Contributed by Warren Fisher of Manole Capital Management
Bitcoin Flaws & Digital Currencies
Back in December of 2017, during its rapid ascension, we published a detailed research article discussing our issues with bitcoin. We called that note, “The Safe(r) Way To Play Bitcoin” and it can be re-read here. Within two weeks of our fairly negative note, the price of bitcoin nearly doubled. How’s that for bad timing? Feel free to look at some of the commentary we received at the time of that article. Let’s just say that the crypto community did not care for or appreciate our opinions. Some of the “feedback” was akin to making fun of my mother….
To summarize our note, we argued that bitcoin failed as a currency, for two primary reasons. One, we laid out our rationale why we did not believe bitcoin was a safe “store of value”. In addition, we felt that bitcoin was not a “medium of exchange or payment”. We then stated, even if we are dead wrong on bitcoin being a currency, Manole Capital does not invest in volatile currencies or commodities. We invest in growing companies trading at a discount to their intrinsic value. As we have said many times, we prefer to invest in secular growing businesses, that have predictable ways of generating free cash flow and profits. Instead of trading currencies, we purchase great FINTECH companies that meet our process, strategy and philosophy for long-term investing.
We concluded that instead of buying bitcoin, we favored the exchanges where bitcoin was about to trade on. Our analogy was the California Gold Rush, where thousands went West seeking a fortune in gold. We said, “some hit it big, while others failed to even reach those “streams filled with gold”. During the Gold Rush, Levi Strauss made a small fortune, not searching for gold in those crowded steams. He opened a store, selling pans, shovels, bedding and clothing. Those seeking their fortune needed a merchant to supply them with their necessary dry goods. We believe the exchanges are the modern-day bitcoin merchant.”
2018 was a tough year for bitcoin (down 73%), while the CME rose +32% and added a healthy 3% dividend yield. For our investors, this was clearly the better decision. Even though bitcoin has more than doubled this year and recovered from its difficult 2018, we feel comfortable with our decision. We are asset managers, purchasing great FINTECH companies, not f/x traders. We fully expect the Libra announcement to spur the cryptocurrency bulls. We will not be surprised to see some interesting comments following this note’s publishing. We’ll see….
What’s Exactly is a Libra?
On June 19th, 2019, Facebook revealed a 100-page white paper, with some of the details behind its involvement in the “Libra” cryptocurrency. Some analysts were quick to state that Facebook just “reinvented money”. The purpose of this note is to summarize that detailed white paper and breakdown the risks and opportunities for the entire payment ecosystem.
The simple, stated goal of Libra is to let you cheaply send money to people or seamlessly buy goods and services without fees. Libra wants to create a currency that is global, mobile, accessible, stable, fast, scaleable and secure.
That’s all, it’s that simple…
Libra’s website is interesting and insightful. Libra is represented by three wavy horizontal lines, with the name coming from the word for a Roman unit of weight measurement. In addition, the name has a connotation with the French word for free, “LIB”. According to its members, it is attempting to invoke a sense of financial freedom and inclusion.