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Bitcoin Ban or Bitcoin to $1 Million? Charlie Munger vs. Cathy Wood

Validated Individual Expert

Do you remember they used to break the class up into boys vs. girls in elementary school? It forces you to feel instant pride and camaraderie when you are teamed up against the opposite sex, whether for a class spelling bee, a game of Red Rover, or any other contest to prove your sex is better.

Today's crypto news has two conflicting stories from each sex. On one side, we have Charlie Munger, the 99-year-old billionaire who is the vice chairman of Berkshire Hathaway. Warren Buffett has described Munger as his right-hand man; together, they are the Batman and Robin of the investing world.

On the other side, we have Cathie Wood, the 67-year-old founder and CEO of Ark invest. Her flagship Ark Innovation fund crushed the market with 45% annualized returns until running into some issues last year with the tech crash. Wood is one of the most prominent and outspoken women in the investing space, and her fund focuses on identifying and investing in disruptive technologies.

These two brilliant investors sit in different camps regarding Bitcoin and crypto. Munger has described Bitcoin as "disgusting and contrary to the interests of civilization." His descriptions are even more colorful when he says, "I avoid it as if it were an open sewer, full of malicious organisms," and "I regard it as almost insane to buy this stuff or to trade in it."

Meanwhile, Wood has a different mindset. She has said things like,"Bitcoin is bigger than Apple, which is a pretty good idea." Cathie Wood has also said, "Bitcoin (is) truly a money revolution," Wood said. "It's a very important insurance policy for countries that don't have the dollar as a reserve currency as we do."

So, we have two investing powerhouses with disparate views. Both names have been in the news recently. Munger suggests the US follow in China's footsteps and ban Bitcoin and crypto assets. And Cathie Wood has recently called for a $1–$1.5 million Bitcoin by 2030. If you aren't an investing powerhouse, who should you believe?

Munger's argument

Yesterday, the Wall Street Journal printed an opinion piece by Munger titled Why America Should Ban Crypto. Munger brings up valid points about how many crypto projects launch in an unregulated space, pay promoters to pump the price and then dump the coins on investors. He describes the space as:

“A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity. Obviously the U.S. should now enact a new federal law that prevents this from happening.”

Munger supports his claims to ban crypto on China's decision to ban crypto because they believe it will do more harm than good. He also refers to a depression in England during the 1700s. In response, the English parliament banned public trading in new common stocks for 100 years. Munger states:

“And, in that 100 years, England made by far the biggest national contribution to the march of civilization as it led strongly in both the Enlightenment and the Industrial Revolution and, to boot, spawned off a promising little country called the United States.”

Cathie Wood's argument

During interviews, Cathie Wood reiterated her bullish outlook on Bitcoin and placed a $1 million price target on the asset by 2030. In addition, Ark Invest wrote their Big Ideas paper earlier this week and the firm said this about Bitcoin:

“Bitcoin’s long-term opportunity is strengthening. Despite a turbulent year, Bitcoin has not skipped a beat. Its network fundamentals have strengthened and its holder base has become more long-term focused.”

Ark's report states their bull thesis for Bitcoin is $1.48 million in 2030. Meanwhile, the bear case is $258,500, and their base case is $682,800 in 2030. Further, Ark writes:

“Contagion caused by centralized counterparties has elevated Bitcoin’s value propositions: decentralization, auditability and transparency. Its network fundamentals have strengthened and its holder base has become more long-term focused.”

The report also highlights Bitcoin's CAGR over the past five years compared with other asset classes.

If you aren't familiar with CAGR (I wasn't when I read this), here's a definition from Investopedia: "The compound annual growth rate (CAGR) is the rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment's life span."

Thoughts on Munger's perspective

As much as I want to tear Charlie Munger's argument apart and call it a conspiracy theory by a 99-year-old who may have a perspective from the last century, he is accurate with some of his depictions. For example, I purchased crypto assets promoted by influencers like Bitboy, who admitted they were compensated to manipulate their audience.

I'm certain many other influencers were doing the same thing but won't openly admit it. Even I promoted ROI projects that sounded too good to be true, and unfortunately, for many investors it was. I wrote about Celsius, Voyager, and BlockFi, and they stole billions from ordinary people and plenty of money from me.

I'm afraid I have to disagree that crypto assets are gambling contracts with a 100% edge for the house. Comparing it to gambling devalues the value propositions that crypto and blockchain provide. Some of these value propositions include smart contracts, digital transactions without the need for a middleman, and an alternative to central bank-managed fiat.

I could argue that stocks should be banned because it allows companies like McDonald's, Smith & Wesson, and Altria. These companies make the world obese, produce and sell guns and ammo, and peddle nicotine addictiHowever, justJust because I am not a fan of what they represent doesn't mean that all stocks should be banned.

Copying anything China does is a bad argument. We followed China's lead on the lockdowns, and there's plenty of debate on how effective that was. Most people want to avoid switching spots with Chinese citizens. And I could use the same argument to say that the state should take over control of many things because China has less gun violence. Munger is just cherry-picking here.

Finally, comparing crypto assets to 1700s England is picking a metaphor beyond most people's comprehension and historical knowledge. In 1933, the US confiscated American gold. In 1974, Americans were able to own gold again. By this time, the US dollar was the world's reserve currency backed by the government's full faith. This worked out well for Americans who didn't own gold in 1933. Those who sold their gold for $20.34 per ounce to the government would have been better off holding the gold than the dollars.

My point with this comparison is that bringing up unrelated history doesn't fit our technology-driven world.

Thoughts on Cathie Wood's perspective

I write about crypto and invest in crypto, so I am biased towards Cathie Wood, and Ark invests arguments. However, this doesn't mean there aren't potential weaknesses in her views. Just because something performed well in the past five years doesn't guarantee future success.

For example, let's look at gold again. In 2000, gold was selling for under $400 per ounce. By its peak in 2011, gold had nearly hit $2000 per ounce. Over one decade later, gold has yet to do much and right now is nearing the $2000 per ounce level. I'm certain gold investors were saying similar things about gold after 2011 that Wood is saying today.

I agree with the Ark's opinion that Bitcoin has become more battle-tested due to the collapse of centralized entities. However, there are potential drawbacks to this statement as well. For example, the government can come in with over-regulation, and people like Munger can scare ordinary investors from embracing the space.

Key Takeaways

If we knew that Bitcoin would be $1 million or 2030 or if it would be banned like in China, it would make our investment decisions easy. But, both of these investors are concerned with their and their investors' best interests. Munger has little exposure to crypto, and Wood has significant exposure to crypto.

This means the onus is on you to decide your opinions and invest in the conclusions you can draw. I've chosen the Bitcoin and crypto side. The world is innovating because of technology, and Bitcoin and crypto are a financial evolution. Therefore, I invest in the space. However, you may agree with Munger that it's simply gambling and stacked 100% against you. If that's your thesis, Berkshire Hathaway stock has performed extremely well for its investors.

What are your thoughts? I'm confident the algorithm has brought you here because you are pro-crypto. But maybe you aren't? Share your thoughts in the responses. Do you believe both have credible arguments or are they being loyal to their investors?


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