Bitcoin Myths, Part 9
Why Bitcoin Doesn’t Need Income to Have Value
After saving the Mushroom Kingdom, Mario and Peach moved to New York City and settled into an apartment near Luigi. Mario founded a plumbing business and was very successful. It survived several recessions, provided Peach with a new tiara every year, and paid for private school for Baby Mario.
Now Baby Mario is about to graduate from high school, and Mario Sr. wants him to take over the family business. But Baby Mario doesn’t want to be a plumber. He wants to be a chef and specialize in mushroom-based dishes.
Mario Sr. doesn’t just want him to take over the business; he insists on it. “Plumbing is the only way to make money in this hard world. If you try something else, you will be poor and living on the street like Waluigi.”
Value Investing
Warren Buffett popularized value investing, 1 the idea that you invest in businesses with positive cash flow and reliable income. This approach served a generation of investors well and made Berkshire Hathaway the powerhouse it is today.
But many people have taken Buffett’s investing principles and turned them into a quasi-religion. They believe that if an asset does not produce income, it is automatically a poor investment and most likely a Ponzi scheme. This is a fallacy. The mistake is assuming every valuable asset must generate cash flow.
I want to be clear: I am not arguing against someone who chooses to use this model for their investment strategy. It works. My argument is against those who say it is the only strategy. This is the same fallacy that Mario Sr. makes. Plumbing works, but it is not the only path.
Value Investors and Bitcoin
Many value investors believe that Bitcoin is worthless because it does not produce income. They take their model of investing and judge Bitcoin according to it. And Bitcoin does not generate revenue.
But their model does not account for many assets that hold value even though they don’t produce revenue. These include:
Precious metals like gold
Beachfront property
Collectibles like baseball cards
Bitcoin
Cash
Notice the last one?
Cash.
The very thing income-producing assets are meant to create is a non-productive asset that produces nothing and loses value over time. Its value is in its liquidity and optionality. And cash is what value investing generates: a non-productive asset.
The Alternative to Value Investing
Value investing is a valid approach, but it’s not the only one. Central banks don’t buy stocks; they buy gold, and the rich often use watches and collectibles as a store of value. In fact, all of the assets on my list are stores of value that aren’t directly tied to the stock market. They don’t need to produce income because their value comes from their history, utility, and supply.
Many investors follow a strategy focused on storing value instead of earning more money. Their path is not wrong; it’s just different. Kind of like Baby Mario’s desire to cook mushrooms instead of continuing his dad’s plumbing business.
This strategy has been successful as well. Since 2019:
Gold is up 3x
Beachfront property has nearly doubled since COVID
Rolex watches are up 50–150%
Pokémon cards have gone up 2–5x
Bitcoin is up 6–15x, depending on when you bought in 2019 2
And none of them produce income.
Conclusion
Value investing is still a good strategy and has been wildly successful for Warren Buffett and many other investors. Like Mario’s plumbing business, it is a winning strategy, but it’s not the only one and judging an asset purely on revenue generation is a mistake. That’s how you miss 3x gains with gold in just a few years. And it’s also how you miss 10x gains from Bitcoin.
If you prefer the value investing strategy, that’s fine. Just don’t be like Mario Sr. and keep Baby Mario from following his dreams.
Final Word
Sometimes there is more than one good choice. Don’t let your direction keep others from doing their own.
"All roads lead to Rome." — Ancient Proverb
Bitcoin Myths in Progress
I can’t believe I’ve already written ten articles in the Bitcoin Myths series (including Bitcoin Myths Zero). The goal is to build the most comprehensive collection of Bitcoin myths possible and answer the most common objections. Once finished, this will become a full book.
If this series has been helpful to you, consider supporting the project and getting early access to the book by becoming a paid subscriber to Crypto Confidence.
Disclaimer:
The information in this publication is for educational purposes only and does not constitute financial, investment, or legal advice. Always do your own research before making any financial decisions. Cryptocurrency investments carry risk, and past performance is not indicative of future results. I actively invest and trade in the crypto markets, and my personal portfolio and holdings change frequently. Nothing I share should be interpreted as a guarantee of performance or a recommendation to buy or sell any asset.
https://www.investopedia.com/warren-buffett-value-investing-strategy-how-patience-and-discipline-built-trillion-dollar-empire-11946762
https://coinmarketcap.com/currencies/bitcoin/