Charlie Munger of Berkshire Hathaway thinks so. While speaking at the Ross School of Business (U of M) he said this: “You know it is one thing to think gold has some marvelous store of value because man has no way of inventing more gold or getting it very easily, so it has the advantage of rarity. Believe me, man is capable of somehow creating more bitcoin. … They tell you there are rules and they can’t do it. Don’t believe them. When there is enough incentive, bad things will happen.”

Whether we compare Bitcoin to the Great Dutch Tulip Bubble the of 1630’s (when a single bulb sold for more money than the annual wages of a skilled tradesman) or we believe it to be the precursor to a new decentralized and democratized wealth distribution system, one thing is clear: Bitcoin is a very volatile; one would even say emotional, depository and payment system.

Could Charlie be correct when he says that, no matter who or what the supposed gatekeeper is, there will always be the tendency to increase the float; thereby devaluing the currency and spoiling its effectiveness as a store of value? After all, why steal Bitcoin when making more digital tokens may be easier and less costly?  Of course, there is the other, supposedly impossible, altering of the float by counterfeiting; as had happened on multiple occasions when  North American stock certificates were duplicated by unscrupulous transfer agents and others.  These re-issues were distributed in Europe and Asia – where the left hand had no idea what the right was doing and the markets seemed not to particularly notice or care so long as there was trading volume. Of course the regulators did care.

Should dilution occur, is it substantially different than governments introducing more money into their economies…other than the tendency of governments to run both deficit and debt? Is it possible that Bitcoin and other digital currencies might be better off forward splitting the coins when they reach predetermined values in any event? Would this not serve the demand for digital currency, presuming it continues to exist, and even legitimize the medium in some fashion; a little like successful stocks that reward existing holders by splitting while also allowing smaller players to acquire stock which holds the promise of continuing to rise in value?  Of course with stock issued by a reporting and often successful company, there is some underlying value (break-up value) which, in a reversal of fortune scenario, shareholders may have some claim to…provided that secured investors, bond holders and other debt holders failed to claim it all – see: notes to the financials.

On one hand we have to say that Mr. Munger’s investment track record (along with his partner in Berkshire) is strong evidence that he understands the basis of sustainable value and growth. On the other, we wonder whether there is some desire to protect the status quo and underlying confidence in the dollar? One recurring theme seems to be that parties who/which have benefited from large scale analysis and buying power in our capital markets are fearful of two things: 1. Having 1/2 their business advantage nullified by virtue of permanent distributed public ledger information regarding assets that have changed hands and, 2. The possibility of being unable to structure future transactions such that they bestow the greatest tax advantage on the parties to the transactions. The latter of these fears may be the greater of the two but the bigger threat may be the arrival of a currency which does not play by the same rules and which could easily match the war chests accumulated over many years by the traditional investment houses, so long as the assets in play were to accept it as payment.

If Mr. Munger knows of nefarious forces at work, as he suggests, I wonder whether he would care to elaborate? If Bitcoin or its contemporary digital currencies could be shown to be the work of foreign governments working at cross purposes to our own, or something only used by those involved with elicit businesses, that information would keep most legitimate businesses and business people from adopting the model. If, on the other hand, this is a little like the dawn of internet transaction processing (which was led primarily by porn sites but closely followed by the banking system and later adopted in legitimate large scale roll-out), it may be that those issuing the most urgent warnings are those who fear the loss of their traditional business advantages and barriers to entry.