By Paul Courtney & Aaron Durlam
Springtide Partners
Summary
• Investors should take digital assets like bitcoin seriously for a few reasons: (1) the underlying blockchain technology has the potential to reshape entire sectors of the economy, (2) growth in cybercrime will result in a steady need for anonymous digital currencies, and (3) they have the potential to serve as a peer-to-peer store of value in a world with few trusted alternatives.
• While the overall digital assets space looks to be in a classic speculative mania, bitcoin and a few others have real utility today and immense potential in the future, but they face existential threats.
• Unbiased opinions are hard to find – conversations between bitcoin backers and skeptics are typically circular and not very productive, yet we believe there is some middle ground.
• Bitcoin’s value is somewhere between zero and whatever the last marginal investor or speculator will pay for it – we view it as a call option on a fascinating, but unknown future.
If-By-Whiskey
In 1952, Noah S. “Soggy” Sweat, Jr., a young member of the Mississippi House of Representatives, delivered his now famous “If-By-Whiskey” speech in response to a question on whether Mississippi should legalize or continue to prohibit the consumption of alcohol:
"If when you say whiskey you mean the devil's brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation, and shame and helplessness, and hopelessness, then certainly I am against it.
But, if by whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together, that puts a song in their hearts and laughter on their lips, and the warm glow of contentment in their eyes; if you mean Christmas cheer; if you mean the stimulating drink that puts the spring in the old gentleman's step on a frosty, crispy morning; if you mean the drink which enables a man to magnify his joy, and his happiness, and to forget, if only for a little while, life's great tragedies, and heartaches, and sorrows; if you mean that drink, the sale of which pours into our treasuries untold millions of dollars, which are used to provide tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm; to build highways and hospitals and schools, then certainly I am for it.
“The gulf between what the press and many regular people believe Bitcoin is, and what a growing critical mass of technologists believe Bitcoin is, remains enormous.”
– Marc Andreessen, Investor, Software Engineer
“Of our $49BN, we haven’t moved any of it to bitcoin.”
– Warren Buffett, Investor
Those familiar with the work of Oaktree’s Howard Marks will recognize the intro above from his 2010 memo on gold, All That Glitters. As Marks noted:
"Sweat’s response shows, depending on how you look at it, either how views can diverge on a given subject or how differently a tale can be spun."
You cannot hold bitcoin in your hand and feel its weight, fashion it into a ring, or use it to crown a tooth, but the digital currency has a lot in common with gold. Like gold, conversations between bitcoin backers and skeptics are usually polarized, circular and not very productive. We believe there are at least three reasons for this.
First, the principles that underpin both bitcoin and gold are rooted in a deep distrust of the existing debt-fueled financial system and the reliance on “trusted” and centralized third-party intermediaries.
Second, both bitcoin and gold have no cash flow and therefore no objective method to calculate their value. Without a stream of cash flow to value an asset, we must make assumptions about the market’s desire for the asset in the future, which requires forecasts. Once we start down the road of forecasting, we bring our own subjective beliefs into the equation.