Why Warren Buffett Will Never Buy Bitcoin

Warren Buffett is the undisputed greatest investor of all time.

The Berkshire Hathaway boss has trampled the market throughout his career. From 1964 to 2021, Berkshire Hathaway’s return is more than 100 times higher than S&P 500.

Along the way, Buffett has become one of the richest people in the world, but he is as famous for his aphorisms and investing approach as he is for his success. Buffett has strong opinions about investing, and he’s made his feelings known Bitcoin (BTC 3.85%) Well known.

The Oracle of Omaha has a long history of shedding the world’s most valuable cryptocurrency. In 2014, he called it a “mirage” and said: “The idea that it [Bitcoin] has a huge intrinsic value is just a joke in my view.” Then, in 2018, he called it “rat poison squared” after warning that Bitcoin was a bubble. Just this year, Buffett insisted that he would not buy all of Bitcoin in. world for $25, explaining that it is not a productive resource.

Although Buffett has bent his rule against buying tech stocks in recent 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 approach to investing is to buy $1 for $0.80, essentially. Buffett tries to find the intrinsic value of the asset and buy it if it is priced for less than that value. Since Bitcoin is not a productive asset, there is no way to properly value it. Its price is usually determined by what a speculator is willing to pay for it at a given time. Bitcoin itself does not generate cash flows or profits for its owner through direct value-creating tools such as rental fees or business operations. Buying and selling in Bitcoin is often based on the Greater Fool Theory, meaning that people buy it under the assumption that someone will pay even more for it later.

Buffett tends to favor businesses that have proven themselves over a long period of time. He likes insurance companies and banks, energy and utilities, and big name brand companies like Coca Cola and apple.

Bitcoin is the opposite of these assets as it has no real utility at the moment and its value seems to be based mostly on hype. Buffett explained, “It has a magic to it, and people have attached magic to a lot of things.”

Buffett also summed up the problem with Bitcoin’s lack of productivity, saying, “Now if you told me you own all the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what am I going to do with it? I have to sell it back to you somehow. It’s not going to do anything.”

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 basically 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 influence in parts of the world where local currencies have been unreliable. For example, some Venezuelans turned to Bitcoin when the bolivar experienced hyperinflation; and El Salvador, a country without its own currency, have made Bitcoin legal tender, with largely disappointing results.

Bitcoin bulls also claim that the cryptocurrency is superior to fiat money because supply will be limited to 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 is a safer form of currency. It will not lose its value as the dollar does with inflation over time.

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

While investing in Bitcoin might seem like a worthy hedge for someone in Buffett’s position, he doesn’t seem to accept a world where the dollar isn’t America’s de facto currency. He theorized a Berkshire coin at this year’s Berkshire shareholder meeting, saying, “And there’s no reason in the world why the United States government … is going to let Berkshire money replace theirs.”

Is Buffett Right About Bitcoin?

Buffett’s analysis of Bitcoin is largely correct. Bitcoin is not a productive asset and there is no good explanation for its price on any given day. However, it seems premature to dismiss Bitcoin as irrelevant. Although Bitcoin has not achieved the core functions of currency as a store of value, a medium of exchange or a unit of account, that may change in the future.

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