Why Warren Buffett’s Longtime Partner Is Wrong About Bitcoin (Opinion)
Bitcoin’s price has gone on an impressive run in the last few weeks, accelerating at a parabolic rate. Despite the most recent correction, the asset is still trading somewhat solidly above the $30,000 mark, charting an impressive increase of 310% since the same time last year.
Yet, Warren Buffett’s longtime partner, Charlie Munger, is still far from being convinced on anything bitcoin. And he’s wrong.
Charlie Munger: Investing in Bitcoin Is Dementia
Writing for Yahoo Finance, GuruFocus’ John Engle reminded readers earlier this week that Charlie Munger wants you to avoid bitcoin like the plague. Munger is the vice-chairman of Berkshire Hathaway. The longtime friend and business partner of Warren Buffett has an even stronger antipathy toward bitcoin than the Oracle of Omaha himself.
The legendary and highly-esteemed 97-year-old investor seems to think bitcoin is an “asset” with no value. He even compared it to the literal, clinical devastating loss of one’s ability to think clearly:
“To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.”
Engle adds:
“Munger’s dislike of Bitcoin extends beyond its nature as a purely speculative asset. He has also taken issue with the notion that Bitcoin can serve as a viable currency alternative at all. Munger has echoed the likes of Bridgewater’s Ray Dalio (Trades, Portfolio), who has questioned bitcoin’s viability as a currency due to its inherent volatility…”
There’s a lot packed into that paragraph…
Cryptocurrency, Blockchain, and Value Investors
To begin with, it’s inaccurate to refer to bitcoin’s volatile price against other currencies as “inherent.” That volatility may be a function of its ultra-rapid growth in market value in its first decade of existence. Cryptocurrency is all still very new.
Once a few cryptocurrencies reach mass scale market adoption and their total addressable market, we’ll see if price volatility is an inherent characteristic of bitcoin or an incidental one along the way. But most importantly, calling the world’s first crypto a “purely speculative asset” is also just plain false.
It is not a purely speculative token. It’s a practically useful software as a service (SaaS) venture that provides a highly valued service for practically free: 100% reliable ledger keeping for worldwide transaction settlement and savings.
That’s something major US banks (in which Berkshire Hathaway owns hefty stakes) spend hundreds of billions of dollars annually to maintain and provide for their customers. These digital coins aren’t just Beanie Babies people are hoping to sell to a great fool. They’re the result of an innovative financial software industry providing value to users, just like the Silicon Valley giants the Berkshire people eventually came around on.
What you’ve never heard Charlie Munger or Buffett say is how exactly reliable ledger keeping isn’t a valuable service, or how Bitcoin doesn’t do reliable ledger keeping.
Featured image courtesy of CNBC.
