A year since peaking at $69,000, Bitcoin is down more than 70% – here’s why Warren Buffett has hated cryptocurrency all along
It’s been a tough year for Bitcoin and its backers.
And even back in 2018, the Oracle of Omaha predicted that it and other cryptocurrencies were headed for trouble.
“They will have a very bad end,” Warren Buffett told CNBC at the time.
After reaching a peak of around $69,000 per unit on November 10, 2021, the world’s leading digital currency has since erased roughly 76% of its value, settling at just under $16,000 as of 4:30 PM Wednesday.
Holdout investors who once thought they had missed an opportunity of a lifetime are now heaving a sigh of relief; meanwhile, those who bought in at the top try not to think about their losses.
What would the world’s most famous investor say to those who might be thinking of firing up their investment apps and buying Bitcoin at a bargain price?
“If you … owned all the bitcoin in the world and you offered it to me for $25, I wouldn’t take it,” Buffett told CNBC earlier this year.
Don’t miss out
Bitcoin’s disappointing track record aside, here are three more reasons why Buffett won’t go near it.
1. It has “no unique value at all”
The billionaire investor does not like Bitcoin because he considers it an unproductive resource.
Buffett has a well-known preference for stocks in companies whose value – and cash flow – comes from producing things. But cryptocurrencies have no real value, Buffett said in one CNBC interview in 2020.
“They don’t reproduce, they can’t send you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later, but then that person has got the problem.”
Although Bitcoin is intended to provide real value as a payment system, this use is still quite limited. As Buffett sees it, Bitcoin’s value comes from the optimism that someone else will be willing to pay more for it in the future than you are paying today.
2. He doesn’t think crypto counts as money
Buffett has made extremely scathing comments about Bitcoin and cryptocurrency over the years: “I don’t have any Bitcoin. I don’t own any cryptocurrency, I never will, he said CNBC back in 2020.
As a tradable asset, Bitcoin flourished. But does it meet the three criteria for money? According to the most common definition, money is meant to be a medium of exchange, a store of value and a unit of account.
But Buffett calls it a “mirage”.
“It doesn’t meet the test of a currency,” the billionaire said CNBC in 2014. “It’s not a durable medium of exchange, it’s not a store of value.”
He adds that it is a very effective way to transfer money anonymously. But: “a check is also a way of transferring money,” he said. “Are checks worth a lot of money just because they can transfer money?”
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3. He doesn’t understand it
Buffett became one of the most successful investors in history by sticking to stocks he understands.
“I get into enough trouble with things I think I know something about. Why on earth would I take a long or short position in something I know nothing about?”
But people like to gamble, he said CNBC after a 2018 Berkshire Hathaway annual meeting, which is another problem with non-performing assets.
“If you don’t understand it, you get a lot more excited than if you do. You can have anything you want to imagine if you just look at something and say “that’s magic”.
How do Does Buffett Pick Winning Stocks?
The billionaire investor follows the value investing strategy – which focuses on buying undervalued stocks in strong companies and holding them for a long time.
Easy, right?
Berkshire Hathaway looks for companies with good profit margins and those that produce unique products that cannot be easily replaced. As Warren Buffett once said in a letter to his shareholders: “It is far better to buy a great company at a fair price than a fair company at a great price.”
But Buffett’s distaste for crypto stocks doesn’t mean you shouldn’t buy Bitcoin. Even the billionaire has come around on sectors he previously spoke out against.
He notoriously avoided tech stocks, even at the height of the dot-com bubble, and now the company’s biggest holding is Apple.
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This article provides information only and should not be construed as advice. It is supplied without warranty of any kind.
