Bitcoin is about as divisive an investment as anything out there. On one hand, its proponents say it's the future of currency, set to break the hold that governments have over money. Its detractors, on the other hand, argue that it's not really worth anything, since its wild volatility and owners' proclivity to hoard it make it essentially useless as money. Ironically, both groups use the recent surge in its value to support their arguments. Over the past year, bitcoin has gained over 338% in value, while the Grayscale Bitcoin Trust (GBTC +0.05%), a way to gain exposure to bitcoin without actually dealing with the challenges of physically owning it, is up more than 300%.
On the Dec. 21 edition of "The Wrap" on Motley Fool Live, host Jason Hall asked Motley Fool contributors Lou Whiteman and Brian Feroldi to weigh in on bitcoin. Will the biggest and most popular cryptocurrency once again prove a better investment than stocks in 2021? Check out the video below for their predictions, and more importantly, their insight into bitcoin, including the bull and bear cases for cryptocurrencies going forward.
Transcript:
Jason Hall: Buy, sell, or hold on this. Lou, you go first. Bitcoin will be a better investment than stocks in 2021.
Lou Whiteman: Yeah, as of a couple of hours ago bitcoin was up 229% year-to-date and granted it is bitcoin so that may be off but I am going to go with it. Versus the S&P 500 maybe what? 15%? Since there's no real way to use my brain to answer this question, I'm going to go with conventional wisdom and say that the one that was up 229% this year will under perform next year. Beyond that, I don't have a clue.
Jason Hall: Brian Feroldi, let's have fun with this.
Brian Feroldi: I'm going to say it's going to outperform. I don't see the stock market doing much next year, which probably means it's going to go up another 20%. If somebody owns bitcoin or wants to bet on bitcoin, I have no problem with that. I understand the rationale for doing so. I don't think that people that buy bitcoin are crazy or anything like that.
The tricky thing about bitcoin is there's no way to value it. None. It doesn't produce cash flow. It will never produce cash flow. What is the reason that it went up 200 and something percent this year? I don't know. Excitement? What is the reason that it can't go up 200% next year? I don't know. Nothing. I will say that Tom Gardner pick this as his 100 bagger over the next decade. He said bitcoin. Because this has absolutely no track record and we're not going to get held accountable for anything. I'll say bitcoin outperforms the stock market in 2021.
Jason Hall: I am going to say I don't know. I'm going to hold on this. I really I'm. To Brian's point, this is why I don't own bitcoin.
When I look at any investment I try to think about the things that drive its value. For stocks for companies as a long term investor, its cash flow. Companies that can grow their earnings overtime and by owning that company the value that I own goes up with it over time or goes down sometimes. The problem with bitcoin is because it doesn't earn money and it's still too hard to really understand what is its utility value, it's real true mass utility value that makes it worth more than $20,000 per coin.
It's really easy to make a very viable case for it losing half its value next year or 90% of its value because at the end of the day the thing that drives it is people think it's going to go up. [LAUGHTER] That's it. It's not because it has this really great use case. I know there's a lot more nuance in that because the money printer goes brrrr, you think about all of these trillions of dollars being added to fiat currencies. The idea is this is something that there is a very limited known maximum supply of, and the number of US dollar continues to go up. That's part of the idea.
But what are they worth, what can you do with them? I can't go buy new socks with them [LAUGHTER] very easily. I know if I have money in a bank in a savings account, I have FDIC insurance that protects it. I know with bitcoin if somebody manages to get whatever the little identifiers are, they take it. There are so many things about it that put it in that "too hard" pile for me. That's why I'm holding because I don't know what's going to happen.
A lot of the things that are going to drive the value of bitcoin, I think are going to be sentiment. Sentiments are going to be underpinned by the economy, our ability to move beyond the Coronavirus, return to normal. Who knows, I don't know?
Lou Whiteman: I think you hit on a key thing though. As we all know there's much of chagrin of I think it's Williams Jennings Bryan. The dollars aren't really based on anything either anymore. The dollar is the perceived value of what someone else feels it's worth, the agreement. With bitcoin, the bull case is, it really doesn't matter it's not backed on anything if people are willing to accept it for goods or if there can be a mutual agreement on what it's worth and that is playing out. I doubt that plays out at $22,000 a coin or whatever it is right now.
But PayPal, there's a lot of companies moving toward legitimizing it. My real question is, what need does it serve other than dark, semi-legal, illegal -- even if it can be used, what need does it replace that the dollar doesn't do better, and when does that happen in terms of widespread usage? But as people start to make it easier to get trade for goods and stuff, I think that is the bull case that it becomes legitimate on its own.
Jason Hall: I think that will completely undermine the investing thesis because at the end of the day people don't want to own a currency because you know what currencies do? They hold value. They are predictable. You know how many of that currency is going to take to go buy a gallon of milk or put gas in your fuel tank. I think that would immediately underpin people wanting to own it because it's not going to go up. If it goes up, that is deflation.
Lou Whiteman: Yeah, or conversely, it will never be legitimized because why the heck would you trade something that goes up 200% a year for a gallon of milk?
Jason Hall: I think it's a disservice to continue to call these cryptocurrencies currencies because their use case is never going to be as transactional products. Last thing I want to say because we can talk about this for an hour, because I think this is important to your point. The counter is the US dollar has a hell of a lot of things backing up its value, the entire output of the United States of America and the backing of the US government.
That's still worth a lot. You know how you know that's a lot? Because of the trillions of new dollars that have gotten thrown into the economy and there's massive demand for those US dollars that have been soaked up. Just like that, they've just been soaked up.
Is there a price to pay down the road? Probably. None of us know what that price is going to be though. Brian Feroldi, anything to add to that? I know that's a lot.
Brian Feroldi: I agree with everything you said. I don't think it's a currency either. Exactly to Lou's point. Isn't there a story about somebody, the first transaction they bought pizza at a cost of 15 bitcoins or something, maybe 200?
Jason Hall: It's $300,000 pizza. [LAUGHTER]
Brian Feroldi: I think it's in the millions at this point, Jason. This is something that if you buy it, you hoard it. Why would you spend it? It's not a part of my portfolio. I have nothing wrong with somebody taking 1%, 2% of their portfolio and putting it in this.
Jason Hall: I agree and I'm pulling for anybody that does, I hope it does well.
