Written by Erik Weijers 17 days ago

Warren Buffett still not a fan of Bitcoin

For Bitcoin and crypto investors, it is always interesting to listen when investor Warren Buffet is asked for his opinion about Bitcoin. It gives an insight into the mindset of an investor who made his fortune in the old economy. 'I wouldn't buy all the BTC in the world for $25.'

First of all: Buffett (91) is a great investor from whom we can learn a lot about making deals, value investing and being patient with your investments. He single-handedly built his fortune and is now in the top five richest people in the world. But it is significant that he made his money in the days before the big tech networks. He got rich investing in food companies and banks, for example. He was never an early investor in technology like Microsoft or Apple. Is investing in network adoption of new technology his blind spot?

His old friend and vice chairman Charlie Munger - at 98 also no spring chicken - compared Bitcoin to rat poison in 2013. When Buffet was asked five years later what he thought of the detested currency (whose price had risen from $100 to nearly $10,000) he wittily called it "rat poison squared". Bitcoiners were no less witty in their observation that Bitcoin is indeed rat poison: it is an antidote to the plague that is our unjust financial system.

'Not even at $25'

At the annual shareholder meeting of investment fund Berkshire Hathaway, of which Buffett is chairman - hewas at it again. But this time he went a little deeper into why he thinks Bitcoin is a bad investment. Let's see what the "Oracle of Omaha" had to say.

Buffett argues that Bitcoin produces nothing. Unlike, say, farmland and businesses. 'If you in this room own all the farmland in the US and offered me 1% of it, pay us 25 billion. I'll write you a check. Now if you offered me all the Bitcoin in the world and offer it to me for 25 dollars, I wouldn't take it. Because what would I do with it? It isn't going to do anything.'

Buffett closes his argument with a revealing look at his conception of money:

'There is only one currency that is acceptable in the United States. [holds up a dollar bill] 'I mean, you can come up with all kinds of things. We could put up Berkshire coins. But in the end this [the dollar] is money and anyone who thinks the US government would let their money be replaced by Berkshire money is out of their mind.'

Misunderstanding of what network effect is

Buffett, of course, has a point when he says he prefers not to invest in things that produce nothing. That's just his investment strategy. For example, he has no gold but invested in a gold mine in 2020. Fine.

No one is claiming Bitcoin is a productive asset (for that matter, you can say that about Ethereum staking). According to proponents, it is a form of money you invest in if you think it is an alternative to fiat money. Are more people going to share that opinion in the coming years? If so, Bitcoin will rise in value. It is significant that in his example Buffett compares owning 1% of farmland to having all of Bitcoin. Why not 1% of the Bitcoin as well? This is where his reasoning runs aground. Money only has value if it is shared in a network. The larger this network, the higher the value. That network effect and its correlated price applies to money and also to communication networks like Google or Facebook.

Turning to Buffett's second point, perhaps his core point. He believes that the only real money is produced by the United States and that other forms of money are fantasy money. This is perhaps the greatest limitation of his thinking. We are moving rapidly toward a world where networks transcend countries. Sure, countries can obstruct their proliferation through regulation, but they have lost the monopoly on money creation. The genie is out of the bottle, whether the older generation realizes it or not.

Mr. Buffett: a Berkshire coin? Maybe not a bad idea at all! Coins can coexist. Not all Bitcoin believers thinkBitcoin will replace the dollar. It can also just exist as an alternative.

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