Why Value Investors Hate Bitcoin
Ever wonder what makes value investors like Warren Buffet avoid crypto? The reason why value investors hate Bitcoin might shock you.
Bitcoin investing has taken many groups by storm. Those who work in STEM have taken to it like ducks to water. Growth investors adore it, and are already arguing about which cryptocurrency will be the next to boom.
While many people have gotten into the Bitcoin craze, some have been quick to decry it. Value investors, for example, can't stand the thought of investing in it. Did you ever wonder why?
Well, we did too. So, we decided to uncover the reasons why value investors hate Bitcoin and swear against it.
To understand why value investors hate Bitcoin, you need to understand value investing. If you're just starting to invest in the stock market, or beginning to invest in crypto, you probably have heard of different investing strategies. One of the most popular investing strategies is value investing.
Value investing is characterized by:
- Finding goods and securities that are underpriced, and waiting until their true value catches up with them. There are always underpriced goods out on stock markets, so this is something that is always doable if you know what indicators to seek out.
- Long term investing. Value investing is not a "flash in the pan" form of investing like day trading. It's meant to work over the course of years.
- Looking for stocks that have good track records and a smart way of functioning. Value investors are all about the "tried and true" route. Speculative stocks, which could crash in a heartbeat, aren't their thing.
If you can't tell, this is a very old school approach to investing, and doesn't go for exceptionally high-risk deals.
Value investing is very traditional and very widespread.
If you're looking for "new school" thinking, you will not be a value investor. When done correctly, value investing is extremely low-risk, and can offer impeccably high rewards. This is a method that tends to be favored by Wall Street professionals because it works so well.
As a result, many of the people behind the best stock market trades in history are value investors. One of the most famous investors of all time, Warren Buffett, is a value investor. So, if you want to invest like Warren Buffett, you need to start valuing your investments.
Now that everything's clear, let's talk about the reasons why value investors hate Bitcoin.
Value investors often believe Bitcoin has no intrinsic value.
A cornerstone of value investing is the idea that you should look for investments that have a much higher intrinsic value than the price of their stock. The problem with Bitcoin is that it's difficult to figure out what the intrinsic value is—if there even is a value at all.
Many traditional investors don't believe that Bitcoin has an intrinsic value, which means that investing in it flies in the face of their investment style. With no internal value whatsoever aside from what people tell you it's worth, it's hard to actually feel good about investing in it as a value investor.
That alone is one of the biggest reasons value investors hate Bitcoin.
Evidence suggests it *is* overvalued.
Of the evidence that does suggest that Bitcoin has value, multiple studies suggest that Bitcoin's price is grossly overinflated. Considering that it took off to prices as high as $20,000 before it crashed, it's safe to say that there may be some truth to this.
Value investors hate anything that's overpriced. Therefore, value investors hate Bitcoin.
If you haven't noticed from online forums, many people seem to see Bitcoin investing as a "get rich quick" scheme. The rush of people who invested in the past couple of years bloated up the price, but didn't really offer much in return.
With its seemingly "flash in the pan" success, more investors are wary about long-term investing in Bitcoin. As a result, many value investors hate Bitcoin due to the actions of Bitcoin investors.
That being said, quite a few are also seeing Bitcoin as a long-term investment. So, this reason isn't always part of the explanation that would make any sense to those who are into value investing.
There's no track record.
Remember how we said that value investments are supposed to be "tried and true," or at least have reason to believe they will be in the future? Well, yeah, Bitcoin doesn't have that.
One of the reasons value investors hate Bitcoin is because it doesn't have a track record of success. If anything, it has a track record of volatility and sudden total loss. Not a good look!
Value investing does care about risk, and wants to reduce it whenever possible. With stocks and bonds, investors get the added security of knowing that their investments will be backed by companies and government entities.
This means that if you have a company that has a meltdown, there are laws and procedures in place that could potentially allow you to recover at least some of the costs. There are also laws that help prevent stock theft that deal with it being backed by the SEC.
This may not be much, but it helps with loss recovery immensely. Bitcoin doesn't have that at all, which is one of the lesser reasons why value investors hate Bitcoin.
Its highly speculative nature doesn't help.
Growth investors love to speculate, primarily because the potential rewards can be massive. They're risk-takers who are okay with potentially losing a ton of money because they expect to recover it with at least one or two "winners."
While growth investors love Bitcoin, value investors hate Bitcoin due to the speculative nature of its value. With digital currency investments, you're betting on the future value. You have to be okay with that if you want to invest in Bitcoin—and that's actually the opposite of value investing.
The "Old Guard" of investing tends to want to keep things traditional, and sadly, Bitcoin is anything but traditional. It's literally digital gold, and that's a concept most people won't fully grasp if they're used to the old way of doing things, making way for why so many young people are investing in cryptocurrencies.
Due to the novelty, it's really hard to apply value investing methods to it. Because of this, most investors who stick to old school methods won't want any part of it.
Overall, there are tons of reasons value investors hate Bitcoin—we can't just point at one.
Bitcoin is not an investment that's right for everyone, and truthfully, it's an investment that should be taken with a grain of salt. It is, and quite possibly always will be, one of the more dangerous investments out there.
That being said, with great risk often comes great reward. It's up to you to figure out whether it's a risk you're willing to take.