoin has become a new type of asset class and deserves a place in my portfolio going forward. High risk, yes, high potential, you bet. Thinking that Bitcoin will go away and we can all just carry on and forget about it is just wishful thinking at this stage.

    I will not advice anyone to buy into Bitcoin. But, I do advice not to bet against Bitcoin.

    According to Bitstamp, week from Nov 28, 2011 value was 2.98 USD, about 6 years ago. Today, about 11.600 USD. That is a gain of about 300 percent, or x4, each year. Every year. Since Nov 2011.

  • 35 The Rhino December 3, 2017, 2:13 pm

    @AI – yes, no ones got rich with bitcoin compared to say how everyone got rich with residential property. It’s very niche. I don’t even know how you buy or sell them. I remember the Mt Gox incident. It’s all so dodgy. Definitely falls into the category of something you can talk about rather than something you can invest in (invest is the wrong word here). 2-3 years prior to buying a house is a really awkward timeframe to invest over. I am in the same boat. Any suggestions gratefully received. I have very recently committed to a position on it but whether it’s a good one only time will tell!

    @Lord – having seen the Social Network I can’t think of a finer pair of mentors than the Winklevoss twins. Good luck!

  • 36 Anon December 3, 2017, 3:24 pm

    Had an encounter with one of the True Believers recently. One of the things they shared with me was this tweet https://twitter.com/ferdinando1970/status/935826455958884354 with the accompanying comment “good tweet from today”. My initial reaction was “haha, that’s crypto-nerd satire, right?”… but apparently not.

    For those unaware: “hodl” is a corruption of “hold”, got started from a random mispelling in a forum a few years ago https://bitcointalk.org/index.php?topic=375643 The adoption of such “insider speak” jargon is something I associate with cults.

    I’m not a crypto “hodl”er or trader myself and no inclination to be. These days I find myself more concerned with wealth preservation and building sustainable diverse income streams, I’m not looking for high risk punts with capital. Enjoying the crypto show from the sidelines… but it all smells increasingly like ~1999 to me. As in the aftermath of the dotcom bust, the sad thing will be when the stories start emerging about retirement pots/college funds/house deposits/life savings wiped out. That tweet’s “financial singularity” may turn out to be a remarkably good analogy, if a singularity is something which squishes your assets to zero behind an opaque event horizon.

    In fact I’ve just been having some fun using google’s date-range limited search to dig up old articles on internet investing 1999-to-March 2000. Enron tipped as often as Amazon (and both thoroughly outnumbered by swathes of long gone and forgotten other companies). Think this June 1999 piece captures the spirit of the age quite well: http://archive.fortune.com/magazines/fortune/fortune_archive/1999/06/07/261087/index.htm (Yahoo price would have been ~$40 at the time that was written; it peaked over $100 about 6 months later, but was down near $4 after another half year or so. I spent much of the ride up sharing an office with some UK-based Americans who were compulsive ticker-watchers; with hindsight I’m lucky to have avoided losing more than a few K on FOMO-driven internet speculation; the bulk of my wealth stayed in an FTSEAllShare tracker which was relatively unaffected – ~50% drawdown peak-to-trough is better – “business as usual” even – than a 96% down or worse). Of course this isn’t just relevant to crypto; we may well be in an “everything bubble”… very interesting to see what Mr Woodford’s been saying this week.

  • 37 John December 3, 2017, 8:32 pm

    @ TI / The Rhino / Richard. Can you help me square the circle on the logic behind “debt” (or leverage, whatever term you prefer) as a means of protecting against inflation?

    First, I get that the value of debt is eroded in real terms by inflation, but the nominal amount (plus interest) still needs to be repaid. Second, I also get that interest rates are still low (and albeit lately rising, likely to stay relatively low for some time yet). Third, I also get that, in the past, the growth of the assets financed with debt (and, if necessary, the income used to repay debt) has often outstripped both inflation and the cost of interest.

    But the protection from inflation arises not from the debt but from the asset it finances. In other words, the third point is everything and the first two points irrelevant, and debt provides no protection from inflation other than by facilitating the purchase of more of an asset that does successfully protect from inflation.

    So, if you are using debt to buy property (or equities, or bitcoin, or whatever), what you are saying is that you think property (not debt) will protect against inflation. Of course, it takes two to make a market, but given current valuations (already pricing in low interest rates), I can see ways that, even if the assets are “real assets” over the very long term, they are not over many investment time horizons in the meantime.

    Debt can turn a good investment into a bad one, but not a bad one into a good one.

  • 38 Mathmo December 3, 2017, 9:03 pm

    John —
    TEA has a lovely definition of debt as borrowing from your future self. In times of high inflation, the cost of the debt to your future self is lower than the utility to your present self. For “inflation” here you can use wider terms or just your own personal consumption /earnings growth — ie your personal discount rate.

    This is a pure definition that doesn’t rely on the debt funding an inflation-protected asset (eg linker/equity etc), but all of these questions of “better” are asked “relative to what” — so while you are dismissive of the apparent effect of the asset providing inflation-proofing while the debt is inflated away — that’s just another way of making the same comparison — and for some a little easier to visualise.

    Simpler. Nominal rates are real rates plus inflation. If you think that inflation is to rise, driving up nominal rates, then fix in some debt and make money from your apparent ability to predict the future.

    Your (implicit) assumption that current nominal interest rates represent the underlying discount rate for the valuation of equities is up for debate. I think it’s directionally correct but asset values aren’t nearly high enough — bzw they won’t fall as much as you assume on rate rises.

    Debt obviously serves a second purpose of making investments more highly leveraged — so the return on capital — whether positive or negative — is many time greater than it would be in an unleveraged investment. Although that is independent of the inflationary shield.

  • 39 John December 4, 2017, 12:45 am

    @Mathmo – “If you think that inflation is to rise, driving up nominal rates, then fix in some debt and make money from your apparent ability to predict the future.”

    How do you make money from this though, other than by using the debt to hold an asset that provides a higher return than the cost of the debt (irrespective of whatever inflation does)? Perhaps a worked example might help me out here, where you are not reliant on the asset as the inflationary shield to come out ahead financially.

    I understand the concept of borrowing from your future self for consumption smoothing, and that personal circumstances (e.g. needing to put food on the table now rather than later, or enjoying some experience while you are still young or alive enough to do so) can mean a positive personal discount rate makes complete sense. But this is not a recipe for making money and I am still struggling to see the relevance of this to protecting yourself against rising CPI/RPI!

    The inflationary protection potentially provided by investing in property or equities (and the extent to which low interest rates are baked into current valuations) is a separate discussion altogether, and not really my point of contention.

  • 40 Gadgetmind December 4, 2017, 12:53 pm

    Someone having 10% of their portfolio in crypto currency wouldn’t freak me any more than someone having 10% in gold, or my 10% in index linked cash. However, I really don’t think this is what we’re seeing and there are quite likely going to be some tears!

  • 41 pulpo December 4, 2017, 1:06 pm

    @John – I join you in not understanding the logic of all this; beyond –
    – if my earnings rise faster than inflation I will find it easier to pay down the debt and I will be better off, but not because I have taken on the debt, that I can see anyway.
    – if the asset I buy grows faster than the cost of money I will be better off or, rather, I have benefited from the gearing (as you say, sorry!)

  • 42 The Investor December 4, 2017, 2:23 pm

    @all — Nearly all great comments and discussion, cheers all. I’ll just add a few quick responses.

    Re: Bitcoin and the ‘certainty’ of it being a bubble / the next big thing…

    Smart investors talk about ranges of possibilities and assign probabilities. The more somebody talks in certainties about anything to do with the future — and often in assessing the present — the less likely I am to believe they are worth listening to. A range of possibilities implies many of the scenarios you try to assign a probability to do not come true. That doesn’t mean you were wrong to try to do so, or that there was no chance of alternative outcomes. It may mean you got (and priced) your estimates wrong! 🙂 But often it doesn’t even mean that.

    Over a long career making calls you’ll find out if you’re good or bad at assessing probabilities, not over being a hero on any particularly asset/story/investment/price/whatever.

    Bitcoin is interesting and difficult because of the easy availability of similar-seeming examples (South Sea Island, Tulips, Pets.com) which would seem to make it obvious to call it a bubble.

    But set against that are all the innovations and breakthroughs we now take for granted that were dismissed as fads at the time (everything from electricity to cars, fiat money to personal computers). We now forget how they were dismissed as hype, as a flash in the pan, as a mania.

    Something like Bitcoin is even trickier than most of those examples because unlike many innovations, there’s *arguably* a self-reinforcing quality to its ‘value’. The more people see the bitcoin price go up, the more it hangs around despite all the brickbats and occasional busts, the more people believe (/trust) in it. All currencies are one way or another a question of belief. (This is where IMHO gold is the closest match.) But equally faith in a currency can evaporate in a heartbeat.

    As I say, I think the price action this year indicates it’s probably in a bubble because everything about it looks like a bubble. That’s my central thesis. But there’s a non-trivial chance it may not be!

    It’s fascinating to watch. I don’t think one *has* to take part, because ultimately bitcoins will have to be spent on stuff, and stuff is what most of the other assets you can invest in provide. But of course the opportunity cost could obviously be huge if it ten-bagged again from here. (That would also mean something like $2 trillion of Bitcoin spending power had apparently been created out of ‘nothing’, which is a sum governments could not ignore. Would also likely have a macro-economic impact on inflation and so forth I’d imagine, albeit very unevenly distributed. (Boom in second hand nuclear bunkers!?) )

    Re: Debt and property, good points on both sides. I really want to save this for my post, if I ever do actually manage to get through the back and forth and buy a place! But just briefly I see the big debt as a *hedge* not a strategy. It’s a hedge against very high inflation, for me — an insurance policy if you like.

    Some things people are saying like “I can’t see how it helps unless the asset goes up, and/or your income goes up a lot due to inflation, and/or inflation goes up a lot more than interest rates” etc… Those caveats aren’t caveats from my POV, those combined are the reasons it’s a hedge! 🙂

    There’s also the case of the drunk giving directions who says “I wouldn’t start from here if I were you.” I have long been short one UK property (a home). As Keynes says “In the long run we’re all dead.” I have been happy to run 95%+ equity exposure for the past seven or eight years because there were always cheap things to buy, but I don’t see that as so much the case now. London property still looks silly expensive, but not at a glaring overvaluation to global shares like in say 2009 or 2010. Given I need a house… etc etc. Anyway, more to come some day. Probably. 🙂

    Finally, I have come to a better understanding of political risk over the past 15 years. Most people with money/power/votes own houses, and that matters. (I like to think if I had my time again this last factor would change how I approached the property market back in 2004, which was when I conscientiously stepped aside, when London first surpassed all old price-to-income ratio highs. But that could be hindsight speaking, of course).

    @Mathmo — GF says hi! 🙂 Also, re: TEA coining that phrase, I’ve been using it since at least 2009 on this blog (see first comment on article below) and long before that on discussion boards. I once presumptuously thought I invented it but I am now sure that’s not true. Actually I think I picked it up by osmosis from some psychology paper or another. 🙂


  • 43 theFIREstarter December 5, 2017, 12:19 am

    I remember reading about Bitcoin around 5 years ago and not really understanding it, but that the price had gone up loads since it first came about and if the guy who bought the first thing using bitcoin (a pizza) had have held onto it instead it would be worth 1 million or something. Now it must be worth billions! A very costly pizza…

    As I say I didn’t understand (still don’t tbh!) it so there was no way I was going to “invest” in it, although I wish I’d taken some more time to read up around it back then. Off to read some of those primers now so at least I can understand it now whilst still not investing as surely that horse has well and truly bolted now… surely…!!!?!?!

  • 44 DW December 5, 2017, 2:58 pm

    I’ve been buying Bitcoin since it was around £300 but only small amounts each month, as my intention was to hold a few percent in my portfolio. It’s been responsible for 80% of my gains over that time. I realise it may well be a bubble, but there is also the possibility that this is the financial equivalent of the world wide web coming into existence.
    Some responses to your points as food for thought rather than direct refutation:
    1 – How about Amazon? Not quite as pronounced, admittedly.
    2 – It’s only this volatile as the market cap is small compared to stock and forex markets. We’re still in early adopter stage of whatever it turns into. Volatility in BTC is less than it was; look at the volatility of the less capitalised coins. Also, it’s only volatile when measured against other currencies. If everything was priced in bitcoin, it’s irrelevant.
    3 – Compare ‘the internet’ 15-20 years ago.
    5 – Can’t disagree, but there’s lots of cheap money about trying to find a home.
    6 – HMRC have provided guidance on tax treatment of cryptos since at least 2014. I will be making the most of the CGT allowance! The exchanges are all KYC/AML compliant, so unlikely to be able to hide serious amounts from the taxman.
    8 – Bitcoin is still Bitcoin. The forks have not affected the integrity of the Bitcoin network, nor it’s code. Succesful hacks have been on exchanges, not the Bitcoin code or network AFAIK.
    9 – Agree, most ICOs are total scams.

    Some others have mentioned Bitcoin can be copied; it has, multiple times, but there’s more to it than just the code. Network effects play a subtantial part of it, in the same way that you trust that your crispy plastic fiver will be taken in exchange for your pie and chips. Cryptos are backed by the code and their network, rather than the local government. An increasing number of people are trusting a globally decentralised ledger over their own governments who generally see fit to devalue their savings through QE. Buying a deflationary form of money with an inflationary one? No wonder it’s going up in price!
    Regarding the energy usage; how much energy do governments expend on reinforcing their currencies?

    Just some thoughts. I’m no evangelist but I can certainly see how cryptos ‘might’ work longer term, and in the mean time it seems silly to me not to have a little exposure. The most you can lose is your small allocation, but the benefits (more than just financial IMO) are potentially huge.

  • 45 Anon December 5, 2017, 7:00 pm

    The problem with using the “but look at how big The Internet is now” argument to justify getting in on some crypto action now is that actually a heck of a lot of people lost a heck of a lot of money in that initial surge of enthusiasm for “The Internet” which culminated in the TMT/dotcom bust. Sure, The Internet is huge and changed lots of things… but it sure proved difficult for Average Joe retail investors to make money from it in the early days. Timing was everything; if you were in early enough or got out at the right time great… otherwise kiss your capital goodbye. (Either that or canny stockpicking might have helped… but good luck sorting the Amazons from the Enrons and a host of other long-forgotten companies back then). Now I’m well aware investing in cryptocoins directly is very different from investing in companies engaged in business around cryptocoins… the nearest thing to buying The Internet as a commodity back in the 90s was probably either buying up/installing miles of fibre-optic cable networks (installed capacity got way ahead of need of course – with no real plans for how to monetize it – so lots of money was lost there by the original investors) or the crazy goldrush around .com domains (an artificially scarce resource until more gTLDs were created but in any case better search engines meant less need to have a snappy “pets.com”-like domain people could easily type into their browser address bar). To some extent “eyeballs” were and still are the real underlying “internet commodity” (remarkably prescient 1997 Wired piece at https://www.wired.com/1997/12/es-attention/ ). I do wonder if there will be (or is already?) as much of a bubble in companies active in the crypto realm as in the cryptocurrency itself. Stories about companies changing their name to include “blockchain” and the share price quadruples – https://www.bloomberg.com/news/articles/2017-10-27/what-s-in-a-name-u-k-stock-surges-394-on-blockchain-rebrand – don’t fill me with confidence that things are actually any more sane in the commercial realm though.

    I think there are interesting parallels with the Railway Mania of the 1840s ( https://en.wikipedia.org/wiki/Railway_Mania ). Sure, the railways were a fantastic invention and the UK got some great infrastructure out of it (probably a great contributor to continuing the industrial revolution’s growth and productivity gains)… but an awful lot of folks lost their shirts in the process. Caveat emptor!

  • 46 John B December 6, 2017, 2:14 pm

    Watch the TED talk about startup success rates. It seems the key factor is not the idea, team, finance or plan, but timing, judging when the market is ready for your product. With winner takes all common in these fields, they are hard horses to back.

  • 47 Rob December 6, 2017, 3:59 pm

    I’d be very interested to read an article on your thoughts as to where you think the (London) property market is going to go as I’m in a similar situation – in the process of buying despite the fact I think prices are going to fall in the near to mid term. Would be interesting to compare notes (and to hear exactly why the last bear in town has turned).

  • 48 The Rhino December 6, 2017, 4:10 pm

    @Hodler – sorry, only just saw your reply. What sort of % asset allocation do you give bitcoin then? And are you re-balancing to hold that %?

  • 49 The Investor December 7, 2017, 9:18 am

    @Rob — I’ll write the article next year, once I’m in. But just to set expectations, I haven’t discovered a brilliant way of looking at the market and justifying these prices! I wish. I have a few mitigations, but from a purely financial perspective, I think the best risk/reward play would probably be to keep on renting (and saving).

    Good luck with your move! 🙂

  • 50 The Rhino December 7, 2017, 11:30 am

    268kwh *and* $20 per transaction -> http://steamcommunity.com/games/593110/announcements/detail/1464096684955433613

    You’re right that it definitely doesn’t function as a currency at the moment

  • 51 Learner December 7, 2017, 5:34 pm

    +50% since this blog post was published. Fascinating.

  • 52 The Investor December 7, 2017, 8:26 pm

    Was trading at very nearly $20,000 today on Coinbase — i.e. people were paying a $3000 premium to get in.

  • 53 The Investor December 7, 2017, 8:27 pm

    Sorry, breaking my own “try not to post lots of short comments” rule but I forgot the link:


  • 54 The Rhino December 8, 2017, 5:10 pm

    Has anyone seen any asset that has appreciated like these crypto-currencies ever?

    Even any individual stocks?

  • 55 Gadgetmind December 8, 2017, 5:55 pm

    > Has anyone seen any asset that has appreciated like these crypto-currencies ever?

    Maybe we can plot price of tulip bulbs or Southsea Company shares against bitcoin and look for correlations?

  • 56 Owen December 9, 2017, 11:12 am

    I am no expert, but it possible to see a future where cash is relapsed with digital currency, be it in the form of banks forcing us to use credit cards, or something like a cryptocurrency. However, like the dotcom years it seems like it would be difficult to predict who winners will be.

    I want to be exposed to a digital currency future, but I do not want to rush to hedge all my bets on bitcoin. Do you think that by having a diversified portfolio, with large and small cap equity, will expose me to the benefits a digital society might bring, in a similar global equity holders are benefiting from the winners of the dotcom years? Or is the feeling that this is different because crypto is a new asset class in its own right, uncorrelated with equity?

  • 57 Foxy Monkey December 9, 2017, 7:09 pm

    Catchy topic Monevator..! Also a very good episode on Bitcoin’s true potential I recently listened to:

    Kevin Rose Show – #16 – Bitcoin’s true potential, with Andreas M. Antonopoulos https://www.kevinrose.com/single-post/andreas-antonopolous

  • 58 Delta Hedge March 10, 2024, 11:45 am

    Interesting thesis. Thinking about ~1% of ISA into GraniteShares 3x long MSTR daily ETF to hedge risk of this occurring. Hope it won’t, but if does, might cover losses on LTBH global equities (VWRL). Thoughts?

  • 59 Delta Hedge March 15, 2024, 3:37 pm

    Related to above post: Business Insider, 15 Mar 2024: JPM analysts, inc. Nikolaos Panigirtzoglou, voicing concern that MicroStrategy’s leveraged Bitcoin investments might amplify a market downturn in the future.

  • 60 Delta Hedge March 17, 2024, 10:48 pm

    Michael Batnick and Ben Carlson discuss the above Zack Morris Substack on BTC and MicroStrategy at the beginning (~7 to 15 minutes in) of their Animal Spirits podcast (no. 350, entitled “Things Are Getting Stupid Again”) released on 6 March 2024. It’s also worth reading the Morris piece on LinkedIn as he gets a couple of queries there in the replies critiquing the practical mechanics of his thesis; and which he responds to in detail with his reasoning and evidence.

  • 61 Delta Hedge March 26, 2024, 5:12 pm

    In the interests of balance, and lest my comment #58 be seen as bullish MSTR, as opposed to interested in the Zack Morris thesis on what Michael Saylor is up to; March Lichtenfeld of Wealthy Retirement puts the bear case for MSTR in his piece (on 19 March 2024) on Talk Markets (via the Investing.com app, so no hypertext link available I’m afraid) entitled “The Worst Stock In The World”. The title pretty much sums up his view of MicroStrategy. But whether you agree with him, disagree with him, or (like me) just plain don’t know what to think on this one; it’s a well written piece.

  • 62 Delta Hedge March 27, 2024, 2:13 pm

    ecoinometrics Substack today (“no top in sight for bitcoin”) has a useful regression analysis mapping the BTC price to the performance of the NASDAQ. It’s a pretty clear correlation. On MSTR, Michael W Green had a detailed Substack yesterday (“Be better”) making a case that indexing is reducing effective liquidity and price discovery leading to increased volatility and exacerbating momentum trends. Without addressing himself to MSTR (his points are more generalised to price insensitive passive investing), it struck me that his reasoning echoes, but in greater detail, that used in Zack Morris’ piece on MSTR on 3 March.

  • 63 Delta Hedge March 29, 2024, 10:03 am

    Kerrisdale Capital came out yesterday with a report out on MSTR and BTC (https://www.kerrisdalecap.com/wp-content/uploads/2024/03/MicroStrategy-MSTR.pdf). TL:DR is they’re short the stock and long BTC.

  • 64 The Investor March 29, 2024, 12:30 pm

    @Delta Hedge — Sound thesis. I sold most of my MicroStrategy when the priced wobbled down from $1,500 last week sometime. Obviously not the greatest timing but this is crypto we’re talking about, you’d need to be Doctor Who to time it to perfection haha.

    Anyway I would much rather have held if MSTR had a 1-1 Bitcoin valuation on its balance sheet or maybe a modest premium. I just can’t stomach 2x+, it’s bonkers

    Lucky for US hedge funds that they can re-up into a BTC ETF to arbitrage this. No such luck for us. Sold my MSTR in an ISA. No BTC ETF for me. 🙁

  • 65 Delta Hedge March 31, 2024, 8:59 pm

    Zach Morris has responded to Kerrisdale Capital’s report on his Substack as follows:

    “Just read it. I have lots of respect for Kerrisdale, I’m subscribed to all of their reports and read most of them. Look, I get it – it’s reasonable (and, apparently, intellectually enticing) to expect the premium to collapse. I just think you’re playing with fire being short MSTR for any period of time without a tight stop-loss and a clear, defined catalyst for the premium collapsing and there are probably easier and less-risky ways to make money. My first question back to Kerrisdale would be: you say a 2.6x premium to BTC NAV is unreasonable. Well, that’s what it is currently. Why? How did it get to such “unreasonable” levels? If it got to 2.6x, why is it unreasonable to think it could go to 3.6x? 4.6x? To me, arguing that something is not tethered to reality and then betting on it becoming tethered to reality is not a good strategy. They show in their report that the premium got to 3.9x during the 2021 bull market. What happens to their trade if it gets to 3.9x again this cycle? Where is their stop loss? They concede some equity value premium to spot can be argued, but not 160%. Okay then, how much? Why? They argue than BTC per diluted share has actually not increased much since 2021 and has actually fallen in recent years. I disagree with the # of shares they’re using. It appears to me the # of shares they use in their calc is actually closer to basic shares outstanding rather than fully diluted. I use ‘adj. diluted’ from page 29 of the Q423 earnings presentation:

    By my calculations, they have grown BTC/fully diluted share at an 18.9% CAGR since Q4 2020 (from 0.0057 to 0.0099). Analogize this to a bank growing tangible book value at a 18.9% CAGR. What Price/Tangible Book multiple does that bank trade at? JPM has grown their tangible book value at 5% CAGR over the past 10 years. They currently trade at 2.4x tangible book and have averaged 1.8x over that period. Not that much cheaper than MSTR trading at 2.6x tangible book, but growing about 1/4th as fast. Finally, the counterparty that is going to send this trade south on them isn’t looking at the premium to BTC NAV. They are going to be programs that are only trading price momentum, pod shops trading index rebalance strategies that are going to try and pump the stock into the S&P 500 and then dump it on indexers a la what they just did with SMCI, and Wall St. Bets Reddit retail traders that are going to see the short interest, post Michael Saylor memes all day and try and put some hedge fund out of business a la Melvin Capital. Honestly the high nominal stock price is going to be a hurdle here because options are too expensive for retail punters. I’d expect a stock split at some point and I would consider that bullish as it would open up retail options flow”.

    FWIW I think a lot turns on how index providers and index tracking ETF and mutual funds implemented the Accelerated Implementation Rule from p. 14 of the current (November 2023) version of the S&P Equity Indices Policies & Practices Methodology.

    That’s the potential primary source of rocket fuel for MSTR share appreciation in Morris’ thesis; and so how it would be applied in terms of detailed practical mechanics would likely be crucial.

  • 66 Delta Hedge April 1, 2024, 11:28 pm

    Zack Morris at No Conflict of Interest has just put out another excellent Substack piece on MSTR, this one looking directly to address the points made by Kerrisdale Capital:


  • 67 The Investor April 2, 2024, 9:46 am

    @Delta Hedge — FWIW I’m not hugely inspired by this thesis. It’s basically just a more convoluted way of saying that MSTR does well when Bitcoin does well. By far (overwhelmingly…) the main reason MSTR is compounding book value is because its Bitcoin holdings have risen in value. It’s true BTC/share of MicroStrategy has risen too, but this was surely enabled by the crypto winter. A good capital allocation decision, but not something to bank on as an operating strategy.

    He makes the comparison with JPM’s growing book value. I’d argue JPM does a bunch of business operations (mortgages, investment banking, cash transfer fees, whatever) to cash to earn its 9.2% compound book value annualised return that substantially higher than the risk-free rate. If all it did with its ‘cash’ hoard was transform it via a loan to the government into an asset earning the risk free rate then its return on equity would approximate the risk-free rate, no?

    MSTR doesn’t do anything with its BTC as far as I’m aware. It doesn’t even lend it out. It just sits there. I suppose one could argue this ‘uses’ Bitcoin by amassing a hoard that will be used ‘when’ more of financial services runs on Bitcoin, but we simply haven’t seen this yet. The market is baking it in. However it’s again very hard to see what MSTR is doing here to make its BTC worth more than the BTC held in an ETF. If it was developing its own BTC financial architecture that would turn on its hoard then fair enough, but it’s not?

  • 68 The Investor April 2, 2024, 10:04 am

    p.s. Consider an investment trust that traded at a premium to book value because the market believed the manager would add value beyond the growth of trust’s portfolio, by skilfully changing that portfolio over time. Hence management earns a premium as the market expects the portfolio to grow faster than a snapshot of the underlying.

    But here the underlying and the portfolio are the same thing. If you agree with Saylor that BTC is the future then you can buy exactly the same portfolio as him (BTC). So why pay a premium.

    You could even approximate it further by putting say 10% into a software play (maybe Constellation Software or HG Capital) and periodically harvesting some of the latter’s return to buy more BTC, but that’s getting a bit silly now 😉

    Just my 2c, I like MSTR and hold it to be clear, albeit in far smaller size after reducing on premium concerns a couple of weeks ago. So I have my biases etc. 🙂

  • 69 Delta Hedge April 2, 2024, 4:02 pm

    Thank you for your thoughts @TI. I’ve no idea what to make of MSTR tbh. It’s maybe a corporate equivalent of Schrödinger’s Cat, in a simultaneous superposition of being the worse and the best company out there, and either worth in the $200s at the very most (if the premium collapses and BTC ‘fails’), or possibly (eventually) way (maybe way way) more than $1,500/$2,000, as now. This is crypto, so anything could happen. I’m trying hard to separate out two quite distinctive and different types of belief here:
    – Belief in whether BTC and/or MSTR are a good thing (you know my views on that); and,
    – The appropriate level of credence, given the limited and complicated evidence, in hyperbitcoinization actually happening within an investable time horizon, and of MSTR playing a pivotal role if it does.

  • 70 Delta Hedge April 4, 2024, 11:58 am

    Also worth noting that the JPM book value comparison is apples to oranges, as FAPP, the value of MSTR is overwhelmingly in its assets (BTC) and not in its earnings; whereas JPM trades at just 12.2x earnings (forward P/E, only a slight premium to its peer group, on 11.3x).

    If you own JPM then you have a business with diversified operating cash flows and profits.

    Contrastingly, if you own MSTR then you basically just have a stake in an acquisition vehicle for BTC, which, ultimately, is a statement of belief in an idea (i.e. in a digitally ‘scarce’ store of value, where the scarcity is achieved through Proof of Work computation).

    Personally, I don’t share that belief at all, but I have to concede the objective observation that many do now, and that their belief has persisted, and the numbers of the believers in it has expanded over time (and, seemingly, still continues to expand), notwithstanding the absence of a use case for BTC outside of that belief.

    If BTC is a belief system, then the persistence of belief in MSTR as a means of leveraging BTC is perhaps no less credible than belief in BTC itself. Hence perhaps the endurance of the MSTR share price premium over book value.

  • 71 The Investor April 4, 2024, 12:48 pm

    @Delta Hedge — It’s apples to oranges because Bitcoin doesn’t do anything, or make any earnings. Imagine if the whole story was the same, but with one of the cryptos that facilitated staking. Then you’d have earnings from the MSTR stash.

    Yes, on the one hand it’s a futile comparison. But that futility is, I’d argue, revealing something about the limits of the thesis advanced that MSTR should actually trade at a premium to book because JPM does. 🙂

  • 72 Delta Hedge April 4, 2024, 11:46 pm

    This further (more in depth) reply from Zack Morris to the MSTR shorter sellers just came out tonight:


    If anyone reads this who is interested and not (yet) a Mogul, then you might want to go subscribe to Monevator as a Mogul to read today’s (4/4/24) @TI piece for Moguls.

  • 73 The Investor April 5, 2024, 12:28 am

    @Delta Hedge — Truly appreciate the plug (and I do like how you return to older comment threads and keep them up-to-date 🙂 ) but I would warn anyone not to be too giddy about signing up for Moguls just on the back of my brief comments about MSTR. You’ll probably be underwhelmed. 🙂

    Of course if you’d like to sign-up just for the usual diet of monthly long and hopefully entertaining missives from one investing fanatic to another, then please do! 🙂

  • 74 Delta Hedge April 7, 2024, 5:48 pm

    Another take on the premium to BTC (and other non-obviously explained premia):


    Like the description of MSTR as “meme adjacent”.

  • 75 Delta Hedge April 8, 2024, 4:15 pm

    From Morning Star today. Note predicting 298k BTC acquired by YE 2025 compared to 214k now:


  • 76 Delta Hedge April 9, 2024, 5:36 pm

    Although MSTR has taken a swoon with the most recent dip in BTC below $70k it now has its 1st express non-US based imitator. From Coindesk today: “Metaplanet (3350), a Web3 infrastructure provider, saw its Tokyo-listed stock rise almost 90% in two days after saying it was adding $6.56 million in bitcoin (BTC) to its balance sheet in partnership with Sora Ventures, Morgan Creek Capital’s Mark Yusko and others”

  • 77 Delta Hedge April 12, 2024, 5:56 pm

    Nice primer on MSTR premium creation, with further links therein on earlier examination of crypto companies:


  • 78 Delta Hedge April 14, 2024, 3:33 pm

    Interesting comparison to the MSTR premium. Phoenix Digital Assets (PNIX on the Aquis Exchange) at the end of March 2024 had a NAV (in 508 BTCs, 8,814 ETHs, and 86,396 SOLs; alongside some 732,899 Optimism tokens, 57,902 Cosmos tokens, 225,362 Near Protocol tokens, 60,938 Iron Fish tokens and 203,220 stablecoins) of £74.5 mn, equivalent to 7.38p/share. NAV could be reduced by up to 1.1p/share due to a tax charge. Shares currently 4p, so trading at a discount of circa two-fifths of unadjusted NAV.

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