Warren Buffett is the undisputed greatest investor of all time.

The Berkshire Hathaway chef has beaten the market throughout his career. From 1964 to 2021, Berkshire Hathaway’s return is more than 100 times that of S&P500.

Along the way, Buffett became one of the richest people in the world, but he’s just as famous for his aphorisms and approach to investing as he is for his success. Buffett has strong opinions about investing, and he’s expressed his feelings about Bitcoin (BTC 3.50%) well known.

The Oracle of Omaha has a long history of destroying the world’s most valuable cryptocurrency. In 2014, he called it a “mirage” and said: “The idea that he [Bitcoin] has enormous intrinsic value is just a joke in my opinion.” Then, in 2018, he called it “rat death squared” after warning that Bitcoin was a bubble. Again this year, Buffett insisted on the fact that he wouldn’t buy all the bitcoin in the world for $25, explaining that it’s not a productive asset.

Although Buffett has broken his rule against buying tech stocks for the past few years, it is almost certain that he will never buy Bitcoin. Here’s why.

There is no way to value Bitcoin

Buffett is a classic value investor. His investment approach is basically to buy $1 for $0.80. Buffett attempts to find the intrinsic value of an asset and buy it if its price is below that value. Since Bitcoin is not a productive asset, there is no way to value it properly. Its price is usually determined by what a speculator is willing to pay at any given time. Bitcoin itself does not generate cash flow or profit for its owner through direct value creation tools such as rental fees or trading transactions. Buying and selling Bitcoin is often based on the big fool theory, which means people buy it assuming someone will pay even more later.

Buffett tends to favor companies that have a proven track record. He likes insurance companies and banks, energy and utilities, and big consumer brands like Coca Cola and Apple.

Bitcoin is the opposite of these assets because it has no real use at the moment, and its value seems based mostly on hype. Buffett explained, “There’s magic, and people have attached magic to a lot of things.”

Buffett also summed up the problem of bitcoin’s lack of productivity by saying, “Now if you told me you own all the bitcoin in the world and offered it to me for $25, I wouldn’t take it because what is “What would I do with it? I’d have to sell it to you one way or another. It won’t matter.”

A bet on bitcoin is a bet against the US dollar

There is another, less obvious reason why Buffett will never buy Bitcoin. A bet on Bitcoin is, fundamentally, a bet on the upheaval of the global financial system. For Bitcoin to thrive, fiat currencies must fail or at least weaken. In fact, Bitcoin has gained the most traction in regions of the world where local currencies are unreliable. For example, some Venezuelans turned to Bitcoin when the bolivar was experiencing hyperinflation; and El Salvador, a country without its own currency, made Bitcoin legal tender, with mostly disappointing results.

Bitcoin bulls also argue that the cryptocurrency is superior to fiat currency as its supply will be capped at 21 million. In contrast, central banks can print fiat currency as they see fit, potentially printing its value. Since Bitcoin’s supply is mathematically limited, Bitcoiners believe it to be a safer form of currency. It will not lose its value like the dollar does with inflation over time.

The US dollar is the world’s reserve currency and captains of industry, like Buffett, have huge stakes in its stability. If the dollar were to crash, it would crush Buffett’s fortune and much of his business empire.

While investing in Bitcoin might seem like a valid hedge for someone in Buffett’s position, he doesn’t seem to accept a world in which the dollar isn’t the de facto currency of the United States. Theorizing a Berkshire coin at this year’s Berkshire shareholders’ meeting, he said: “And there’s no reason in the world for the United States government… to let Berkshire’s money replace their.”

Is Buffett Right About Bitcoin?

Buffett’s Bitcoin analysis is generally correct. Bitcoin is not a productive 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 essential functions of money as a store of value, medium of exchange or unit of account, this may change in the future.

Ultimately, it is people, not governments, who choose what becomes a currency – if enough of the world’s population adopt Bitcoin as their currency, it could gain real rather than speculative value. For now, however, it is clear that a value investor like Buffett would want nothing to do with Bitcoin.

Jeremy Bowman has no position in the stocks mentioned. The Motley Fool has positions and recommends Apple, Berkshire Hathaway (B shares) and Bitcoin. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $47.50 long calls in January 2024 on Coca-Cola, $120 long calls in March 2023 on Apple, short calls of $200 in January 2023 on Berkshire Hathaway (B shares), short calls of $265 in January 2023 on Berkshire Hathaway (B shares) and short calls of $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

About The Author

Related Posts