Bitcoin is not a real asset. That's the view of the Chief Executive Officer of US$285 billion Canadian based global asset manager Brookfield Asset Management.
He was quoted in the Australian Financial Review today saying, "It has no intrinsic value. There isn't anything in it. There is nothing it will do to create wealth. Our definition of an asset is something that generates cash or has the ability to generate cash. Bitcoin does not generate cash and it has no ability to ever generate cash. Therefore it isn't an asset".
Similar views have also been shared by top business leaders and investors such as Warren Buffett, Howard Marks and Jamie Dimon but then again, other business leaders have expressed contrarian views.
Twitter founder and CEO Jack Dorsey was quoted in a recent interview with The Times saying that he believes that the cryptocurrency will become the world's single currency within 10 years.
So who's right?
Here's my view:
Bitcoin is a commodity. There are many commodities that do not generate any cash and their quoted value on global markets is simply what other investors are willing to pay for them. That doesn't necessarily mean they have no value. Think about gold and silver for example.
Emerging technologies are difficult to predict. The blockchain technology supporting cryptocurrencies is exciting, but it's difficult to determine winners and losers at this early stage. It's like predicting the winners of the Internet Age back in 1992. Having said that, Bitcoin is a leader in this emerging trend with the highest market capitalisation. More often than not, leaders in an industry that have been given sufficient runway tend to stay ahead, unless a significantly radical and better alternative is presented.
Play the long game. Even if Bitcoin goes on to become the world's single currency, I think some investors could still lose their wealth because it could take a very long time to get there. You would need to have held it for a long time to extract the maximum benefit. Between then and now, the price of Bitcoin could still lose 90% of its value before it starts trending higher. It's a volatile commodity and it's quite difficult to control your emotions and hold for the next decade.
Limit your exposure. There is undoubtedly a section of the investing community that is very excited by this technology and want to be a part of it. I think that interest in new technologies is a good thing, but I wouldn't recommend putting all your money in it. I would rather invest a small portion of my portfolio that I'm happy to lose if the worst happens.
If you are interested in investing in emerging technologies, you will want to read more about what the richest man alive is investing in.
