Do you know anything about Howard Marks? Unlikely.
Howard Marks is known to be one of the most respectful investors, the forebear of Oaktree – a famous investment management firm with the main focus on distressed securities. The company operates with billions of dollars. The most significant profit was gained after the global financial crisis of 2008.
Howard Marks acts as the Oaktree Chairman. He is also famous for his plain but information-packed memos, which are highly respected on Wall Street.
Recently Howard Marks has published his new memo called “There They Go Again..Again,” in which he reviews the current situation in the financial market bringing up a much debated issue about whether it is a bubble or not.
ICOs are also among the subject of his attention, so Howard Marks’ insights can be seen as authoritative point of view about fast spreading cryptocurrnecy fever along with the standpoints of experienced investors.
Old Man’s Viewpoint
Focusing on the main advantages of cryptocurrencies such as Bitcoin or Ether Howard Marks lays the emphasis on their resistance to hacker attacks and any types of falsification. The second benefit of digital money, according to Marks, is it limitedness due to the specifics of the software generating these currencies.
At the same time, Howard Marks sees the main argument against crypto investments in their virtual nature: Bitcoin and Ether don’t exist in physical world. The field of digital currency application comes down to buying other virtual money or investing into new projects which, obviously, will introduce other new non-existing currencies.
To illustrate his argument against ICOs and cryptocurrencies generally, Mr. Marks tells the following joke.
Two friends meet in the street. The first one tells that he is selling a highbred and extraordinary intelligent hamster. The second asks how much does it cost and receives the answer: $500,000. Of course, he says it is nonsense.
The following day they meet again. The second man asked whether he had managed to sell the hamster. “Yes”, said the seller. “Somebody gave you half a million for it?” asked the friend and got a positive answer again. “Cash?” The answer was “No, I got two $250,000 canaries.”
Who will be right?
Maybe, Mr. Marks is just too old fashioned and technologically backward to evaluate all the power of cryptocurrency?
He denounces it. According to Marks, Oaktree contributors reckon the ability of virtual money to receive recognition from the public is one more signature of the spreading tendency towards financial naivety, venturousness and wishful thinking.
From Mr. Marks’ perspective, virtual currencies can’t be nothing more than pure trend, possibly, just a pyramid pattern. Such fad may be built upon the people’s willingness of ascribing value to things which are not backed by anything.
He also gives other examples, such as the Tulip mania of 1637, the South Sea Bubble of 1720 and, finally, the Internet Bubble of 1999-2000.
Traditional contributors say: the key idea of the investment is to buy items because of the keen price with regard to their intrinsic values. In contrast, speculation is considered to be the result of buying something without taking into account the essential value together with the appropriateness of the price. People make decisions based on their feeling that prices will raise later.
Howard Marks doesn’t consider Bitcoin to be a medium of exchange or a store of value. Apart from that he sees the doubled price to be the result of speculative fever. The same goes for Ether, with the price having been appreciated 4500% since the beginning of the year.
According to The New York Times, highly popular Bitcoin and Ether together can be estimated equally to PayPal and almost equally to Goldman Sachs. What would you choose: to be an owner of all the cryptocurrencies or one of these organizations?
In simple words, does crypto money have a real value? It seems digital currencies keep their heads above water thanks to pure optimism, while bad times show all the vulnerabilities and undependability. It is hard to estimate the consequences once people opt to hold gold or dollars.
One thing we can say for sure. Only time will show whether ICOs are only a fad or virtual money has the right of existence. Yes, a lot of untrustworthy companies made hay during the Internet bubble of 1999-2000. However, we should draw our reader’s attention to the fact that the Internet is functioning and growing every day and second.