Bitcoin as a "Store of Value" Let's stick with the analogy of Bitcoin as a piece of fine art. Like art, Bitcoin produces no cash flows, no dividend yields. It has no price-to-earnings ratio. Whether you see art as a "store of value" or a "pie-in-the-sky speculation" is a matter of taste. And tastes can change. As art critic Robert Hughes put it, "Art prices are determined by the meeting of real or induced scarcity with pure, irrational desire, and nothing is more manipulable than desire." The same applies to Bitcoin. Yes, art, like Bitcoin, can make you money. As Henry Clay Frick, the hard-nosed partner of Andrew Carnegie and an art collector, observed with wide-eyed wonder, "Even during possession, some paintings were seen to increase sometimes 100- or 1,000-fold more rapidly than the certificates of the best-managed joint-stock companies." But that does not make it an investment... any more than buying Beanie Babies was when they accounted for 10% of eBay's transactions. Or buying a lottery ticket that happens to hit. Arguing With "Success" Alexander Green's recent (negative) column on Bitcoin drew the following comment: "How can you argue with an average annual return of 200% per year for the past 11 years?" The answer is simple. Just because the price goes up doesn't mean that it is worth anything (unlike, say, a share in Coca-Cola or Google). I can put a value on company shares. No one can do that for Bitcoin. Far more relevant to understanding Bitcoin are investor psychology and financial history. Bitcoin started as a medium of exchange designed for a libertarian utopia, free of government control. A digital currency had been the dream of entrepreneurs since Peter Thiel founded PayPal in the late 1990s. The elephant in the room is this... Today's Bitcoin investors aren't revolutionaries engaged in a holy war against fiat currencies. If you bought Bitcoin, you bought it for a single reason: You expected it to go up. No Japanese businessperson cared about the impressionist art they were buying at the peak of the art mania in the 1980s. When asked why he had paid more than $300 million for late 19th-century French paintings, Yasumichi Morishita replied, "Impressionist paintings go better with modern decor." The real reason was far more straightforward. In the 15 years leading up to 1990, the price of French impressionist paintings rose more than twentyfold. Morishita was betting this trend would continue. The Ultimate Fate of Bitcoin I've predicted the demise of Bitcoin before. That's because governments have the power to take the punch bowl away from the Bitcoin party any time they want to. China will be the first of many to do so. My advice? If you've made money in Bitcoin, pat yourself on the back. But remember, "Never confuse brains with a bull market." Get out of the cryptocurrency game of musical chairs before the music stops. And live to invest another day. Good investing, Nicholas P.S. During The Oxford Club's upcoming Wealth, Wine & Wander Retreat through Paris, Normandy and Amsterdam, I'm looking forward to paying a quick visit to the Tulip Museum. And I'll be discussing the Dutch tulip mania and how it resonates with today's disruptive technologies during one of the trip's in-depth financial seminars. I hope you'll consider joining us from August 28 to September 5 on this extraordinary adventure. But act quickly - space is extremely limited. Click here to view the itinerary, then contact Maggie Stephens at 800.638.7640, ext. 125, or Maggie@aesu.com to learn more and register. | 
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