Warren Buffett is the undisputed greatest investor of all time.
The Berkshire Hathaway The leader beat the market throughout his career. From 1964 to 2021, Berkshire Hathaway’s return was more than 100 times the return Standard & Poor’s 500.
Along the way, Buffett has become one of the richest people in the world, but he is as famous for his sayings and approach to investing as he is for his success. Buffett has strong opinions about investing, and he stirred his feelings Bitcoin (BTC 3.72%) a favour.
The Oracle of Omaha has a long history of dumping the world’s most valuable cryptocurrency. In 2014, he called it “The Mirage” and said: “The idea is that [Bitcoin] Of huge intrinsic value is just a joke in my view. Then, in 2018, he called it a “rat poison box” after warning that bitcoin was a bubble. And just this year, Buffett insisted that he would not buy all the bitcoins in the world for $25, making it clear that it was not a productive asset.
Although Buffett has been bent on his judgment against buying tech stocks in recent years, he will almost certainly never buy Bitcoin. Here’s why.
There is no way to rate Bitcoin
Buffett is a classic value investor. His method of investing is basically buying $1 for $0.80. Buffett tries to find the intrinsic value of an asset and buy it if its price is less than that. Since Bitcoin is not a productive asset, there is no way to properly value it. Its price is generally determined by what the speculator is willing to pay for it at a given time. Bitcoin itself does not generate cash flows or profits for its owner through direct value building tools such as rental fees or business operations. Buying and selling Bitcoin is often based on the grand deception theory, which means that people buy it on the assumption that someone will pay more for it later.
Buffett tends to favor companies that have proven themselves over a long period. Likes insurance companies, banks, energy, utilities, and consumer companies with big brands like coca cola And the apple.
Bitcoin is the opposite of these assets because it has no real use at the moment, and its value seems to be mostly based on hype. “She has magic and people have associated magic with many things,” Buffett explained.
Buffett also summed up the problem of Bitcoin underproduction, saying, “Now if you told me you had all the bitcoin in the world and offered it to me for $25, I wouldn’t take it because what would I do with it? I would somehow sell it to you. You wouldn’t do anything.”
Betting on Bitcoin is a bet against the US dollar
There is another, less obvious reason why Buffett would never buy bitcoin. A bet on Bitcoin is, in essence, a bet on the turmoil of the global financial system. For bitcoin to thrive, fiat currencies must fail or at least weaken. In fact, Bitcoin gained the most traction in parts of the world where local currencies were unreliable. For example, some Venezuelans switched to bitcoin when the bolivar was hyperinflated; El Salvador, a country without its own currency, introduced legal bitcoin, and the results were mostly disappointing.
Bitcoin bulls also argue that the cryptocurrency is outperforming fiat money because its supply will be capped at 21 million. In turn, central banks can print paper currency as they see fit, which may print its value. Since the supply of Bitcoin is mathematically restricted, Bitcoin is believed to be a more secure form of the currency. It will not lose its value as the dollar does with inflation over time.
The US dollar is the world’s reserve currency, and industry leaders, like Buffett, have huge interests in its stability. If the dollar collapses, it will crush Buffett’s fortune and much of his business empire.
While investing in Bitcoin might seem like a useful hedge for someone in Buffett’s position, he doesn’t seem to accept a world where the dollar is not the actual US currency. “There is no reason in the world for the United States government… to allow Berkshire money to replace their money,” he said while theorizing Berkshire currency at this year’s Berkshire shareholder meeting.
Is Buffett Right About Bitcoin?
Buffett’s analysis of bitcoin is mostly correct. Bitcoin is not a product asset, and there is no good explanation for its price on any given day. However, it seems too early to dismiss Bitcoin as irrelevant. Although bitcoin has not achieved the currency’s primary functions as a store of value, medium of exchange, or unit of account, that may change in the future.
In the end, people, not governments, choose what becomes a currency – if enough of the world’s population adopts bitcoin as a currency, it may gain real value rather than speculation. For now, though, it’s clear that a value investor like Buffett doesn’t want anything to do with bitcoin.
Jeremy Bowman He has no position in any of the mentioned shares. Motley Fool has and recommends positions in Apple, Berkshire Hathaway (B stock) and Bitcoin. Motley Fool recommends the following options: long January 2023 calls of $200 on Berkshire Hathaway (B stock), January 2024 long calls of $47.50 on Coca-Cola, long calls in March 2023 of $120 on Apple, short calls in January 2023 worth $200 on Berkshire Hathaway (B shares), short calls in January 2023 worth $265 on Berkshire Hathaway (B shares), and short calls in March 2023 worth $130 on Apple. Motley Fool has a disclosure policy.
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