Even at its current market cap of $1.3 trillion, Bitcoin may be significantly undervalued.

When it comes to investing in cryptocurrencies, the conventional wisdom is that they are highly risky and highly speculative investments. Popular cryptocurrencies like Bitcoin (Bitcoin -1.15%) reach stratospheric valuations mainly due to investor perceptions of its enormous future growth potential. This means they can be better compared with growth stocksno value stocks.

But what if you’re willing to think outside the box? According to Bill Miller IV, chief investment officer at Miller Value Partners, Bitcoin can also be analyzed as a value stock. And based on the intrinsic value that Miller sees in Bitcoin, he thinks it could be worth many times more than its current market value of $1.3 trillion. He is right?

Bitcoin for value investors?

Obviously, there’s a lot to unpack here. First, there are no real fundamentals to value Bitcoin and therefore there are no real benchmarks or metrics such as price/earnings ratio. Ratios (P/E), to use for comparison. And Bitcoin hardly seems like a cheap and undervalued investment. It has a hefty price tag of $65,000 and is currently trading near an all-time high. In other words, Bitcoin looks much more like a growth stock than a value stock.

But that’s not how Miller sees things. In a recent research note, he outlined the reasons why he still buys Bitcoin. From his point of view, Bitcoin is a worthwhile investment. And it appears to be considerably undervalued relative to its future potential.

As Miller points out, Bitcoin is a superior monetary technology. Thanks to an algorithm that carefully controls the rate of creation of new Bitcoins (as well as their total lifetime supply), Bitcoin is resistant to inflation. Thanks to the decentralized nature of Bitcoin, no monetary authority or government will be able to control it. And thanks to the peer-to-peer nature of Bitcoin’s monetary technology, overall transaction costs should be lower than monetary systems that require a financial intermediary.

Image source: Getty Images.

And lest you think Miller is late to the Bitcoin game, he has been making similar arguments since 2015. Back then, he and his father Bill Miller (better known as the value investor who beat the S&P 500 for 15 consecutive years) wrote an article called “The Value Investor’s Case for Bitcoin”.

At that time, Bitcoin’s total market value was just $3.4 billion, and the Millers said Bitcoin had a 97.25% chance of total failure. But given the slim chance of success, they said, Bitcoin could be worth significantly more. It turns out that Bitcoin was not a failure and is now worth over $1 trillion.

“It’s early yet”

For the value of Bitcoin to increase by another $1 trillion or more, a number of things need to happen. Bill Miller IV suggests that Bitcoin will need to be used more for payments. Most people these days just own Bitcoin, but as the world’s first cryptocurrency, it was designed to facilitate peer-to-peer payments. Right now, says Miller, Bitcoin represents less than 1% of the global addressable capital market.

Bitcoin will also need to prove its worth as an alternative to gold. Right now, when investors look for a hedge against inflation or geopolitical uncertainty, they typically turn to gold. But Bitcoin’s share of the store of value market is growing and should not be overlooked. In 2022, for example, Goldman Sachs Group (GS 0.03%) suggested that Bitcoin could eventually represent 50% of this market.

The good news, says Miller, is that “it’s still early days.” The reason it is so difficult for many people to understand the intrinsic value of Bitcoin is that it requires a fundamental rethinking of what money is, what capital is, and what role governments should play. Investing in Bitcoin requires not only a leap of faith but also a complete change of mindset, and that takes time.

How much is Bitcoin really worth?

According to Miller, the best monetary technology usually wins, and there is no denying that Bitcoin is an impressive technological advancement. Just as plastic money replaced paper money, digital money can replace analog money. If that is the case, then Bitcoin could easily double, triple, or even quadruple in value. Miller did not give an exact target for Bitcoin, only suggesting it would be “many multiples” of its current value.

While I agree with Miller that Bitcoin is undervalued, I’m still not convinced it’s a worthwhile investment. There is a huge risk involved when you invest in cryptocurrencies, and much of Bitcoin’s growth could take years, if not decades, to fully materialize. To me, it still seems like Bitcoin is a growth investment. Whatever you want to call it, I’m still backing up the truck and loading Bitcoin.

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