Warren Buffet Hates Bitcoin. Let's Try to Reason with That.
The most recent bashing of the crypto sphere shows the billionaire does not see what we are seeing.
When Warren Buffet makes a move on the market or comments a certain asset it causes a ripple effect through the financial world. The crypto community already got the message that Mr. Buffet is no fan of cryptocurrencies. At the annual Berkshire Hathaway shareholders' meeting that took place last Saturday, he was asked about his opinion on the matter yet again. "Probably rat poison squared" is how Warren described Bitcoin this time. Looking through his perspective as a value investor who buys stocks and assets that usually generate some cash flow, it is pretty easy to understand why he does not like cryptocurrencies. Here is what he said about the topic in an interview with Yahoo Finance!:
“If you buy something like a farm, an apartment house, or an 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.”
When you buy cryptocurrency, Buffett continues, “You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”
And he is right but only to a certain point. While Bitcoin and the other cryptos do not generate cash flow, earnings, and dividends, they still hold value as they are decentralized software infrastructures. It may not be tangible, but so is not the Internet. These decentralized networks could elevate the Internet to the next level thanks to technologies like smart contracts, permissionless protocols, and countless new applications.
One of the reasons for that misjudgment could be that many are looking at cryptocurrencies as an asset like a stock but an Initial Public Offering (IPO) has almost nothing to do with Initial Coin Offering (ICO). When a company launches an IPO, it divides itself into shares that are evenly distributed across the market and grant the holder of that stock an ownership of the company. Through an ICO a company completes a decentralized infrastructure for a service, like payments or transactions, and releases the network, granting everyone who purchased tokens with access (not ownership) to the desired service. With that huge difference in mind, it should be easy to understand that cryptocurrencies should not be treated as a stock or a bond but more like a medium of exchange or store of value.
Probably too deeply ingrained in the existing system, by trashing the crypto sector with strong words like "rat poison" and "dementia", Buffet and Munger make it clear that they are not seeing what we are seeing. It is the creation of a new Internet, built upon protocols that allow for decentralized networks to form, where tokens are the fuel that power and compensate for that formation. Purchasing cryptocurrencies is very much a form of investing that is for the first time accessible for anyone in the world, no matter wealthy or not.