Bitcoin (BTC)–Warren Buffett, the Oracle of Omaha and beloved father-figure for Wall Street investors, has again made headlines in the crypto space with a new wave of negative comments against Bitcoin. Buffett has been adamant in the past that Bitcoin is another bubble, and that cryptocurrency, at some point in the future, will end very badly for investors, similar to the early 2000’s dot.com crash. He is now attacking Bitcoin, and cryptocurrency in general, as being too volatile and speculative driven to be referred to as “investing.” Instead, Buffett sees the process of buying and trading BTC as more akin to gambling, with potential investors risking a disproportionate amount of value for the payoff.
“If you buy something like a farm, an apartment house, or interest in a business […] you can do that on a private basis […] and it’s a perfectly satisfactory investment. You look at the investment itself to deliver the return to you. Now, if you buy something like Bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.”
Bitcoin, Volatility, and Growing Adoption
Buffett’s comments in large part hinge upon the volatility of Bitcoin prices, particularly over the last six months. On November 17th, BTC was trading for 7800 USD. In less than a month, the currency had climbed as high as 19900 USD, adding over 200 billion in market cap during that time span. By April of this year, the currency had fallen back to 6600 USD, and is only now making a turn out of the bear market to test five-digit valuations again.
While Bitcoin prices may give the appearance of a roller coaster ride, more so than the traditional stock market, they also have yet to reach the level of adoption or market saturation that will quiet the current volatility. In particular, there are large-player investors that have been in Bitcoin for years–at a substantially lower price point–that are still influencing the market. An investor who buys in at 10200 USD is much more likely to stay in the market longer than someone who has been in since the price was under 1000 USD. For those early investors, the current valuation, even when BTC drops 10% in a day, still represents thousands of percentage points in ROI. In addition, greater market saturation, including commerce adoption, gives more use for BTC outside of exchange speculation: as more BTC holders spend and transfer their currency, it frees up the price congestion of so many “hodlers” and transitions to the technology actually being used as a form of money instead of appreciable asset.
More than Just Gambling
Buffett also draws upon market confusion and a general lack of knowledge about cryptocurrency by most of the public sector for influencing the volatility and extreme price gains of Bitcoin, “no one knows exactly what it [Bitcoin] is.” Because of this lack of interest in the underlying technology, or even tangentially researching the product they are investing in, Buffett views crypto investors as gamblers. He argues that most investors are simply following the herd or jumping on the bandwagon of profit-taking they hear from around the water cooler or popular financial outlets like CNBC. As opposed to “investing” in the currency, in the sense that they are making a rational decision into an appreciable asset, Buffett believes there is no underlying value in Bitcoin, and that the price is derived from FOMO and speculation alone. This model of buying today so that someone else will pay more tomorrow, a la a pyramid scheme, is frequently trumpeted by detractors as the fundamental flaw in Bitcoin. As CoinTelegraph points out, “Buffet has been recycling the lack of intrinsic value argument since 2014, when he first dismissed Bitcoin as “a mirage” on CNBC. Buffett has also wielded the bubble argument against Bitcoin, as well as stating that BTC cannot be valued because “it’s not a value-producing asset.”
A Passing of the Old Guard
To Buffett’s credit, he has admitted to having a lack of familiarity with Bitcoin in the past, and a low knowledge base on cryptocurrency altogether. When asked by CNBC in January if he would short Bitcoin futures, Buffett had this to say: “I get into enough trouble with things I think I know something about…Why in the world should I take a long or short position in something I don’t know anything about.”
This week Buffett’s comments have struck a deeper nerve, with most Bitcoin and cryptocurrency advocates still seething over the large press associated with former Paypal CEO Bill Harris’s remarks over BTC being “the greatest scam in history.” An apparent divide is growing between Wall Street and crypto Main Street, with longtime investors in the former increasingly taking a negative viewpoint of a technology they profess to have little understanding over. There is also a confounding effect to taking the cynical viewpoint of any financial proposition: no one cares if Warren Buffett is wrong because they will be too flush with profit to remember his doom-saying. However, if Buffett correctly predicts the demise of Bitcoin–which is not a difficult proposition given the novelty of such a high-profile, decentralized currency, and the price volatility that has been exhibited thus far–he looks like a genius and further adds to his legacy.