Howard Marks: no fan of cryptocurrencies

published 4 August 2017

Howard Marks of Oaktree Capital is not a fan of cryptocurrencies. He can see that the digital currencies "have arisen from the intersection of doubts about financial security that grew out of the financial crisis, and the comfort felt by millennials regarding all things virtual". He also acknowledges that "some people are eager to speculate on digital currency for profit" while "others want to put a little money into these to-date-profitable phenomena rather than run the risk of missing out". However, "nobody has been able to make sense" of these currencies.

Given that "the price of bitcoin has more than doubled since the start of the year", can it really be considered a medium of exchange or store of value rather than just "the subject of a speculative mania"? Another sure sign that it is overhyped can be seen in the fact that the outstanding bitcoins and ethers (another cryptocurrency) in circulations are combined "worth more than PayPal and almost as much as Goldman Sachs". While times are good, the coins may work. "But their performance in bad times is far from dependable."

"Digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it." That's nothing new just look at the "Tulip mania that peaked in 1637, the South Sea Bubble (1720) and the Internet Bubble (1999-2000)". What's more worrying is that "the ability of these things to gain acceptance is just one more proof of the prevalence today of financial naivety, willing risk-taking and wishful thinking".