Howard Marks Trashes Bitcoin: ‘An Unfounded Fad’

Howard Marks is not going to get invited to this weekend’s Ethereum anniversary party, that’s for sure.

Mr. Marks, the billionaire investor and co-founder of Oaktree Capital Management, takes a scythe to digital currencies in his latest investment letter. To be fair, he swings the same scythe across basically the entire investment landscape, seeing warped valuations everywhere and nothing but lousy returns to come. Uncertainties abound, from economic growth to central-bank impacts, inflation and political dysfunction, yet investors are still embracing risk and pushing up prices. “In general, the best we can do is look for things that are less over-priced than others.”

Mr. Marks is a long-time Wall Street denizen who founded Oaktree in 1995 and made his name investing in high-yield bonds and distressed debt – especially during the financial crisis, when he raised $ 11 billion to buy bonds (and cleaned up on the bet). He is also known for his well-written, plainspoken investment letters, which tend to cast a critical eye on the markets. No less than Warren Buffett urged Mr. Marks to collect some of his past writing into a book.

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The most recent letter is mainly about bubbles and investment cycles, and the tendency of new investment fads to be dubbed “the most important thing,” which is why he eventually gets around to bitcoin, upon which he heaps special scorn. The fact that anybody is willing to accept bitcoin and ether as a payment, he says, is evidence – just one more piece of evidence – “of financial naivete, willing risk-taking and wishful thinking.” He allows as that he may in fact just be a “dinosaur,” unable to process new technologies. But, he says…

“But they’re not real !!!!!”

The boldface is his. The exclamation points are his. “Nobody has been able to make sense to me of these currencies.” It’s not entirely unreasonable for somebody to offer payment in bitcoin, or for somebody to accept it, he says, but that doesn’t make it currency. Moreover, the extreme price swings – bitcoin tripled in price and ether was up 5,000% at one point this year – are also signs that these are not currencies, but speculative assets.

“Can something that does that seriously be considered a medium of exchange or store of value, rather than the subject of a speculative mania?”

Ultimately, he says, bitcoin is really no more than “an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.” Then, for good measure, he brings up the d0t-com boom, the South Sea Bubble of 1720, and the Tulip Mania of 1637.

Of course, none of this is new to bitcoiners, who have been deflecting Tulip criticisms since their beloved cryptocurrency was launched in 2009. Most of the replies we saw weren’t outraged so much as resigned. Bitcoiners have heard the same arguments too many times to get fired up about them, as exemplified by this comment from Chris Burniske, who manages blockchain investments at Ark Investment Management:

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