Warren Buffet is right about crypto, but for the wrong reasons.
Warren Buffet has called crypto the equivalent of rat poison squared.
He holds the same view as his business partner of 45 years, Charlie Munger who recently just called people who buy crypto idiots. Eish.
Here are some of their harsher comments on bitcoin.
I think the people that oppose my position are idiots … It’s just ridiculous that anybody would buy this stuff. — Charlie Munger
“If you … owned all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it, because what would I do with it? I’ll have to sell it back to you one way or another. It isn’t going to do anything.” — Warren Buffet
“Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.” -Warren Buffet
“It’s a mirage basically. It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money just because they can transmit money? I hope bitcoin becomes a better way of doing it but you can replicate it a bunch of different ways. The idea that it has some huge intrinsic value is just a joke in my view”. -Warren Buffet
“A rising price does create more buyers and people think ‘I’ve gotta get in on this’ and it’s better if they don’t understand it. If you don’t understand it you get much more excited than if you understand it.” -Warren Buffet
Well, you get the point. These two men strongly dislike cryptocurrencies in general, not just bitcoin.
Now, like everyone else, Buffet is entitled to his idea about anything, including crypto, but also, due to his outsized influence in the finance and investment industry, his ideas and words carry a lot of weight.
He has built this influence based on his reputation in value-based investing. And by amassing over $100 billion with his investing chops. So when he says crypto is bad, it is wise to listen to him.
But I am here to tell you that he is wrong.
And here are 3 reasons why.
Real-world application claim
First, Buffet makes the assumption that crypto has no real word application. But that is not entirely correct.
Bitcoin is built on the science of cryptography that has the potential for real-world applications. But that has not happened yet.
And just like ARPANET (the successor of the internet) didn’t have many uses apart from military purposes in the 1950s. But fast forward to today, and the internet is the highest force for wealth. I believe it will be the same for cryptography and bitcoin too.
There is always the good, bad, and very ugly side of almost everything, including crypto and bitcoin.
The dot-com bubble in 2000 and the housing bubble of 2007 were an ugly side of entrepreneurship and the financial market. But that doesn’t mean that every investment in tech companies or real estate is equal to rat poison squared.
There have been about 10 recessions since Warren Buffett started investing. Recessions are caused by greed and fear. But that doesn’t mean investing in the stock market is bad. It is what it is.
The human factor will always bring out the bad side of every food thing, including cryptocurrencies.
He is part of the old order.
Warren Buffett is 92 years old in 2023, while Charlie Munger is 99 years old. That means that they are most likely set in how they operate.
And to be fair to them, they don’t like to invest in what they don’t understand. So it is okay to say they are playing by their rules.
But the point remains that for all their knowledge about investments and all, they have not particularly figured out the science of bitcoin, which is fine. They are humans, and there is a limit to how much they can know, even in their field.
Conclusion
I own a little crypto, so Mr Buffet’s thinking about crypto doesn’t affect me much. But the fact remains that the best of us can fall into the same trap of knowing too much. It should also be clear that you can’t substitute making your research into things you don’t understand. And finally, never dismiss things you don’t understand.
