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Even at its current market cap of $1.3 trillion, Bitcoin may be significantly undervalued.
When it comes to investing in cryptocurrencies, the conventional wisdom is that they are highly risky, highly speculative investments. Popular cryptocurrencies such as Bitcoin (BTC -1.05%) achieve stratospheric valuations primarily due to investor perceptions of their enormous future growth potential. That means they can best be compared to growth stocks, not value stocks.
But what if you are 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 that Miller sees in Bitcoin, he thinks it could be worth many 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 thus 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 lofty $65,000 price tag and is currently trading near an all-time high. In other words, Bitcoin looks a lot 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 he’s still buying Bitcoin. From his perspective, Bitcoin is a value investment. And it appears to be considerably undervalued relative to its future potential.
As Miller points out, Bitcoin is a superior monetary technology. Thanks to an algorithm that carefully controls the rate of new Bitcoin creation (as well as its total lifetime supply), Bitcoin is inflation resistant. Thanks to the decentralized nature of Bitcoin, no monetary authority or government can ever control it. And thanks to the peer-to-peer nature of Bitcoin’s monetary technology, overall transaction costs should be lower than those of monetary systems that require a financial intermediary.
Image source: Getty Images.
And lest you think Miller is late to the Bitcoin game, he has been making similar arguments since 2015. At that time, he and his father Bill Miller (most famously known as the value investor who beat the S&P 500 for 15 straight years) wrote a piece called “The Value Investor’s Case for Bitcoin.”
At that time, the total market cap of Bitcoin was just $3.4 billion, and the Millers said that Bitcoin had a 97.25% chance of total failure. But on the slim chance that it succeeded, they said, Bitcoin could be worth significantly more. It turns out Bitcoin wasn’t a failure, and it is now worth more than $1 trillion.
“It’s still early”
For Bitcoin to soar in value by another $1 trillion or more, a number of things need to happen. Bill Miller IV suggests that Bitcoin will need to be used more for payments. Most people these days just hold their Bitcoin, but as the world’s first cryptocurrency, it was designed to facilitate peer-to-peer payments. Right now, Miller says, Bitcoin accounts for less than 1% of the world’s addressable market for capital.
Bitcoin also will need to prove its worth as an alternative to gold. Right now, when investors look for a hedge 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. Back in 2022, for example, Goldman Sachs Group (GS 0.03%) suggested that Bitcoin might eventually account for 50% of this market.
The good news, Miller says, is that “it’s still early.” The reason it’s so difficult for many people to wrap their heads around 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 just a leap of faith, but also a complete shift 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 might replace analog money. If that’s the case, then Bitcoin could easily double, triple, or even quadruple in value. Miller did not give an exact target for Bitcoin, only suggesting that it would be “many multiples” of its current value.
While I agree with Miller that Bitcoin is undervalued, I’m still not convinced that it’s a value investment. There’s a tremendous amount of risk involved when you invest in cryptocurrencies, and much of Bitcoin’s growth might take years, if not decades, to fully play out. To me, that still sounds like Bitcoin is a growth investment. Whatever you want to call it, though, I’m still backing up the truck and loading up on Bitcoin.
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