Robert Steinadler, 2 months ago
Charles Munger is the wingman of Warren Buffett and both are well known for being against Bitcoin and crypto. Both have stated their opinions on this topic several times in the last few years and every time the crypto community was quick to react to their statements. Of course, it is a good idea to defend crypto against its foes, but it is even better to hold on for a minute and listen to what the critics are saying and take their arguments into account.
What has Charlie to say about crypto and why is he getting the wrong idea?
Munger and Buffett are both huge proponents of value investing. Meaning that they are looking to invest in businesses that are creating a constant stream of revenue and are driven by delivering a product or a service that meets demand. According to their investment thesis, assets have an intrinsic value which is why this investment strategy is driven by fundamental analysis.
A company usually has different assets and liabilities on its balance sheet and a value investor is usually trying to determine if the stock’s price reflects the intrinsic value of the company in question. If it is underrated, the investors buy and if it is way overrated it means that the time to sell the stock has finally arrived.
This is why Munger and Buffett have such a hard time wrapping their heads around Bitcoin and crypto. Bitcoin owns no real estate, it produces nothing and since it is a public network it is not exactly selling a service. From the perspective of a value investor Bitcoin and the rest of crypto is providing absolutely nothing of value. This is why Mungers and Buffett’s assessments have never changed and will never change. They have a very specific and narrow view of economic questions and how to play the markets as investors. As we all know, they have become incredibly successful in doing so and are perhaps the most renowned investors in the world.
The Wall Street Journal published an article by Munger yesterday and he raised concerns over the question of how the crypto market is structured. According to Munger, prices can be easily manipulated and there is not enough transparency to allow crypto to exist.
What he seems to willfully ignore is the fact that Bitcoin is not only one of the most successful assets in history, but also highly capitalized. It is indeed easy to manipulate an illiquid asset but with a $459 billion market cap at the time of writing, BTC is far from being at risk. And so are many other cryptos that play an important role in this market. Regulation is also becoming more important with MiCA in the EU and several other initiatives in the US.
Is crypto speculative? Yes, of course, but so are stocks, bonds, and even commodities. Calling crypto a gambling contract doesn’t change the fact that this industry is revolutionizing the financial industry. Banking the unbanked and offering transparency through decentralized markets that can be audited by anybody in the world in real time. Munger might be right about those things that he can do best, but that doesn’t include understanding disruptive technologies.
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