I'm a regular reader of Howard's memos, which are usually pretty on point and thought provoking (the rest of this memo generally fits that description, thought mostly just says things are expensive.) In this case, however, I'm pretty disappointed in the lack of nuance in his argument about cryptocurrency. This is the guy who advocates "second-level thinking" to beat the market and/or peers, and is usually very focused on the details of a situation.
Beyond the weak backup of his main arguments, I felt the most striking issue was his contrast between cryptocurrency and gold:
What will happen to Bitcoin's price and liquidity in a crisis if people decide they'd rather hold dollars (or gold)?
The irony is that many aspects of Bitcoin were inspired by the limited quantity of gold (there is only so much gold, with increasing cost to produce it as you reach that limit). Gold has been around a lot longer, but cryptocurrencies could gain similar acceptance if their security, usability and everyday utility increase.
Gold and dollars are not immune to the concerns he raises about liquidity and price. When you're starving, a bar of gold doesn't help very much.
I think his arguments about a bubble in cryptocurrency have some validity, but not without caveat and nuance - they are more of truisms as written. Of course emerging asset classes and technologies will overshoot. But that doesn't take away from the fundamental realization that, at least for now, cryptocurrencies provide value to those who use them. This might be for money laundering/black market activity as people below have pointed out, but its still valuable for them. The value might also be for easy cross-border money transfer and risk mitigation when dealing with government manipulation of currencies (see Venezuela and Argentina.)
Either way, I'm not sure cryptocurrency is really that useful of a place for a firm like Oaktree to be investing in, because they are credit guys, not macro guys. That said, former credit guy Mike Novogratz invested heavily in cryptocurrency and seems to have done well thus far: https://www.coindesk.com/hedge-fund-founder-invests-10-net-w...
Beyond the weak backup of his main arguments, I felt the most striking issue was his contrast between cryptocurrency and gold:
The irony is that many aspects of Bitcoin were inspired by the limited quantity of gold (there is only so much gold, with increasing cost to produce it as you reach that limit). Gold has been around a lot longer, but cryptocurrencies could gain similar acceptance if their security, usability and everyday utility increase.Gold and dollars are not immune to the concerns he raises about liquidity and price. When you're starving, a bar of gold doesn't help very much.
I think his arguments about a bubble in cryptocurrency have some validity, but not without caveat and nuance - they are more of truisms as written. Of course emerging asset classes and technologies will overshoot. But that doesn't take away from the fundamental realization that, at least for now, cryptocurrencies provide value to those who use them. This might be for money laundering/black market activity as people below have pointed out, but its still valuable for them. The value might also be for easy cross-border money transfer and risk mitigation when dealing with government manipulation of currencies (see Venezuela and Argentina.)
Either way, I'm not sure cryptocurrency is really that useful of a place for a firm like Oaktree to be investing in, because they are credit guys, not macro guys. That said, former credit guy Mike Novogratz invested heavily in cryptocurrency and seems to have done well thus far: https://www.coindesk.com/hedge-fund-founder-invests-10-net-w...