Charlie Munger says the US should ban crypto

Warren Buffett (L), CEO of Berkshire Hathaway, and Vice Chairman Charlie Munger, in 2019. Johannes Eisele/AFP via Getty Images

Charlie Munger is no fan of crypto. As vice chairman of the nearly $700 billion Berkshire Hathaway megaconglomerate, Munger has helped Warren Buffett make billions for investors since 1978 by using a rigorous fundamentals approach to acquiring “high-quality companies.”

And he believes cryptocurrencies represent the opposite strategy, claiming the entire industry is “part fraud and part delusion.” In 2021, Munger called the world’s leading digital asset, Bitcoin, “rat poison” and compared other cryptocurrencies to a type of “venereal disease.” Now he says the federal government should step in and ban the entire industry.

“A cryptocurrency is not a currency, not a commodity, and not a security,” Munger asserted in a Wednesday The Wall Street Journal op-ed. “Instead, it’s a gambling contract with an almost 100% advantage to the house … Clearly, the United States should now pass a new federal law to prevent this from happening.”

Munge said cryptocurrency investors are being taken advantage of by promoters and founders, noting that the creators of new cryptocurrencies often receive coins for “almost nothing.”

“The public then buys in at much higher prices without fully understanding the advance dilution in favor of the promoter,” he argued, calling it an example of “wild and woolly capitalism.”

Munger said the US should follow the example of China – which famously banned cryptocurrencies in 2021 – and pass laws preventing both crypto trading and the creation of new cryptocurrencies.

“What should the US do after a cryptocurrency ban is in place?” Munger went on to say. “Well, one more action might make sense: Thank the Chinese Communist leader for his wonderful example of uncommon sense.”

Munger said China’s action – which he claims was carried out because Chinese authorities concluded that cryptocurrencies “do more harm than good” – is one of two important precedents that provide evidence of the potential benefits of banning crypto. But the other precedent Munger gave was an odd one for a man who has amassed a net worth of $2.3 billion, mostly through Berkshire Hathaway, which invests in public markets.

Munger pointed to England’s ban on public trading of new common stocks after the South Sea Bubble burst in 1720 as an example of the benefits of cracking down on risky speculation by investors. The South Sea Bubble, which has been called “the world’s first financial crash”, began in 1711, when The South Sea Company was founded by an Act of Parliament as a public-private partnership to reduce the cost of England’s national debt.

Shares were sold to the public offering 6% interest, but the company’s slave and trading operations did not earn what was originally promised. Despite the lack of earnings, a bubble developed in the company’s shares as investors rushed to cash in on the high dividend. King George took over the management of the company in 1718. But in 1720 the shares of the South Sea Company collapsed, losing over 80% of their value.

Munger noted that a “terrible depression” ensued, and the government reacted quickly.

“What the English Parliament did in its agony when this frenzied campaign exploded was direct and simple: It banned all public trading in new equity shares and kept this ban in place for about 100 years,” he said. “And in those 100 years, England made by far the greatest national contribution to the march of civilization, as it led strongly in both the Enlightenment and the Industrial Revolution and, to boot, created a promising little country called the United States.”