The emergence of cryptocurrencies like Bitcoin (BTC 5.73%)sparked an ongoing debate. Is the virtual currency backed by blockchain an asset? Or is it a payment system akin to the U.S. dollar? Either way, the fact that both Square (SQ 0.91%) and PayPal (PYPL 0.15%) have recently entered the Bitcoin fray shows that cryptocurrency is entering the mainstream.
On this clip from Motley Fool Live, recorded on Feb. 8, "The Wrap" host Jason Hall, Fool analyst Auri Hughes, and Fool.com contributor Danny Vena compare and contrast cryptocurrency to fiat currency and discuss whether it should rightly be called an asset.
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Danny Vena: There's a comment here by Blue Phire P-H-I-R-E, says, "Over. Tesla (TSLA 1.16%) will have way more than $5 billion in BTC. Danny, no offense." It moved. "No offense, but you sound like [Warren] Buffet when you talk about Bitcoin." Wow, that is the best left-handed compliment I've gotten in a while. [laughs]
Jason Hall: I want to push back on Blue Phire's statement about fiat not having any underlying assets backing it up.
Absolutely not true especially with the U.S. dollar. It has the entire backing of the federal United States government backing it up and the United States Federal Government has the cash flows of the GDP of the most powerful, wealthiest country on the earth. That's not nothing at all.
But at the end of the day, your underlying point is absolutely true. This is something that is the bottom line with whatever it is, whether it's gold or Bitcoin or fiat, money is something that everybody agrees is money and it's worth what everybody agrees it's worth. The pushback on Bitcoin and other cryptos is their lack of utility to use as currency.
I think it's a mistake really to call them currency at this point, to continue calling them currency because they're crypto assets. It's an asset. It's not something that people use for transactional purposes on a regular basis. Because when it comes to currency, you want something that's going to predictably hold its value.
When we talk about crypto prices going up, that's inflation when we're talking about money, when it loses value, that deflation. We don't use the same terms to describe Bitcoin that we use to describe dollars. We have to consider that too.
Abi says, "On Tesla, I think [calling it] investing in Bitcoin is not right, it's just another way to hold cash. You would never say Tesla is investing in the US dollar. But that is the same as what you are saying. Either way, holding Bitcoin is way smarter than holding US dollars right now."
Yeah. Okay, that's easy to say when it's doing this, [shows a chart with the price of Bitcoin climbing] but you know what? Dollars don't do that.
This is an investment. It's not a holding. Cash holds its value, the value of cash for a company is that it's going to hold that predictable value and not do this.
It's easy to say holding Bitcoin right now is smart because it's just going up, right? The risk is, if Tesla's planning to deploy that Bitcoin into some sort of capital investment at some point. If Bitcoin decides to lose value for some reason, and we saw it was over $40,000 at the beginning of January. It fell 25%, it fell almost $30,000 again.
Danny Vena: The U.S. dollar is never going to do that.
Auri Hughes: Yeah.
Jason Hall: Go ahead, Auri.
Auri Hughes: I would just keep in mind, I think you've hit some really appropriate points. I'm not necessarily impressed, because it's just you buying an asset and sitting on it. But you're not strategically making a decision to expand your company or take your company in a different direction. I think this is more sensational, it's a headline, it's interesting. Bitcoin is innovative, we're all still learning about it, but it's not a strategic decision to expand your business or venture into something else. I don't necessarily see this as a way to create value for shareholders. But it's definitely interesting.
Jason Hall: Yeah, I want to be clear too, I'm not a Bitcoin bear. To Auri's point and something other folks have said, it doesn't generate cash flows, so that makes it hard to value. Also, there's not a clear utility path, which makes it hard to really value. That's my position on it.