When it comes to investing in cryptocurrencies, the conventional wisdom is that they are high-risk, highly speculative investments. Popular cryptocurrencies such as Bitcoin (CRYPTO: BTC) reaching stratospheric valuations, mainly due to investors’ perception of their enormous future growth potential. That means they are best compared to growth stocks, not 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 many times more than its current market value of $1.3 trillion. Is he right?
Bitcoin for value investors?
There’s clearly a lot to unpack here. First, there are no real fundamentals on which to value Bitcoin, and therefore no real benchmarks or metrics, such as price-to-earnings (P/E) ratios, to use for comparison. And Bitcoin hardly seems like a cheap, undervalued investment. It has a high price tag of $65,000 and is currently trading near 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 outlined the reasons why he still buys Bitcoin. From his perspective, Bitcoin is a value investment. And it appears to be significantly undervalued relative to its future potential.
As Miller notes, Bitcoin is a superior monetary technology. Thanks to an algorithm that carefully controls the rate of new Bitcoin creation (as well as the total supply over its lifetime), Bitcoin is inflation-proof. Thanks to Bitcoin’s decentralized nature, no monetary authority or government can ever control it. And thanks to the peer-to-peer nature of Bitcoin’s monetary technology, total transaction costs should be lower than those of monetary systems that require a financial intermediary.
And lest you think Miller is late to the Bitcoin game, he has been making similar arguments since 2015. At the time, he and his father Bill Miller (best known as the value investor who beat the S&P 500 fifteen years in a row) wrote a piece called “The Value Investor’s Case for Bitcoin.”
At the time, Bitcoin’s total market cap was just $3.4 billion, and the Millers said Bitcoin had a 97.25% chance of total failure. But if the chances of success are slim, they say, Bitcoin could be worth significantly more. It turns out that Bitcoin wasn’t a failure and is now worth over $1 trillion.
“It’s still early”
For Bitcoin to increase in value by another $1 trillion or more, a number of things need to happen. Bill Miller IV suggests that Bitcoin should be used more for payments. Most people these days only hold their Bitcoin, but as the world’s first cryptocurrency it is designed to enable peer-to-peer payments. Right now, Miller says, Bitcoin represents less than 1% of the global capital market.
Bitcoin will also have to prove its worth as an alternative to gold. Currently, when investors are looking for 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 make up 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 delve into the intrinsic value of Bitcoin is that it requires a fundamental rethinking of what money is, what capital is and what 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’s no denying that Bitcoin is an impressive technological breakthrough. Just as plastic money has replaced paper money, digital money could replace analog money. If that’s the case, Bitcoin could easily double, triple, or even quadruple in value. Miller did not provide an exact target for Bitcoin, only suggesting it would be “many multiples” of its current value.
While I agree with Miller that Bitcoin is undervalued, I’m still not convinced it’s a value investment. There are a ton of risks associated with investing in cryptocurrencies, and much of Bitcoin’s growth could take years, if not decades, to fully develop. To me, that still sounds like Bitcoin is a growth investment. Whatever you want to call it, I’m still backing up the truck and loading up on Bitcoin.
Should you invest $1,000 in Bitcoin now?
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.
The 1 Best Cryptocurrency to Buy Before It Soars Another $1 Trillion in Market Cap, According to Value Investor Bill Miller IV was originally published by The Motley Fool
