My friend emailed billionaire Howard Marks about Bitcoin. Here’s his response–
By Simon Black - August 10, 2017


August 2, 2017

Santiago, Chile

Today is one of those days when I feel blessed to have such wonderful and interesting people in my life.

A few months ago I introduced you to Ben Yu, a Silicon Valley-based entrepreneur who’s easily one of the most unique people I know.

I first met Ben when he came to our summer entrepreneurship camp a few years ago.

I knew instantly that he was bright… and different.

He had already won the prestigious Peter Thiel fellowship, dropped out of Harvard, and started a successful company (in which I invested, alongside many of our Total Access members).

Among his many talents and interests, Ben is heavy into cryptocurrency.

And a few days ago as he was reading the latest Howard Marks investment memo, something caught his eye.

Howard Marks, of course, is the billionaire founder of Oaktree Capital.

His regular investment memos are highly insightful, and on Monday we told you about the latest commentary in which Marks cast a stark warning to investors.

Marks plainly states in his latest commentary that market valuations are at their highest levels in history…

… that complacency is at record levels, i.e. investors seem to think that the good times will last forever…

… that risk levels are quite high, while returns are incredibly low…

… and that investors are engaging in some damn foolish behavior.

Among them, Mark cites multiple examples of how investors are lining up to buy bonds issued by bankrupt governments.

In June, for instance, Argentina issued billions of dollars worth of bonds with a 100-year maturity.

Bear in mind that Argentina defaulted at least five times on its debt in the previous 100 years.

So it seems likely that the minuscule return investors will receive completely fails to compensate them for the risks they are taking.

Marks also wrote about cryptocurrency as an example of foolish behavior.

On the topic of Bitcoin, ether, etc., Marks states simply, “They’re not real!” and “nothing but an unfounded fad.”

And so… my friend Ben Yu took the liberty of emailing Howard Marks to engage him on the topic of cryptocurrency.

Ben was polite, but incisive as always, saying that Bitcoin is “no more or less real than any shared concept of money. . .”

His point is that the dollar isn’t “real” either. It’s merely a concept that people believe in.

Plus, over 90% of all US dollars in circulation, in fact, are already in digital form.

When you log in to your bank account and see a number printed on a screen, that account balance exists almost exclusively in bank databases.  There’s very little “real” paper currency that exists.

So in this respect the dollar is also predominantly a digital currency.

The primary structural difference between the dollar and Bitcoin is that the dollar is completely centralized.

It’s controlled by an unelected committee of central bankers who wield dictatorial authority over its quality and supply.

Bitcoin, on the other hand, is DECENTRALIZED, i.e. controlled by its community of users.

Currencies have existed in various forms since nearly the dawn of civilization, and our ancestors used everything imaginable as a medium of exchange.

Salt. Rice. Giant, immovable stones. Gold.

In the early days of the United States back in the late 1700s, people even commonly used whiskey as a medium of exchange. Worst case you could always drink it.

Each of those currencies worked because people had confidence in them.

In Medieval Japan people knew that if they received rice as a payment, that same rice would be accepted as payment for goods or services somewhere else.

For people who truly understand cryptocurrency, Bitcoin has inspired similar confidence for its users.

And with good reason. The technical design of Bitcoin solves a number of major problems that plague conventional banking and monetary systems.

But if you don’t understand something, it’s hard to trust it. It’s hard to have confidence in it.

Howard Marks admits he is in that camp. And he actually responded to Ben. Personally.

I thought that was pretty cool. And he was quite gracious.

In his reply, he agreed with the value premise of cryptocurrency, saying “The dollar has value because people accord value to it. Bitcoin may be no different.”

But he went on to conclude that:

“My issue is that (as I understand it), people can create their own bitcoin, whereas they can’t create their own dollars. . . To me, the idea that people can create currency and have it accepted as legal tender makes no sense. But maybe I just don’t understand.”

It was an honest, thoughtful response. And one that Ben has probably heard a number of times before. I certainly have.

Marks is a highly accomplished, sophisticated investor. And he admits he doesn’t understand Bitcoin.

I know a number of other accomplished, sophisticated investors, many of whom are household names. They don’t understand it either.

It’s common in human nature to fear, or at least be suspicious, of what we don’t understand.

And that’s the typical refrain I hear from very sharp financial minds, “I don’t understand Bitcoin, I think it’s a scam.”

Ignorance doesn’t make something a scam.

And given how big the cryptocurrency opportunity is, it’s certainly worth learning about before passing judgment.

Cryptocurrency is the future. Governments, major banks, tax authorities, stock exchanges, and even central banks are moving towards crypto.

It’s worth understanding.

But frankly it works both ways: while it’s foolish to disregard something out of ignorance, it may be even more foolish to buy something that you don’t understand.

Countless people are buying Bitcoin right now with zero understanding of its structure, challenges, or opportunities.

They’ve never heard of hash functions or SegWit. They’re just gambling that the price is going higher.

This is crazy.

There is absolutely no substitute for learning.

And if you’re looking for an easy place to get started, Ben also took the liberty of writing an easy-to-understand article: Cryptocurrency 101.

You can read it here.


Until tomorrow,

Simon Black


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  • jackw97224

    Ya can’t eat Bitcoins. Ya might try to eat fiat “paper” dollars though I doubt there would be sufficient nourishment to be found. But, one has always been able to exchange gold and silver coins for something to sustain life. Lots of luck with Bitcoins should the Internet be taken down. So, go ahead and play the gamble in Bitcoins but try not to get caught when the scheme blows up, when the music stops be sure you have seat upon which you can sit and which provides you sustenance.

  • georgesilver

    When you purchase a Bitcoin you are buying a lottery ticket number confident (at this moment) that is will pay out and you will be a winner. Once a Bitcoin holder feels that he is in danger of not being a ‘winner’ he will panic and rush for the door with all the others. The transaction rate is so small that very few will get out with anything.
    Crypto fans say that cryptocurrencies are not controlled but that is obviously not true because Bitcoin just split and I presume none of the small holders were consulted or could be consulted.
    Cryptocurrencies are proliferating exponentially ….. soon there will be thousands. Nobody knows (except the founders) how many ‘coins’ are in the hands of the founders waiting to make a killing when the price is right.
    Cryptocurrencies including Bitcoin are a Ponzi scheme. If you got in early you have made a killing as long as you sell to the greater fool before it collapses.
    Looks to me like a good gamble if you like gambling.

  • Werni Wolf

    On key characteristic of money is the collectability of the underlying collateral. In the case of gold, physical gold is the immediate collectable, movable collateral, in the case of the US Dollar, the collateral is the physical assets belonging to the US as a state.Not easy to collect.
    In the case of Bitcoin, it’s a bit of the internet infrastructure. You have to explain me first, how you would like to collect this collateral.

  • Dimitri Ledkovsky

    “To me, the idea that people can create currency and have it accepted as legal tender makes no sense”.
    Sorry, but I have even read about it and don’t trust it. To start I don’t believe that it’s “crypto” qualities are foolproof and its “holders” can be taken for a ride (and will be when the time is ripe). It’s hackable like anything else. Why is it paid for in dollars? Why do you pay for “something” that you “create”? Makes no sense.

  • autonomous

    Call it mining, it’s still what it is; creating out of nothing. Compare the super computer of today with the first , room-sized, behemoths. Now compare today’s with tomorrow’s; the computer calculations necessary to create a block of bitcoins will be the size of a penny and will take a microsecond. One article with a link above states that the total possible is a mere twenty-seven million, chump change for a Zuckerman. The ‘real’ value of anything is the price one agrees to purchase it. Scarcity is defined by how many or how few people are willing to own a thing. Beyond price and demand, any discussion of an economy is puffery, including talk about dollars, bitcoin or gold.