Buffett and Munger still hate Bitcoin and cryptocurrency. Should you?

Berkshire Hathaway (BRK.A -2.62%)(BRK.B -2.48%) She hosted the 2022 Annual Shareholders’ Meeting on Saturday. It was the first in-person meeting since 2019. As usual, Warren Buffett and Charlie Munger discussed many key topics and provided deep insights.

In opening remarks, Buffett praised the US dollar as a medium of exchange even during times of inflation, in part because it is backed by the federal government. Without saying it, he seemed to be referring to it Bitcoin (BTC -8.04%) And its crypto alternatives will never replace the US dollar because a decentralized currency does not come with the same guarantees.

To be fair, Munger – who has never hidden his hatred of cryptocurrency – hasn’t been very thorough. In response to a single question about inflation and what inflation-resistant stocks to invest in, Munger said, “I’ve got some advice for you too. If your friendly advisor suggests you put all your money in Bitcoin, just say no.”

However, at the end of the question-and-answer session, Buffett and Munger were again asked about cryptocurrencies, and they were fired up for comment on the topic. This is why Buffett and Munger hate cryptocurrencies, but that doesn’t mean it can’t be a good long-term investment for risk taking people.

Image source: Getty Images.

Buffett argues that Bitcoin is not a productive asset

Berkshire Hathaway is known for investing in traditional, easy-to-understand businesses. An ideal business produces a good or service and sells it to customers for more than the cost of production. In the process, it generates profits. She uses the extra profits to buy back her stock, pay dividends, pay off debt, or reinvest in the company. This is basically how companies like apple And coca cola They act as reliable passive income streams.

Berkshire is looking for what it calls a productive asset, something like a farm, a McDonald’s Franchise, mining company or apartment complex. Buffett said the following on the topic of productive assets versus cryptocurrency:

If the people in this room owned all farmland in the United States, and you offered me 1% interest on all farmland in the United States, and the price was $25 billion, I would write you a check this afternoon. If you tell me you own 1% of the condominiums in the United States, and you offer me 1% interest in all the condominiums in the state, and you want what might be, another $25 billion or something, I’ll write you a check. It’s very simple. Now, if you told me you had all the bitcoins in the world, and you offered them to me for $25, I wouldn’t take it, because what would I do with it? I have to sell it back to you somehow. You won’t do anything. The apartments would rent and the farms would produce food. If I get all the bitcoins, I’ll go back to whatever name was there or not. It can create a mystery about it, but everyone knows what I mean, I mean, if I was trying to get rid of it people would say, why should I buy Bitcoin from you? This explains the difference between a productive asset and something that depends on the next person paying more than the last guy.

From Buffett’s comments, it is clear that he does not see the intrinsic value of bitcoin as a safe, secure, fungible and easily transferable store of wealth.

Buffett argues that Bitcoin is undermining the US dollar, which in turn is hurting the US economy

Buffett’s entire life has centered around the success of the United States, its ability to innovate, and to increase its global presence through commerce. So it is only natural that Buffett, who bought his first stock at the age of 11, a year before Pearl Harbor, would defend the American financial system. Buffett said the following during the show:

Basically, an asset, if it has value, has to give something to someone, and only one currency is accepted [the U.S. dollar]. You can come up with all kinds of things, we can put up Berkshire coins or Berkshire cash or whatever, but in the end, that’s the only thing that is money. Anyone who thinks that the US will allow Berkshire money to replace their money is out of their minds. Whether it goes up or down in the next five or 10 years, I don’t know. But the only thing I’m sure of is that it doesn’t produce anything. Her charm to her. But people associate magic with a lot of things.

Buffett and Munger do not trust decentralized finance

Perhaps the root cause of Buffett and Monger’s fierce opposition to cryptocurrencies stems from their mistrust of decentralized finance. Berkshire operates several insurance companies. American bank And American Express Both are among the five largest publicly owned companies in Berkshire Hathaway.

To understand someone’s opinion, it is important to know where they come from. Buffett and Munger have spent their entire lives in the US financial system. They are the first to admit his failures, but they are also quick to defend him, saying that he is better than what is available in other sovereign nations.

Munger, who has always been staunchly opposed to cryptocurrency, had the following to say during the shareholder meeting:

I have a slightly different way of looking at it. In my life I try to avoid things that are stupid, evil and make me look bad in comparison to someone else, and Bitcoin does all three things. In the first place, it is stupid because it is very likely to go to zero. The second point is that it is evil because it undermines the Federal Reserve System and the national currency system, which is something we desperately need to maintain government integrity, control, and so forth. And third, it makes us look foolish compared to the Communist leader in China.

What does that mean to you

The following chart shows declines for four major digital currencies and four well-known growth stocks.

Bitcoin price chart

Bitcoin price data by YCharts

Despite the crypto craze, it has been remarkable that Bitcoin and Ethereum are experiencing a relatively manageable decline while some growth stocks are down 70% but still bursting with long-term potential. even in Solana (Sol -8.67%) And Cardano (ADA -11.93%)which is relatively newer and unproven, and has experienced less severe withdrawals from well-known companies such as to forbidAnd RoccoAnd Tilladock Healtheven Shopify.

Buffett makes a good point. Bitcoin and other cryptocurrencies cannot succeed simply by magic. In many ways, the Dogecoinsand Shiba Inus of the world are just shadows and dust with little or no real value. But EthereumBoth Cardano and Solana have real use cases in decentralized finance. All three coins, even bitcoin, are still small and lack a track record. But for investors who understand the risk/reward profile and want to invest in these assets for decades to come, opening a newbie position in cryptocurrency is not the worst move to be made in a bear market.

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