Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Commentary

Is Bitcoin a Value Investment?

The words bitcoin and value investing do not automatically go together but maybe they should. A strong case can be made that bitcoin is a value investment.

An instrument becomes a value investment when its true value is not accurately reflected by the market price. Value investors look for equities, securities, currencies and commodities that are underpriced by the market.

Many cryptocurrency geeks would say that includes bitcoin. Their contention is that bitcoin is a value investment because the market does not trust or appreciate it.

Is Bitcoin a Contrarian Investment?

A more accurate description of bitcoin would be as a contrarian investment because many traditional investors and experts dismiss it. This is partially because it is so new, and largely because those investors cannot understand bitcoin.

Another perhaps greater problem is that bitcoin turns the financial world upside down. It functions like a currency yet it is not issued by a government or central bank. Note: historically many entities other than central banks and governments have issued currency.

In the United States before the Civil War, most of the money in circulation consisted of privately-issued bank notes. Much of the currency in circulation in Great Britain during the 18th Century consisted of privately-minted coins.

Even though it is called a currency, bitcoin functions more like a bond or a derivative. It is issued and backed by individual investors and trades freely on an exchange. Yet bitcoin does not pay interest, and regulation is minimal.

These unusual features and bitcoin’s wide acceptance by ordinary citizens make it a contrarian investment. Contrarian investments are often widely adopted by the public; including many people with little or no training or knowledge in finance, before the investment professionals notice them.

Many stocks are often widely traded by industry insiders before they become widely traded on exchanges. This includes technology stocks, which are often traded by people with knowledge or experience of the tech before the market notices. Part of the reason why Bill Gates is one of the world’s richest men is that he understood the potential of software before almost anybody else.

Pre-IPO venture capital is an even better example of this because such investments are often made by professionals with experience in the business. Wealthy hobbyists and enthusiasts often make such investments based on gut instincts or hunches, which sounds a lot like bitcoin investors today.

Does the Bitcoin Price Demonstrate that Cryptocurrency is a Value Investment?

The bitcoin price seems to justify this thesis, after all the cryptocurrency was “declared dead” by the market experts including investment pundits three years ago. Yet it in the last year bitcoin has come roaring back to life and surprised the pundits.

If you had bought a bitcoin last year on January 17, 2016, you would have paid $498.47, Coinrate’s chart indicates. The same bitcoin purchased on January 18, 2017, would have cost $881.40.

Most this growth is driven by ordinary people that use bitcoin in their businesses or day to day transactions. A large percentage of them are middle and working-class Chinese looking for an effective hedge against a declining yuan.

There are also small and very dedicated bitcoin communities in some developing countries including Nigeria and Venezuela. In Venezuela bitcoin has become a means of getting around demonetization, hyperinflation and currency controls.

Those investing in bitcoin understand its utility as an effective means of exchange. They also see correctly that it has the potential to be a fantastic hedge, something that scares some central bankers. A hedge is an alternative store of value used by investors and entrepreneurs when conventional currency’s value is weak.

Are Central Banks Proving Bitcoin’s Value?

The Central Bank of Nigeria is so worried about bitcoin that it ordered banks not use cryptocurrencies, Cryptocoins News reported. The bank claims it is worried about shady dealing, but a real reason is that it might be afraid of large outflows of its currency the Naira into cryptocurrency.

Not coincidently the move against bitcoin came as news reports described the Naira’s price as in freefall. On January 18, 2017, one Naira was worth .32¢ according to Google. On January 17, 2017, one US dollar was worth 497 naira on the black market and 314 on the official exchange, according to The street exchange rate for Naira to pound sterling was 597, and 521 naira for a euro.

The Nigerian bank was simply following the lead of the People’s Bank of China (PBOC) which sent bitcoin prices plummeting was raiding and inspecting exchanges. Like the Central Bank of Nigeria, the PBOC seems to be worried about massive outflows of currency via bitcoin. The yuan was trading for just 15¢ USD on January 18, 2017.

Strangely enough, the central banks might be demonstrating bitcoin’s value by showing its utility as a means of exchange. This might create a nasty market cycle by verifying bitcoin’s value, and raising serious doubts about the currency.

Large Corporations Interested in Bitcoin

Some large corporations are also interested in bitcoin. Daimler AG (OTC: DDAIY) the parent of Mercedes-Benz acquired PayCash Europe SA, a Luxemburg based digital payments platform that accepts bitcoin, Crypocoins News reported.

Cynics will say that Daimler wants to make sure that corrupt officials, gangsters and drug dealers can keep making their Mercedes payments when the currency becomes worthless. Contrarian investors will smell alternative value and start googling bitcoin mining.

Several other large corporations also accept or process bitcoin payments including Target (NYSE: TGT), CVS Pharmacies (NYSE: CVS), The Home Depot (NYSE: HD), Dell,, Expedia, Microsoft (NYSE: MSFT), PayPal Holdings (NASDAQ: PYPL), Sears Holdings (NASDAQ: SHLD), Apple (NASDAQ: AAPL) and the Amazon (NASDAQ: AMZN) subsidiary Zappos, The American Genius reported. The corporate acceptance further demonstrates bitcoin’s utility, companies would not be taking it if they were not profiting from it.

President Trump might boost Bitcoin prices

So yes folks despite its recent price bitcoin can be considered a value investment. More interestingly, its next big booster might be one Donald J. Trump.

President-Elect Trump stated the U.S. dollar is too strong, in a recent Wall Street Journal interview. It is not clear what Trump can do to dampen the dollar, much of its strength comes from the weakness of other currencies particularly the Yuan.

Yet if he succeeds in weakening the dollar, Trump might boost demand and prices for bitcoin in three ways:

  1. By encouraging Americans and others to move money into non-dollar investments. One of the main ones would be bitcoin.


  1. By giving Americans and U.S. corporations an incentive to hedge money in non-dollar instruments such as bitcoin.

  1. By lowering faith in the dollar which encourages alternative investments.

Expect to see a massive increase in interest in bitcoin, bitcoin mining and cryptocurrencies in the US if Trump succeeds. Also expect to a big price increase for bitcoin and the other widely traded cryptocurrency; ethereum, if the dollar weakens.

Bitcoin has a Lot of Potential Value

This has also occurred in China where the weakening yuan has made the cryptocurrency a popular alternative investment. Most of the world’s trade in bitcoin takes place in the People’s Republic, a development that is frightening the People’s Bank of China to death.

The PBOC has even launched raids and inspections of bitcoin exchanges in a half-hearted attempt to dampen the trade. The central bank is so scared of bitcoin that it is researching the possibility of launching its own cryptocurrency.

Even greater bitcoin prices will be in store if Trump’s weak dollar policy leads to inflation in the US. Just a hint of inflation would send panicked investors rushing to hedge, which would be great for bitcoin.

So yes folks; bitcoin has a lot of potential value. It might not be a classic value investment, but this cryptocurrency certainly has a lot of potential.