Legendary Investor Bill Miller Puts 30% of Fund In Bitcoin

Bill Miller, a value investor who previously worked 35 years at Legg Mason, saw value in Bitcoin and invested a bunch of money in his fund in Bitcoin in 2016. I'm sure he is happy now: Bitcoin is over $6,500 per coin, up 10 times in the past 12 months.

In an investor letter obtained by WSJ investing columnist Jason Zweig, Miller revealed that he had allocated 30% of his MVP1 hedge fund to bitcoin back in early 2016, when one coin was trading at $350. This year alone, his fund has soared 72.5%.

Here are Bill Miller's view of Bitcoin:

“My view on bitcoin is that it is a technological experiment that may or may not prove to have any long lasting value,” Mr. Miller wrote in his letter. 

“Bitcoin has a market capitalization greater than 90% of the companies in the S&P 500, but it still might fail. I don’t know and neither does anyone else, no matter how certain they are of their opinion.”

“I believe there is still a nontrivial chance bitcoin goes to zero, but each day it does not, that chance declines as more venture capital flows into the bitcoin ecosystem and more people become familiar with bitcoin and buy it.”

As a value investor, he was open to owning high P/E stocks and low P/E stocks. "We own low PE and we own high PE, but we own them for the same reason: we think they are mispriced. We differ from many value investors in being willing to analyze stocks that look expensive to see if they really are. Most, in fact, are, but some are not. To the extent we get that right, we will benefit shareholders and clients," he said.

In 2016, Bill Miller obviously felt Bitcoin was "mispriced" even though it was trading between $382 and $782 per coin. Good call Bill Miller. Bitcoin is up 10 times from $600!

I think skeptics of Bitcoin in the old institutional investment world will take notice. When you see 35,000 new customers per day at CoinBase, you have to take notice. Something is happening. As Bill Miller says, an increasing number of investors will buy Bitcoin as venture capital flows into the Bitcoin ecosystem and more people will become familiar with Bitcoin and buy it.

I think investors who are strong on mathematics are impressed with the math behind Bitcoin. In his design, Satoshi Nakamoto was careful to drip out only so much Bitcoin at a time, so as not to raise supply too quickly.

There is 16.6 million circulating supply, and maximum supply of 21 million of Bitcoin. Miners are creating new coins each day, but only a little amount. I recently reviewed this chart at Blockchain and this shows me an average of 1,672 Bitcoins were produced daily from Oct. 24 to Oct. 30, 2017.

A block on the Bitcoin blockchain takes about 9 to 10 minutes to create. The reward per block is 12.5 Bitcoins. That is going to drop in half around June 12, 2020 when the amount of Bitcoin reward will fall to 6.26 Bitcoins. New Bitcoins enter circulation in an orderly, predicable way. Outside forces cannot arbitrarily flood the currency with new money. An incentive is provided for people to mine the coin and make the currency more secure and make transactions happen quickly and efficiently. 

With current demand outstripping supply, Bitcoin is likely to rise for awhile.

Because you can buy only fractions of Bitcoin, the investment allows anyone to get into it, even at $6.61 US can buy a Milibit of Bitcoin, which is 0.001 BTC.

I see $9,000 Bitcoin price by May, with lots of volatility between now and then.