At 90 years old, Warren Buffett has certainly seen his share of market trends. After taking control of holding company Berkshire Hathaway in 1965, Buffett built a fortune of more than $87.5 billion, making him one of the ten wealthiest people in the world.
His annual letter to shareholders is widely considered a how-to guide for investing success, and it is safe to say that Buffett will go down in history as one of the greatest investors of the 20th century.
With that in mind, it’s no surprise that Buffett’s opinions carry weight in the investing community, and he was very vocal in his criticism of cryptocurrency.
Bitcoin was introduced in 2010, and early on, Buffett made it clear that he wasn’t a fan. In 2014, he referred to Bitcoin as a “mirage”, and he was even more direct in 2018 when he said Bitcoin is “rat poison squared.”
Buffett wasn’t alone in that opinion. It seemed to be the consensus among Berkshire Hathaway staffers. Around the same time, Berkshire Vice Chairman Charlie Munger said, “To me, [cryptocurrency is] just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.”
What prompted Warren Buffett’s distaste for Bitcoin? And was he right? Or is it possible that the “Oracle of Omaha” was wrong on this one?
Why Warren Buffett Is Bearish on Bitcoin
To begin with, Warren Buffett has never been a fan of shiny new assets. He rarely invests in IPOs, and he is known for identifying established but undervalued companies that have the foundation in place to deliver steady returns over time.
That’s why he chose these reliable workhorses for the Berkshire Hathaway portfolio:
That isn’t to say that Buffett is inflexible. In September 2020, he made his first IPO purchase when Snowflake (SNOW) went public. He also owns shares in high-growth tech companies like Apple (AAPL) and Amazon (AMZN) – though admittedly, these hardly qualify as newcomers to the industry.
The issue Buffett has with Bitcoin is less about its novelty and more about its potential to create wealth. He compares it to gold, which he is equally opposed to from an investment perspective – at least until he bought a gold miner, Barrick Gold (GOLD).
On more than one occasion, he has made the point that gold “doesn’t do anything but sit there and look at you.” Along the same lines, he said cryptocurrency has no intrinsic value.
Specifically, these types of assets don’t produce earnings or dividends, which makes traditional stocks a far more attractive choice.
What the Bulls Say About Bitcoin: The Case Against Bitcoin as “Rat Poison”
When Buffett made his infamous remark comparing Bitcoin to rat poison, the cryptocurrency was coming down from a then-all-time-high. In late December 2017, it rapidly rose from under $10,000 to nearly $18,000, then dropped back down nearly as quickly. Some speculators got in at the peak and lost quite a bit of their principal over the course of a few weeks.
Buffett’s warning made good sense at the time, but many investors believe he was wrong from a long-term perspective. To be clear, since his “rat poison” remark, Bitcoin has hit new highs. At some points, the cryptocurrency was up 350 percent over its price at the time of Buffett’s comment.
Consider this: the world has gone digital, and e-commerce is rapidly growing its share of retail transactions. That makes digital currency a logical next step in the evolution of digital payments.
Furthermore, cryptocurrency has an advantage that traditional currencies lack. It isn’t subject to devaluation based on the global economy. It is independent of the global markets, and that is shown in how it behaves.
A small but vocal group of investors rely on Bitcoin as a hedge against economic volatility, inflation, and other risks, and it is worth noting that the group isn’t limited to individual traders. Major corporations like Tesla (TSLA), Square (SQ), MassMutual, MicroStrategy, and PayPal (PYPL) are getting in on the Bitcoin action.
If that trend continues and more corporations choose to trade their cash for Bitcoin – even just one percent of their cash – Bitcoin is set to increase by double and triple digits.
Cathie Wood on Disruptive Innovation and Bitcoin
Ark Invest’s Cathie Wood has made some impressive calls. In 2018, the consensus among analysts was decidedly anti-Tesla, but she boldly predicted gains. Not only was she right – her prediction actually fell short as compared to the astonishing 2020 rise of Tesla stock.
Wood and her team have stated their unequivocal confidence in Bitcoin, pointing to the fact that it is gaining legitimacy in the eyes of corporations.
In a recent report, she noted that the recent upswing in Bitcoin’s value doesn’t appear to be based on unwarranted hype as it was in 2017. Instead, corporations like Tesla are poised to adopt Bitcoin as a payment method, and they are exchanging a portion of their cash for Bitcoin on their balance sheets to offset risks associated with the devaluation of traditional currency.
Given the increasingly digital and global nature of business, making space for a digital, global cryptocurrency like Bitcoin is logical. Wood has a history of identifying disruptors and innovators before they go big, and there is every reason to believe she has done it again when it comes to Bitcoin.
How to Buy Bitcoin?
Buying Bitcoin isn’t quite as simple as trading stocks through your current investment app. To begin with, you will need a digital Bitcoin “wallet” to hold your assets.
Think of this as your Bitcoin account – you add to it by purchasing Bitcoin from your traditional checking, debit, or credit accounts, and you spend it by providing information from your digital wallet to merchants. Examples of services that provide digital wallets and Bitcoin exchanges include Coinmama, Coinbase, CEX.IO, and Gemini.
If you want to invest in Bitcoin’s growth, but you don’t want the hassle of holding actual Bitcoin, a more traditional investment vehicle is a better choice. For example, Greyscale’s Bitcoin Investment Trust only invests in Bitcoin and sells shares to retail investors.
Alternatively, you can choose a more diverse fund like Ark Invest’s ARK Next Generation Internet ETF, which holds shares of Greyscale’s Bitcoin Investment Trust in addition to other Bitcoin-friendly companies like Square, PayPal, and Tesla.
As with any investment, putting money into Bitcoin comes with risk, so some less-experienced investors prefer the instant diversification that comes with shares of an ETF.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.