In an uncharacteristically uninformed rant, Warren Buffett has shown that when it comes to bitcoin and the blockchain, the technology that underpins cryptocurrencies, the world’s most famous investor hasn’t done his homework.
Don’t get me wrong — at Nexo, we are full of admiration for the Oracle of Omaha. We even benchmark our company’s relatively modest achievements against his. The 4.8% dividend yield of our eponymous token, NEXO, outperformed the yield of every dividend-bearing stock in Warren Buffett’s portfolio in the last 7 months of 2018.
But many of his claimsare just as widely held as they are misguided and if our industry is to thrive and investors to benefit, we need to respond to them head on. Allow me to address just 5 of them Buffett rattled out last week.
- “It’s a gambling device…”
So for the first several thousand years of civilization before Bitcoin, humans never gambled on anything? Gambling and the problems that come with it are a part of human nature, but it’s the urge that drives us more than the medium via which people engage in gambling.
We do not recall Mr. Buffett calling stocks gambling devices when the dot-com bubble burst and millions of Americans lost their life savings.
Incidentally, illegal betting on sports alone generates more than $250 billion a year, more than the current market cap of all cryptocurrencies combined. If you’re looking for something to blame, you’re barking up the wrong tree.
- “There’s been a lot of frauds connected with it. There’s been disappearances, so there’s a lot lost on it.”
The US dollar, not bitcoin, is criminals’ currency of choice and has been so for at least a century. Bad actors will do what bad actors will do irrespective of the medium of exchange. Efforts to curb criminal behaviour should be (applauded and) meted out through legislation and law enforcement.
The idea that Bitcoin provides an anonymous way to move money around is wrong. Many companies and government agencies have the means to unravel complex transactions when criminal intent is behind them.
- “It doesn’t do anything. It just sits there. It’s like a seashell or something, and that is not an investment to me”
Bitcoin is a form of money that is not inflationary and we haven’t seen that since the abolition of the gold standard. The supply of bitcoin is limited; there will never be more than 21 million bitcoins minted. Central banks’ ability to print at will is one of the perils of the modern financial system. Mr. Buffett himself has been saying that since 2008.
Bitcoin is also censorship-resistant money that doesn’t require anyone or any bank’s permission to move. In fact, you don’t need banks at all. That is a no small innovation. Bitcoin is a store of value, comparable only to gold, which — while it may not be Mr. Buffett’s asset class of choice — certainly commands his respect.
According to a publicationthat has been keeping score since the birth of bitcoin, Buffett’s condemnation is the 355th eulogy to make its way into the public space in the cryptocurrency’s decade-long life. And yet, bitcoin is alive and well. It is surprising that Warren Buffett does not appreciate its resilience and isn’t at all curious about its unique characteristics and what it has to offer to the world.
- “I’ll tear off a button here. What I’ll have here is a little token…I’ll offer it to you for $1000, and I’ll see if I can get the price up to $2000 by the end of the day… But the button has one use and it’s a very limited use”
Bitcoin is money. The only argument against it as a form of money is its volatile nature. While that volatility has indeed been a problem, it has been on the decline and will continue to be so. That is how Bitcoin came to be the best performing asset over the past 10 years.
Limited use? Once you’ve sent $250,000 from New York to London at a cost of just a few cents and it gets there in just a few minutes, SWIFT transactions (of the same size that cost around $200 and take 5–7 business days) don’t look very attractive.
- “Blockchain…is very big, but it didn’t need bitcoin. J.P. Morgan of course came out with their own cryptocurrency.”
J.P. Morgan and its brethren on Wall Street are looking for blockchain solutions for the financial sector because their clients are pressuring them to deliver their services in a more efficient manner, not because they are convinced about the merits of the technology.
Let’s be clear: blockchain technology would not be where it is today without Bitcoin. Not realizing this fact calls all of Warren Buffett’s comments on the matter into question.
As investors who look up to the Berkshire Hathaway CEO for his impeccable track record and humility, we are disappointed by his one-sided views on the asset class. We believe that it is precisely the constant questioning of traditional concepts and the unquenchable thirst for knowledge that got him where he is today.
Both Bitcoin and the blockchain are on their way to an incomparably bright future. We won’t hold a grudge against Mr. Buffet. As a matter of fact, we looking forward to the tokenization of Berkshire Hathaway. Nexo will be there and ready to extend loans against their collateralized stock.