Veteran investor Bill Miller, whose mutual fund outperformed the S%P 500 in 2020 for the second year in a row, has weighed in on bitcoin’s recent price rise and said he believes the flagship cryptocurrency could be seen as “poison” for cash.
Referring to Warren Buffett’s famous words on BTC, saying the cryptocurrency is “probably rat poison squared,” Miller said in his Q4 market newsletter that the legendary investor may be right. Per his words, “Bitcoin could be rat poison, and the rat could be cash.”
Several public companies have diversified their cash holdings into bitcoin in the second half of 2020, inducing MicroStrategy and Square, buying up billions worth of the flagship cryptocurrency. PayPal, in October of last year, surprised the crypto space by launching a service letting users buy BTC, BCH, ETH, and LTC on its platform.
Per the newsletter, PayPal and Square are “estimated to be buying on behalf of their customers all of the 900 new coins mined each day,” which would mean demand is now far superior to supply. Other firms including MassMutual, One River, Ruffer Investment, and more have also added exposure to BTC.
Bitcoin at this stage is best thought of as digital gold yet has many advantages over the yellow metal. If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into bitcoin instead of cash, then the current relative trickle into bitcoin would become a torrent.
The veteran investor wrote he believes that while so far the cost of living in the United States has remained below the Federal Reserve’s 2% inflation target, despite the central bank’s stimulus measures launched to counter the economic fallout caused by the COVID-19 pandemic, the market is likely “underestimating the risks of inflation.”
He added that savings rates are “unusually high” and as the economy starts going back to normal in the second half of the year it’s likely consumption will accelerate and, with it, money velocity. Miller concluded:
Lots of liquidity and increasing money velocity could quickly put upward pressure on inflation.
Last month, a team of J.P. Morgan global market strategists led by Nikolaos Panigirtzoglou reportedly wrote in a note to clients that over the long term Bitcoin’s price could get to $146,000 and higher. The report noted Bitcoin being seen as an alternative to gold implied “big upside” for it, although a rally to $146,000 is “unsustainable” for this year and is instead a long-term target.
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