Why Mark Cuban Is Wrong On Bitcoin

Mark Cuban doubts the current valuation of Bitcoin. I will discuss a few of the arguments he raised in an attention grabbing series of tweets. He makes some good points, some more questionable points and there's some stuff I disagree with. I have some cryptocurrency exposure, but below is my attempt at a measured and objective response.

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Valuation, or relative value, is of course the first thing any businessperson considers. It's completely fine to question valuation. In my mind it is questionable to hold just $20 worth of Bitcoin when you also own the Dallas Mavericks. That seems overconfident about its overvaluation.

Valuation of a currency or asset that shares some currency functionality is by definition problematic. Take the Euro for example. When I open my wallet and pull out a couple of bills I can exchange them for stuff. If I pull out the exact same number of grams of paper making up Bolivar, I'm not getting very far.

The Euro has value besides the commodity value of the paper it is printed on. We accept it, convinced that it will be exchangeable for other objectively useful stuff; like a latte, burritos or Golden State tickets, somewhere down the line. But there is no fail-safe or reason why this should be the case in practice. That's why there continues to be deep interest by people to hold gold, land and real businesses.

Sometimes you hear the argument Bitcoin are just bits on a computer that don't really exist, in my opinion that's not necessarily a big problem at all. But in any case it is exactly what the euro is, or the U.S. dollar for that matter.

There are not that many big differences between fiat currencies like the Euro and the dollar and cryptocurrencies. The fiat currency have been declared legal tender by governments, which means we have to accept it, but in most cases the government does not tell us how much of it we have to exchange certain goods for.

The intrinsic value of the currencies is in constant flux, its what currency traders attempt to take advantage of, and established in the complex adaptive system of the real world economy. The government did establish an entity to have some influence on its perceived value, but that control is easily overstated. Crypto believers will argue cryptocurrencies are a strictly improved version of fiat currency because of the removal, of the centralized influence of central banks.

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Disclosure:Long Bitcoin, Ethereum and ZCash. 

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