When it comes to investing in cryptocurrencies, the conventional wisdom is that they are very risky and highly speculative investments. Popular cryptocurrencies such as Bitcoin (CRYPTO:BTC) achieving stratospheric valuations primarily due to investor perceptions of their enormous future growth potential. This means that they can be better compared to growth stocksnot value stocks.
But what if you’re willing to think outside the box? According to Bill Miller IV, chief investment officer of Miller Value Partners, Bitcoin can also be analyzed as a value stock. And based on the intrinsic value Miller sees in Bitcoin, he thinks it could be worth several times more than its current market value, $1.3 trillion. Is he right ?
Bitcoin for value investors?
There’s obviously a lot to unpack here. First, there are no real fundamentals by which to value Bitcoin, and therefore no real criteria or metrics, such as price-to-earnings (P/E) ratios, to use for comparison. And Bitcoin hardly seems like a cheap and undervalued investment. It has a high price of $65,000 and is currently trading at an all-time high. In other words, Bitcoin looks much more like a growth stock than a value stock.
But that’s not how Miller sees things. In a recent research note, he explained the reasons why he still buys Bitcoin. From his perspective, Bitcoin is a valuable investment. And it appears considerably undervalued compared to its future potential.
As Miller points out, Bitcoin is a superior monetary technology. Thanks to an algorithm that carefully controls the rate at which new Bitcoins are created (as well as its total lifetime supply), Bitcoin is resistant to inflation. Thanks to the decentralized nature of Bitcoin, no monetary authority or government will ever be able to control it. And thanks to the peer-to-peer nature of Bitcoin’s monetary technology, overall transaction costs are expected to be lower than monetary systems requiring a financial intermediary.
And lest you think Miller is late to the Bitcoin game, he’s been making similar arguments since 2015. At that time, he and his father Bill Miller (better known as the value investor who beat the S&P 500 for 15 straight years) wrote an article entitled “The investor’s arguments in favor of Bitcoin”.
At that time, Bitcoin’s total market cap was only $3.4 billion, and the Millers said Bitcoin had a 97.25% chance of total failure. But if there is a slim chance of success, they said, Bitcoin could be worth a lot more. It turns out that Bitcoin wasn’t a failure and is now worth over $1 trillion.
“It’s still early”
For the value of Bitcoin to increase by at least $1 trillion, a number of things need to happen. Bill Miller IV suggests that Bitcoin will need to be used more for payments. These days, most people simply hold their Bitcoin, but as the world’s first cryptocurrency, it was designed to facilitate peer-to-peer payments. Currently, Miller says, Bitcoin represents less than 1% of the global capital market.
Bitcoin will also need to prove its worth as an alternative to gold. Currently, when investors seek protection against inflation or geopolitical uncertainty, they typically turn to gold. But Bitcoin’s share of the store of value market is growing and should not be taken lightly. In 2022, for example, Goldman Sachs Group (NYSE:GS) suggested that Bitcoin could eventually account for 50% of this market.
The good news, Miller says, is that “it’s still early.” The reason it is so difficult for many people to understand the intrinsic value of Bitcoin is that it requires a fundamental rethinking of what money is, what capital is, and the role governments should play. Investing in Bitcoin requires not only a leap of faith, but also a complete change in mindset, and that takes time.
How much is Bitcoin really worth?
According to Miller, the best monetary technology usually wins, and there is no denying that Bitcoin is an impressive technological advancement. Just as plastic money replaced paper money, digital money could replace analog money. If this is the case, the value of Bitcoin could easily double, triple, or even quadruple. Miller did not give a specific target for Bitcoin, only suggesting that it would be “several multiples” of its current value.
While I agree with Miller that Bitcoin is undervalued, I’m still not convinced that it is a value investment. Investing in cryptocurrencies carries a tremendous amount of risk, and much of Bitcoin’s growth could take years, if not decades, to fully realize. To me this still looks like Bitcoin is a growth investment. However, whatever you want to call it, I always back up the truck and stock up on Bitcoin.
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Dominique Basulto has positions in Bitcoin. The Motley Fool holds positions and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.
1 Top Cryptocurrencies to Buy Before They Reach Another $1 Trillion in Market Cap, Says Value Investor Bill Miller IV was originally published by The Motley Fool
