The famous line from the old Dirty Harry movies starring Clint Eastwood captures the essence of speculative activity – Do you feel lucky punk?

When it comes to bitcoin I find people are either disciples or atheists. There is not a lot of room in between.

After more than a 300% increase in price in 2020, it is understandable that disciples feel vindicated and atheists feel tempted.

I sit in the atheist camp. I have no basis upon which to have any certainty about bitcoin’s price.Why is it not at $120,000 per coin or  indeed $120.

From an investing perspective (not speculative) I cannot allocate capital to something I cannot reasonably value.

As Jeremy Grantham (of GMO fame) points out in a recent Bloomberg interview, “The future value of the dividend stream of bitcoin is NIL…..It will never pay a dividend. Its entire value is based on the greater fool (theory), is it not? So bitcoin could be worth $1 million a unit if you can find someone to pay it.”
He goes on to say…. “Bitcoin is 100% faith. Come the next market phase where faith is at a minimum, what do we think will happen to an asset whose entire reason for existence is faith and nothing but faith?”

Jason Zweig provides this definition of “The Greater Fool Theory” in his book “The Devils Financial Dictionary”:
It is the belief that no matter how foolish a price you pay for a stock or other asset, you can always find a greater fool who will pay more to buy it from you.

Why bother figuring out what the asset is worth, when you can simply gamble that somebody else will think it’s worth even more?

It might seem surprising that there could ever be a shortage of fools in this world, but if you count on always finding one just when you most need to, you will wake up one day to find that everyone else has suddenly smartened up and the greater fool is you.

Do you feel lucky punk?