A question that has long bedeviled bitcoin observers is how to value it. Lately the answer to its worth has been whatever influential people like Elon Musk and star stock picker Cathie Wood say it is.
The original crypto asset bounced around this month as influencers weighed in. Bitcoin shot to a record high after Tesla revealed that the electric car company had converted $1.5 billion of its cash holdings into it. Then bitcoin got sucked into a downdraft when Tesla chief Musk suggested prices “seem high.” Prices lurched upward again after Wood, the investing rockstar and founder of ARK Investment Management, told Bloomberg she was “very positive” on bitcoin and glad to see a price correction.
Wood’s interview came after Square said it bought $170 million worth of bitcoin this month, and reported that about half of its revenue last quarter came from bitcoin. The payment company reiterated earlier comments founder Jack Dorsey made in an interview with Quartz that crypto asset has the potential to become the internet’s native currency. ARK has major stakes in Tesla, Square, and bitcoin in the funds it manages.
The difficulty in valuing bitcoin is, in some ways, a strength when it comes to speculation. The original crypto asset doesn’t generate cashflows, a key metric for figuring the worth of a company. It isn’t linked to a government, whose currency would typically fluctuate based on interest rates, economic growth, and inflation. Bitcoin hasn’t caught on as a means of payment, but it has, throughout its dozen-year history, been a speculative object extraordinaire, and there’s a case to be made that bitcoin’s price has bobbed around based on the trajectory of its sensational story. As Nobel prize winner Robert Shiller told Quartz during an earlier bitcoin boom in 2017, “big things happen if someone invents the right story and promulgates it.”
Wood, whose flagship fund has soared more than 140% in the past year, is dismissive of the bitcoin pessimists and says ARK sees many uses for it. The crypto asset’s supply is fixed, unlike fiat currencies, and she told Bloomberg that bitcoin is an even better bulwark against inflation than gold. She pointed out that it’s also resistant to confiscation, as bitcoin is decentralized and transactions take place outside the banking system. “Often called digital gold, we believe bitcoin not only shares many of gold’s characteristics but also improves upon them,” ARK analyst Yassine Elmandjra wrote in June.
Much, then, may hinge on whether bitcoin, created in 2009, can earn the kind of reputation for value protection that gold has developed over millennia. On Square’s Cash App alone, more than 3 million customers bought or sold bitcoin last year; in January, more than 1 million of them bought bitcoin for the first time. Tesla, Square, and MicroStrategy have committed a chunk of their companies’ cash holdings to bitcoin. But other CFOs may not think it’s such a smart idea. Naresh Aggarwal of the Association of Corporate Treasurers in London told DealBook that doing so is more like “putting money on a horse race” than being prudent with cash reserves.
