Despite my previous earnings of $770 million, Buffett is right to avoid Bitcoin

About 11 years ago, I made the very expensive decision not to buy Bitcoin. I estimate that it cost me three quarters of a billion dollars. However, I stick to the logic – beautifully illustrated by Warren Buffett on April 30 – to avoid bitcoin.

Bitcoin has come a long way since 2011 when I first wrote about it. But the question I asked in December 2017 – is Bitcoin worth $0, $20,000, $200,000, or $∞? – Still unanswered me.

In the debate between Bitcoin bulls – like Elon Musk and Peter Thiel – and bears, I support Warren Buffett and the Wikimedia Foundation who are not fans.

I wish I had invested in Bitcoin back in June 2011. As I wrote at the time, the hack of Mt.Gox, a Bitcoin exchange sent its price from $17.50 to “pennies.”

Just for fun, I thought what if bitcoin was worth a nickel at the time and I had bought $1000 worth? Today, that 20,000 bitcoins would be worth $770 million – a pretty good return (although down 40% from their November 2021 high of about $1.29 billion).

At the time I argued that Bitcoin — an online currency used to buy Alpaca wool socks and illicit drugs — might survive, as did PayPal, if there was a compelling reason for consumers, merchants and payment platforms to adopt it. Otherwise, it will become extinct as Digicash, Flooz, and Beenz did.

As we now know, Bitcoin survived.

Is bitcoin worth 0 dollars or a dollar?

In 2017, I wrote that the value of Bitcoin was inaccurate and arguments could be made that it was worthless or potentially of infinite value — which I dubbed Theory 1 and Theory 2.

Theory 1. BTC is pure emotion interspersed with cyclical theft

In this theory, people buy or sell bitcoin in a wave of fear. Specifically, they fear losing further rise in the price of Bitcoin. For those who suffer from this fear, there is plenty of evidence to support their beliefs.

For example, the compound annual growth of bitcoin between early June 2011 of $17.50 and May 3, 2022, is 101%. At the same time, I was not surprised – based on my writing on Mt.Gox that on December 6, 2017, $70 million worth of Bitcoin was stolen.

Of course, crypto hacking is not over — last month the US Treasury claimed that North Korean hacking group Lazarus “is linked to the theft of more than $600 million in cryptocurrency from the Ronin Bridge linked to Axie Infinity,” according to Coindesk.

On the other hand, bitcoin exchanges have become much better established since then. Coinbase and Binance are two popular cryptocurrency exchanges in the US – with Time giving Coinbase the advantage because it is publicly traded and it is “the easiest exchange to use, with a user-friendly interface, as well as a variety of options for using fiat currencies to make purchases.”

However, the 40% drop in the bitcoin price since last November keeps in front of my mind the question of what could stop it from going to zero.

Theory 2. Bitcoin (BTC) will make the world run more efficiently

Another way to think of Bitcoin is that it is like a publicly traded biotech company with no revenue. However, rather than having to overcome scientific and regulatory hurdles to become valuable, BTC Bitcoin is hindering the resistance of people and companies to using the cryptocurrency for business transactions.

Aaron Brown, a Bloomberg columnist who owned bitcoin in 2017, argued that bitcoins are worth $20,000 each (about $2,500 more than was in circulation at the time). His reasoning was that the cryptographic base had “the potential to dramatically increase the value of Internet activity, adding new activities of value”.

To get to his $20,000 figure, he estimated that the internet accounts for 6% of the $75 trillion global economy and that cryptocurrency could add 2% to that segment — half of which would go to investors. “If I take 2% of the $75 trillion global GDP, divide it by two for the portion that goes to investors, multiply by 70% to get the value of bitcoin needed to support that activity, and divide by 21 million bitcoins, I get $20,000 per coin,” Brown wrote. .

In 2017, my concern was that Bitcoin – which had been unregulated – could seriously destabilize the global financial system if traditional financial institutions decided to get involved.

But now Fidelity Investments — the largest 401(k) plan provider in the United States, custodian of 23,000 plans, which has 20.4 million participants, representing $2.7 trillion in assets under management — is doing just that.

In late April, Fidelity announced that it would offer Bitcoin as an investment option in its 401(k) plans by mid-2022, according to CNN. The Department of Labor expressed deep concern “about the potential for 401(k) participants to be exposed to extreme volatility in cryptocurrency trading.”

Enemies of Bitcoin: The Buffett Foundation Wikimedia

Bitcoin is not universally loved as an investment – Buffett and the Wikimedia Foundation oppose it.

Buffett: Bitcoin Is ‘Probably Rat Poison Square’

In Berkshire Hathaway

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On April 30 Annual Shareholders’ Meeting, CEO Warren Buffett prefaced his remarks on Bitcoin by saying he doesn’t like people “who get in the way.” [his] Trachea” however, he still did not see the value in Bitcoin.

Buffett’s argument is similar to the one I made in 2011 – Bitcoin is not helpful. According to CNBC, he said, “If you say…to get 1% interest on all farmland in the US, pay our group $25 billion, I’ll write you a check this afternoon…now if you tell me you own all the bitcoins.” in the world and you offered it to me for $25 that I won’t take because what am I going to do with it?”

Unlike apartments that generate income from rent or farmland that produces food, the only way to get value from Bitcoin is to sell it to someone else. “That explains the difference between a productive asset and the thing that depends on the next guy paying you more than the last guy got,” Buffett said.

The price of bitcoin is explained as magic. While Buffett doesn’t know whether Bitcoin will rise or fall in the future, he concluded, “The only thing I’m absolutely sure of is that it doesn’t double, it doesn’t produce anything. It has magic and people have associated magic with many things.”

Wikimedia Foundation: Bitcoin is extremely dangerous and predatory in nature

The organization that runs Wikipedia – the Wikimedia Foundation – decided this month to stop accepting donations in the form of cryptocurrency.

The reason, according to Wikipedia editor Molly White, is that accepting crypto donations was an “implicit endorsement of ‘highly risky’ investments and ‘inherently predatory’ technology — and certainly when it comes to leading virtual currencies, bitcoin and ether are ‘extremely harmful to the environment’,” according to Fortune. .

The Wikimedia Foundation is not alone. In January, the Mozilla Foundation — which produces the Firefox web browser — paused crypto donations because their environmental impact did not align with their climate goals. Moreover, Tesla used the same reason nearly a year ago to stop accepting Bitcoin payments for its cars, Fortune noted.

Bitcoin fans: Musk and Thiel

Speaking of Tesla, like populist politicians, Bitcoin supporters Elon Musk and Peter Thiel responded to Buffett’s comments on Bitcoin with ad hominem attacks.

In response to his April 30 remarks on bitcoin, Musk ridiculed Buffett as a diabetes peddler. According to Forbes, Musk said, “Haha, he says ‘bitcoin’ so many times,” [calling it wild that Buffett can attack Bitcoin] While crippled naked diabetes – [referring to Buffett surrounding himself with boxes of See’s Candies on stage]. “

In March, Peter Thiel – like PayPal co-founder Musk – called Buffett “Enemy No. 1”, calling it “a sociopath grandfather from Omaha,” according to LookingAlpha.

The logic of investing in Bitcoin still escapes me and I hope Musk and Thiel – rather than calling names – present a rational counter-argument to Buffett’s view.

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