Bitcoin is still very early in its adoption cycle, says the legendary investor.

Bill Miller, the founder of major investment management firm Miller Value Partners and Co-Founder of Legg Mason Capital Management, made some very bullish observations on bitcoin in his Market Letter for Q4.

Bitcoin as an asset

Miller observed that bitcoin was the best performing asset category in 2020.

“It has outperformed all major asset classes over the past 1, 3, 5, and 10 years. Its market capitalization is greater than JP Morgan and greater than Berkshire Hathaway and yet it is still very early in its adoption cycle,” he wrote.

He also said bitcoin could be considered as “digital gold,” yet enjoyed many more advantages over the yellow metal.

Bill Miller on inflation and bitcoin

Miller aired concerns over inflation saying the markets were underestimating its risks. In the event of a recovery in the economy in the latter half of the year, both consumption and money velocity could surge.

“Lots of liquidity and increasing money velocity could quickly put upward pressure on inflation,” he observed. “Commodities markets have been unusually strong since bottoming in late April and are now considerably higher than they were pre-pandemic.”

In this context, Miller pointed to companies such as Square, MassMutual, and MicroStrategy that had moved cash into bitcoin rather than suffer losses on cash held on their balance sheet. He said the Fed was “pursuing a policy whose objective is to have cash investments lose money in real terms for the foreseeable future.”

“If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into bitcoin instead of cash, then the current relative trickle into bitcoin would become a torrent,” Miller wrote.

Cash is king? Not any more!

One of the most famous bitcoin cynics is Warren Buffett. Equally famous (and anathema to crypto aficionados) is his remark that bitcoin was “probably rat poison squared.”

However, Miller flipped that quote on its head in his letter.

“Warren Buffett famously called bitcoin ‘rat poison.’ He may well be right. Bitcoin could be rat poison, and the rat could be cash.”

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