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Bitcoin is stalling — here's why Warren Buffett may be feeling smug

·4 min read
Bitcoin is stalling — here's why Warren Buffett may be feeling smug
Bitcoin is stalling — here's why Warren Buffett may be feeling smug

The year so far has been bumpy for Bitcoin — and now it's slouching toward mediocrity.

After hitting an all-time peak of $69,000 per unit in November of 2021, the world's leading digital currency has since lost nearly 70% of its value, leaving it hovering around $20,000 for the last two months.

Holdout investors who only a few short months ago may have thought they’d missed the opportunity of a lifetime are now sighing with relief; meanwhile, those who bought in at the peak are likely avoiding thinking too hard about their losses.

And what about Warren Buffett? What would the world's most famous investor say to those who might be thinking of firing up their investment apps and buying Bitcoin at a bargain price?

Buffett has made his share of cutting remarks about Bitcoin and cryptocurrency over the years: “I don't have any Bitcoin. I don't own any cryptocurrency, I never will,” he told CNBC in 2020.

He even once compared it to “rat poison squared.”

Here are three reasons Buffett won’t go near it.

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1. It has ‘no unique value at all’

The billionaire investor doesn’t like Bitcoin because he considers it an unproductive asset.

Buffett has a well-known preference for stocks of corporations whose value — and cash flow — come from producing tangible things. But cryptocurrencies don’t have real value, Buffett said in a CNBC interview in 2020.

“They don't reproduce, they can't mail you a check, they can't do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person's got the problem.”

Though Bitcoin is intended to provide real value as a payment system, that use is still pretty limited. As Buffett sees it, Bitcoin’s value comes from the optimism that someone else will be willing to pay more for it in the future than you’re paying today.

2. He doesn’t think crypto counts as money

As a tradeable asset, Bitcoin has boomed. But does it meet the three criteria of money? According to the most common definition, money is supposed to be a means of exchange, a store of value and a unit of account.

But Buffett calls it a “mirage.”

“It does not meet the test of a currency,” the billionaire said on CNBC in 2014. “It is not a durable means of exchange, it's not a store of value.”

He adds that it’s a very effective way of anonymously transmitting money. But: “a check is a way of transmitting money too,” he argued. “Are checks worth a whole lot of money just because they can transmit money?”

3. He doesn’t understand it

Buffett became one of the most successful investors in history by sticking only to stocks he understands.

"I get in 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?”

But people like to gamble, he told CNBC after a 2018 Berkshire Hathaway annual meeting, which is another problem with non-productive assets.

“If you don’t understand it, you get much more excited than if you understand it. You can have anything you want to imagine if you just look at something and say, ‘that’s magic.’”

How does Buffett pick winning stocks?

The billionaire investor follows the value investing strategy — which focuses on buying undervalued stocks of strong companies and holding them for a long time.

Simple, right?

Berkshire Hathaway looks for companies with a good profit margin and produce unique products that can’t easily be substituted. As Buffett once said in a letter to his shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

But his distaste for crypto stocks doesn’t necessarily mean you should dump all your Bitcoin. Even the billionaire has come around on sectors he previously spoke out against.

He notoriously avoided tech stocks — even at the height of the dot-com bubble — and now his company’s largest holding is Apple.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.