"We Emailed Billionaire Howard Marks About Bitcoin; Here's His Response..."

Tyler Durden's picture

Authored by Simon Black via SovereignMan.com,

Today is one of those days when I feel blessed to have such wonderful and interesting people in my life.

A few months ago I introduced you to Ben Yu, a Silicon Valley-based entrepreneur who’s easily one of the most unique people I know.

I first met Ben when he came to our summer entrepreneurship camp a few years ago.

I knew instantly that he was bright… and different.

He had already won the prestigious Peter Thiel fellowship, dropped out of Harvard, and started a successful company (in which I invested, alongside many of our Total Access members).

Among his many talents and interests, Ben is heavy into cryptocurrency.

And a few days ago as he was reading the latest Howard Marks investment memo, something caught his eye.

Howard Marks, of course, is the billionaire founder of Oaktree Capital.

His regular investment memos are highly insightful, and on Monday we told you about the latest commentary in which Marks cast a stark warning to investors.

Marks plainly states in his latest commentary that market valuations are at their highest levels in history…

… that complacency is at record levels, i.e. investors seem to think that the good times will last forever…

… that risk levels are quite high, while returns are incredibly low…

… and that investors are engaging in some damn foolish behavior.

Among them, Mark cites multiple examples of how investors are lining up to buy bonds issued by bankrupt governments.

In June, for instance, Argentina issued billions of dollars worth of bonds with a 100-year maturity.

Bear in mind that Argentina defaulted at least five times on its debt in the previous 100 years.

So it seems likely that the miniscule return investors will receive completely fails to compensate them for the risks they are taking.

Marks also wrote about cryptocurrency as an example of foolish behavior.

On the topic of Bitcoin, ether, etc., Marks states simply, “They’re not real!” and “nothing but an unfounded fad.”

And so… my friend Ben Yu took the liberty of emailing Howard Marks to engage him on the topic of cryptocurrency.

Ben was polite, but incisive as always, saying that Bitcoin is “no more or less real than any shared concept of money. . .”

His point is that the dollar isn’t “real” either. It’s merely a concept that people believe in.

Plus, over 90% of all US dollars in circulation, in fact, are already in digital form.

When you log in to your bank account and see a number printed on a screen, that account balance exists almost exclusively in bank databases. There’s very little “real” paper currency that exists.

So in this respect the dollar is also predominantly a digital currency.

The primary structural difference between the dollar and Bitcoin is that the dollar is completely centralized.

It’s controlled by an unelected committee of central bankers who wield dictatorial authority over its quality and supply.

Bitcoin, on the other hand, is DECENTRALIZED, i.e. controlled by its community of users.

Currencies have existed in various forms since nearly the dawn of civilization, and our ancestors used everything imaginable as a medium of exchange.

Salt. Rice. Giant, immovable stones. Gold.

In the early days of the United States back in the late 1700s, people even commonly used whiskey as a medium of exchange. Worst case you could always drink it.

Each of those currencies worked because people had confidence in them.

In Medieval Japan people knew that if they received rice as a payment, that same rice would be accepted as payment for goods or services somewhere else.

For people who truly understand cryptocurrency, Bitcoin has inspired similar confidence for its users.

And with good reason. The technical design of Bitcoin solves a number of major problems that plague conventional banking and monetary systems.

But if you don’t understand something, it’s hard to trust it. It’s hard to have confidence in it.

Howard Marks admits he is in that camp. And he actually responded to Ben. Personally.

I thought that was pretty cool. And he was quite gracious.

In his reply, he agreed with the value premise of cryptocurrency, saying “The dollar has value because people accord value to it. Bitcoin may be no different.”

But he went on to conclude that

My issue is that (as I understand it), people can create their own bitcoin, whereas they can’t create their own dollars. . . To me, the idea that people can create currency and have it accepted as legal tender makes no sense. But maybe I just don’t understand.

It was an honest, thoughtful response. And one that Ben has probably heard a number of times before. I certainly have.

Marks is a highly accomplished, sophisticated investor. And he admits he doesn’t understand Bitcoin.

I know a number of other accomplished, sophisticated investors, many of whom are household names. They don’t understand it either.

It’s common in human nature to fear, or at least be suspicious, of what we don’t understand.

And that’s the typical refrain I hear from very sharp financial minds, “I don’t understand Bitcoin, I think it’s a scam.”

Ignorance doesn’t make something a scam.

And given how big the cryptocurrency opportunity is, it’s certainly worth learning about before passing judgment.

Cryptocurrency is the future. Governments, major banks, tax authorities, stock exchanges, and even central banks are moving towards crypto.

It’s worth understanding.

But frankly it works both ways: while it’s foolish to disregard something out of ignorance, it may be even more foolish to buy something that you don’t understand.

Countless people are buying Bitcoin right now with zero understanding of its structure, challenges, or opportunities.

They’ve never heard of hash functions or SegWit. They’re just gambling that the price is going higher.

This is crazy.

There is absolutely no substitute for learning.

And if you’re looking for an easy place to get started, Ben also took the liberty of writing an easy-to-understand article: Cryptocurrency 101.

You can read it here.

Do you have a Plan B?

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nuubee's picture

He's right, he doesn't understand.

Truther's picture

Can't make anything out of thin air, unless you back it with worthless toilet paper of course.

rapetrain's picture

"the idea that people can create currency and have it accepted as legal tender makes no sense. "

I thought this was an article about Bitcoin, not The Federal Reserve.

 

Howard is too old for this. He has been conditioned to seek approval and permission. He's too concerned with what is "legal" and "allowed" and not what people WANT. People WANT bitcoin. And they will PAY for it.

evoila's picture

Bitcoin isn't backed by B-1 Bombers and ICBMs. That's the difference.

SethPoor's picture

Cool people use bitcoin.

Creepy_Azz_Crackaah's picture

Cool like Obama cool.

Mom-jeans cool.

Stuck on Zero's picture

It is mathematical certainty that a group of intelligent people will be able to hack any of the block chain systems. National currencies have governments with police engorcing their currencies. So far as we know gold is unhackable.

Manthong's picture

 

Get this through your freakin’ heads….

Medium of exchange .. check

Fungible………………..check

Store of value …………two lips and vol … WTF?

markovchainey's picture

I hate FRNs on principle but I can still wipe my ass with a dollar bill.  Can't do that with a flash drive.  

You really wouldn't want to wipe your ass with gold or silver either, but my stupid "theory of intrinsic value" states:  I like vagina.  The people who have vaginas generally like shiny things to wear and show off with.  Gold and silver are shiny.  Therefore, gold and silver are at minimum worth vagina.

Or did I just prove that vaginas are shiny.  I was never very good at logic. 

MaxThrust's picture

Your logic is disjointed but your basic premise is correct. Vagina is a comodity that all real men need and is actually what make the world go around. Without it there would be no need to do anything for there would be nothing of value to buy with all the effort.

markovchainey's picture

Wait!  What?  Oh damn it!  I've been using the wrong bathroom for DECADES!

 

That's ok, Cherry Poptart still loves me.  And you.  And of course Ellie...

johngaltfla's picture

Until a large government accepts Crypto Currencies as an alternate to their own domestic issued currency or merges them together in some sort of combined valuation, it runs the risk of digital confiscation. There has to be a legal portal for crypto money (i.e., to a bank, card, etc.) where governments will not threaten to seize individual's assets. Once that happens the recognition will indeed be widespread, but until government's can tax it, they will not give it its due.

Occident Mortal's picture

But if you don’t understand something, it’s hard to trust it.

 

This is why Bitcoin will fail. It's too esoteric for mainstream trust and without mainstream trust it isn't money.


swamp's picture

You can print out your bitcoin on cardboard or splintered wood and wipe your raw ass on that.

free_as_in_beer's picture

reminds me of beanie babies.  maybe block chain is the future, but that makes bitcoin yahoo at best, tullip bulbs at worst.

A specuclative rush to currency as an investment?  If only there was some kind of chart showing real transaction growth, acceptance, and usage of bitcoin as a currency.

logicalman's picture

Currency is only a way of getting around the inherent problems of barter.

In any sane world (I know, as if!) a currency would work because people trusted it, not because a bunch of guys with guns say you have to use it.

Gold and Silver used to fulfill that function, way back - traders used to carry scales and weights along with touchstones to assay on-the-fly what they were trading for - caveat emptor, and all that. If you were known to be untrustworthy nobody would deal with you, a kind of self policing deal. Now we have people in the middle skimming off the efforts of the productive.

Store of value is a bit slippery, and again, is based on an agreed exchange, as  gold & silver are really just tokens, but at least they can't be conjured up from nowhere.

An interesting concept, regarding matters of currency, is the tally stick - worth a bit of research if such matters are of interest to you.

BigJim's picture

Tally stick - easily the longest-lived fiat currency in history. But as it was competing with gold & silver, I guess they didn't dare debase† it too much.

† pick too many branches

logicalman's picture

If you take a stick and split it down the centre, I doubt anyone would be able to fake either of the halves. That was the tally stick's best feature, unless you are in the business of counterfeiting.

 

GodSpeed_00's picture

When quantum computers come about there will be quantum crypto currency. Even crypto today has planned out their struture with quantum computing in mind. 

CPL's picture

There is only one currency driving the chip market right now and that's BitCoin, the original.  Everything else, including the BitCoin cash fork, is a derivative using the hardware made to mine BitCoins.  Mr Marks btw is a silver spoon grand daddy's old money.  He's a billionaire by proxy of someone smarter, sharper and better than he ever was.  The fact is he's barely literate in financials and relies heavily on a team of people to answer questions for him.  He is much less than his ancestors.  Much less.  The opinon of a trust fund brat is worth piss in an ocean.

The entire article could have described a fictional diaogue with one's own housepet with the dynamics and fundementals of modern economic system.  At least the response would have been ernest versus the agenda driven crap pile some trust baby needs his ass wiped by a team of people because they are inbred and dumber than a bag of hammers.

fbazzrea's picture

and no one's talking about the tremendous energy required to operate the grossly inefficient blockchain. so they increased the processing speed by single-digit factors. to compete with digital dollar processing, it would need to be in the magnitude of 105 or so, if i recall correctly. i'm close. should probably go check cause someone will call me out if wrong by a magnitude but the point is... Bitcoin SUCKS as a currency. the blockchain is awesome... BTC, not so much. i suspect it has a certain first-space mover advantage, but who knows for how long our govt will wait before domestic exchanges are regulated.

i'm just saying... imo, it's a speculation. i'm not interested but that's just me. i'm sort of full-up on some real-world specs right now. (;

TheEndIsNear's picture

The problem with crypto currencies is that they are based on WASTED ENERGY that has been used in the past. Any legitimate currency is based upon being able to (for example) pay for or redeem it for energy use in the FUTURE.

Mike Hunt III's picture

Bitcoin sucks as a currency? But blockchain is awesome? That's like saying water sucks as a beverage but hydrogen is awesome. You do know that a blockchain is a necessary part of Bitcoin? But blockchains are nothing special. Blockchains are just ledgers of transactions . They have been around since man was able to write. Bitcoin is the important invention, not blockchain.

MaxThrust's picture

So far as we know gold is unhackable.

Not really,just  add a little Tungsten.

I dont own Bitcoin but people are spending USD and other currencies to buy bit coin so even though it was created out of thin air 9like all currencies) it has value becasue currency was exchanged for it.

For instance, a painter paints a great picture. That picture is then traded down through the ages for more and more fiat every time. It has value but was created out of thin air.

Mr. Universe's picture

It has value but was created out of thin air...

Wrong. It's ultimate worth is decided by free market price discovery, whatever someone will pay for it. The original value is the canvas, paints, training and education of the artist and the time he spent producing the work. No one snapped his fingers and "poof" there it is out of thin air. Even cryptos now require quite an investment to produce. Federal reserve fiat is about as close as you can get to money from nothing, Pizzas for free.

logicalman's picture

When buying Au, coins like Maples have to be the best bet. Harder to do the tungsten trick with something small and thin.

If you have one you know is legit, listen to how it rings.

For bars you need ultrasound.

SmittyinLA's picture

I think they can make gold in a neclear reactor but it costs more than natural gold.

I_rikey_lice's picture

"Cool people use bitcoin"

 

Nobody "uses" bitcoin, they hoard bitcoin waiting for a greater fool to sell to in the future for millions of dollars each.

Easy money 

GodSpeed_00's picture

Bitcoin is legal in Japan and South Korea and can be used in a variety of online and phsycial stores. Not to mention it can buy lots of dollars or gold. 

Crypto Kevin's picture

Just like gold. When was the last time you walked by a store with a sign in the window saying "We accept gold"?

asierguti's picture

Gold is used in jewlery, electronics, medicine, etc. It has value because it is needed.

GodSpeed_00's picture

Only people that need gold are people making cellphones or other tech and even in that case the amount needed is miniscule. Other than that gold is useless.

BeanusCountus's picture

Hmm. I would wager the number of merchants that accept gold today exceeds those that accept Bitcoin by a very large multiple. Just ask to speak to the owner.

Anyway, I bought $1000 of crypt. Half Bitcoin and half Ethereum. Mostly curiosity to see how it works. Have to say I could use some advice. Seems like the only use is to stare at it in the "wallet". And the "no transaction fees" doesn't appear quite right after Coinbase takes their skim. Assuming that was my first mistake using these guys. It's early, but so far just looking forward to the day when I can buy some gold with the stuff.

83_vf_1100_c's picture

Beanie Babies were cool at one time.

"Bitcoin, on the other hand, is DECENTRALIZED, i.e. controlled by its community of users."

And what % of bitcoin is owned by a few 1% club members? Over 51% which makes them the controlling interest. They can make it dance to profit themselves. Same as it has ever been I suppose. I am old. I do not understand BC. I do not trust something that lacks backing or widespread trust. Come the great reset BCers are gonna be left with a useless claim. How many Venezuelans are buying tp and food with BC? Just my old fuck's .02.

GodSpeed_00's picture

People in Venezuela are buying crypto though. Guess you didn't know that.

Mr. Universe's picture

90% of almost everyone on the planet has no idea what a bitcoin is, how they are traded or used. Maybe even 95+%. Heard the name before, OK, but beyond that, crickets.

GodSpeed_00's picture

You say that like it's a bad thing, that just means it's still early.

Mr. Universe's picture

No, not bad for those at the top of the Ponzi scheme. Bad for all the rest. Moar of how the world works for the 'lites

GodSpeed_00's picture

Ponzi scheme with limited supply? People who invested early reap the rewards, that's pretty much how capitalism works. If it was left up to you Bitcoin would be $0 right? So why shouldn't those who believed in it and got in early not be rewarded? Not to mention many people sold their Bitcoin when it reached former highs in regret only to watch it go up even more. People have lost crypto as well. Nobody knew Bitcoin would be worth what it is now. Regardless there are many different crypto. If you don't like Bitcoin because people got in early and are holding their investment then just pick a crypto that had an airdrop and no premine. They're out there. Or look out for the next great project.

Mr. Universe's picture

Go ahead, it's your time and effort. However the fact remains that this effort was, "I completed a block faster because I was first, now to do the same thing it takes 1000x longer." That my friend is a pyramid scheme. The best part is where those at the bottom actually trade the fruits of their labors because those at the top said it's worth something. Gee with all that crypto the Emperor can buy some new clothes.

True Blue's picture

But, what can they buy with it? Anything? Does the local retailer accept it in exchange for toilet paper or food? Can they bribe a cop or buy a hooker with it? Will they be allowed to keep it once the Venezuelan government finds out?

GodSpeed_00's picture

they can preserve their wealth with it, the other option is to watch all of your wealth go to zero with the devaluing currency. If you're smart you can have all the things you mention and more. However my plan would be to leave the place with my wealth and nobody knowing the better because it's crypto. Bribe an officer to get a passport etc. Your wealth which was preserved will be able to do many things. Then you could apply for political asylum in the US. Nobody will know you have crypto unless you tell them, try getting out of a collapsing country while hauling a bunch of gold and see how that works out. The government has a better chance of finding precious metals than a string of digits you can even memorize in the worst case. When it comes right down to it, would you rather be in Venezuela with 100 Bitcoins in a hidden wallet. Or would you rather be in Venezuela with Bolivars.

Mr. Universe's picture

Except where ever you are going after the collapse completely restricts internet acess and monitors all activity, if there still is an internet that is. I have no illusions of going anywhere or trying to take a stack of PM's with me. Hunker down and ride it out, battling where you can. Crypto is a lie, is that where you want to store your treasure?

Bunga Bunga's picture

Bitcoin is not controlled by their wealthy "shareholders", but 'Proof of Work' and users who decide the protocol. Even if you own 1,000,000 BTC, you have zero control. Only if you invest that into mining equipment and pay for running cost, you can try to get 51%. But others can do the same with Dollars. It's a permissioneless system.

tmosley's picture

Beanie Babies aren't, and never were fungible. They were collecters items. That is the appropriate target for tulip comparisons. Bitcoin is a CURRENCY, not a collectible. There are plenty of failed currencies in history. Find one that has similar characteristics and compare it to that (to my knowledge, there are none). Then you might have an actual argument.

jcaz's picture

Who ya gonna listen to- Howard Marks or Fonestar? 

Jubal Early's picture

Crypto's are a stepping stone on the path to complete financial control by the one bank.  You can argue all day long about how great it is, but it is clear where this is heading.  It is pretty similar to gay marriage.  Or womens sufferage.  Or Obama care. Or....