Bitcoin may seem like a speculative investment to many, but Bill Miller IV views it as a value play. He predicts that the cryptocurrency will dramatically increase in value and eventually replace fiat currencies. Miller shares three compelling reasons why he's investing in bitcoin and how he goes about it. At first glance, value investing and bitcoin might appear contradictory, but not for Bill Miller IV. As the Chief Investment Officer and Portfolio Manager at Miller Value Partners, he perceives a massive untapped potential in bitcoin that most investors overlook.
Miller believes the cryptocurrency trades significantly below its intrinsic value. So, just how valuable is bitcoin? According to Miller, it’s poised to become the new global denominator for capital and will be increasingly regarded as a standard over the next few decades. He suggests that bitcoin will replace fiat capital and revolutionize global monetary systems. Comparisons to digital gold are common, and Miller agrees, asserting that bitcoin will achieve this status within the next decade. A central pillar in Miller's belief in bitcoin is its finite supply. Unlike fiat currencies, which can be printed indefinitely, bitcoin's supply is capped at 21 million units.
Satoshi Nakamoto, bitcoin’s anonymous creator, designed this cap to prevent inflation. In contrast, traditional currencies like the US dollar lack such protocols, leading to inflationary pressures. For example, the US Treasury's massive stimulus spending during the pandemic significantly increased the dollar supply. Bitcoin, with its energy-intensive mining process, presents a more stable value proposition. Miller questions why new units of money should be created annually if money serves as an accountability system. Further enhancing bitcoin's value is its massive total addressable market.
With global fiat systems approaching a quadrillion dollars in capital and bitcoin's market capitalization being around $1.5 trillion, Miller sees substantial room for growth. Bitcoin remains under-owned among investors. With only 10.5 million wallets globally holding more than $1,000 in bitcoin, the investment potential is significant. Moreover, corporations are increasingly adding bitcoin to their balance sheets, affirming its value. Companies like Semler Scientific, Microstrategy, Metaplanet, Tesla, and Square hold substantial bitcoin investments. Miller considers bitcoin a reliable form of currency in a world where fiat money supplies are constantly increasing.
He emphasizes that we've never before had technology that allows for value accounting in an automated manner. While Miller’s arguments align with bitcoin advocates, the broader adoption of bitcoin is crucial for its success, and the outcome remains uncertain. Competing cryptocurrencies like Ethereum, which lacks a finite supply, also vie for investor interest. Additionally, regulatory challenges loom, as evidenced by China's ban on cryptocurrencies. Investing in bitcoin carries inherent risks due to its volatile nature. Over the years, bitcoin's price has experienced significant drops, such as an 83% decline from December 2017 to December 2018.
Nevertheless, it has also seen substantial gains, rising 236% since its last major drop. Due to this volatility, financial advisors often recommend allocating only a small portion of one’s portfolio to cryptocurrencies like bitcoin. For those eager to invest, Miller advises buying bitcoin outright and understanding self-custody mechanics, ensuring complete control over one's holdings. Despite the rise of bitcoin ETFs, Miller advises against them, advocating for direct investment to leverage bitcoin’s decentralized nature fully. He reasons that owning bitcoin through a centralized entity means entrusting someone else to buy it on your behalf, negating the decentralized value of the asset.
Not all cryptocurrencies are created equal. Miller argues that many suffer from governance issues similar to fiat currencies and cannot match bitcoin's value. Hence, bitcoin remains his sole cryptocurrency investment. Although bitcoin is still an emerging asset class, Miller is confident in its potential to revolutionize the global monetary system and deliver significant returns to current investors.
