What caused Howard Marks’ change of heart on Bitcoin and his take on markets




There’s no obvious reason why government-issued fiat currencies are superior to digital currencies. Bloomberg & Oaktree Capital

Billionaire investor Howard Marks, who ignited a fierce backlash from cryptocurrency advocates after dubbing bitcoin a “fad” in July, has a had change of heart. Well, sort of.

Bitcoin, in fact, boasts a key attribute that may spur the digital method of exchange to serve as an alternative to legal tenders and as a store of value in the years to come: the simple fact that people believe in it.

“What bitcoin partisans have told me subsequently is that bitcoin should be thought of as a currency -a medium of exchange -not an investment asset,” the Oaktree Capital Group co-chairman wrote in a client memo Thursday.

There’s no obvious reason why government-issued fiat currencies are superior to digital currencies, he adds. “So my initial bottom line is that I see no reason why bitcoin can’t be a currency” given the fact “there are people (and businesses and even countries) that accept it as a legal tender.”

FROM THE MEMO

I BELIEVE the market is “not a nonsensical bubble ­just high and therefore risky.”

I WOULDN’T use the word “bubble” to describe today’s general investment environment.

IT HAPPENS that our last two experiences were bubble-crash (1998-2002) and (2005-09). But that doesn’t mean every advance will become a bubble, or that by definition it will be followed by a crash.

Current psychology cannot be described as “euphoric”or “over-the-moon.” Most people seem to be aware of the uncertainties that are present and of the fact that the good times won’t roll on forever.

Since there hasn’t been an economic boom in this recovery, there doesn’t have to be a major bust.

Leverage at the banks is a fraction of the levels reached in 2007, and it was those levels that gave rise to the meltdowns we witnessed.

Importantly, sub-prime mortgages and sub-prime based mortgage backed securities were the key ingredient whose failure directly caused the Global Financial Crisis, and I see no analog to them today, either in magnitude or degree of dubiousness.

It’s time for caution, not a full-scale exodus.It would be sheer folly to expect traditional returns today from investing like you’ve done traditionally One of the sensible courses of action is to invest as you did in the past but accept that returns will be lower




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