Dillian: Bitcoin Faces Obsolescence

March 07, 2014

Jared Dillian is the editor and publisher of The Daily Dirtnap, a market newsletter for investment professionals, and the author of  “Street Freak: Money and Madness at Lehman Brothers."


You probably saw the news article from a week or two ago about that couple from California that went hiking and—seriously—found more than 1,000 gold coins stashed underground worth $10 million. The coins were from the 1890s.

I had a couple of thoughts on this. The first was that a bunch of $100 bills stashed underground would have been worthless in 120 years, both physically (they would have decayed) and in terms of purchasing power (taking into account all the inflation over the years).

It’s worth pointing out that much of the value of these gold coins, about $8 million of it, was due to numismatic interest, but that’s a point worth considering, too. If you stash coins underground, they’ll probably be worth something in 120 years. Even a bunch of quarters would have been worth a lot.

About a month ago, I was goofing around on Twitter, sort of making fun of the Facebook/WhatsApp deal, and this guy needles me and says that I have a tangible goods bias—which is nonsense: I was a Facebook investor for years, and I have invested in all kinds of fluffy stuff.

But I replied to him that Warren Buffett has a tangible goods bias and he seems to be doing pretty well with it. Then you have his protégé, Bill Gates, who left Microsoft with $40 billion and now has close to $80 billion, giving away $26 billion along the way. That’s a track record we can all be envious of. He did it by investing in things like railroads, like Buffett.

I don’t know that I’m a growth investor or value investor or tangible goods investor, or really any kind of investor, for that matter. I think I have a great track record doing what I do. But I’ll tell you something I haven’t invested in: Bitcoin. Why? Because a can full of Bitcoins (or a flash drive) is worth nothing in 120 years.

I think that the Bitcoin promoters have a real blind spot with respect to obsolescence. For better or worse, I run around with a libertarian-ish crowd, and these guys are so bulled up on Bitcoin. So bulled up.

And I will tell you that libertarians are often the worst investors on the planet, because they become blinded by their own ideology, and get flushed when the market fails to conform to it.

Before Bitcoins, it was gold, and the gold bugs. I love the gold bugs to death, but they are wrong about nearly everything. So I thought it was telling that the correction in gold got so bad that even the gold bugs got bearish on gold! Yes, the gold bugs got bearish on gold and bullish on Bitcoin. I said to myself, “This has to be close to the bottom.”



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