Buffett bashes Bitcoin as nonproductive, thriving on mystique

https://www.reuters.com/article/us-berkshire-buffett-cnbc/buffett-bashes-bitcoin-as-nonproductive-thriving-on-mystique-idUSKBN1I813F?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29

by zwieback • 8 years ago

105 184 8 years ago

reuters.com

internetman552• 8 years ago

I can't agree or disagree on any investment recommendations as I have no expertise in the area, but I have that is pretty much what my gut reaction to Bitcoin/crypto has always been

ashoon• 8 years ago

As I've learned a bit about blockchain, I feel cryptocurrency is distracting from the broader implications of the technology. It's going to be hard enough for non-technical users to see the underlying value of immutable, distributed data and applications, so that conflation is unfortunate.

blattimwind• 8 years ago

As we've seen many times now immutability is not a strong property (indeed, none of the properties provided by blockchains are) of them, so not all that useful. E.g. Ethereum's various hard forks to un-do things.

In a manner of speaking, "history is written by the victors" applies to blockchains in more way than one (miners, orgs, hardforks, ...)

Mithorium• 8 years ago

The technology has existed for many years already, and it has already made 'broader implications', see git. The only thing new about it is that people now call it 'blockchain' instead of a merkle tree. The reason banks and governments don't use better technology to track land titles or whatever other applications is that they're always slow to adopt technology, not because 'blockchain' is a new concept

solean2• 8 years ago

Blockchain without Bitcoin is not an innovation. How do you incentivize people to secure the network?

Cthulhu_• 8 years ago

It's actually very similar to the stock market, it's just that there's no company backing it and there's no rules. It's why people were warned against investing so much not that long ago.

In Europe meanwhile, investing in the stock market is getting harder and harder, as new european rules (e.g. MIFID II) make any stock broker require to fill in a test and whatnot to prove basic stock market knowledge and competency, plus accept the risk to lose money explicitly.

There's a lot of people that invested money in the stock market they couldn't lose, due to promises of huge returns. Sounds familiar, doesn't it?

internetman552• 8 years ago

Well I trust the stock market more cause normal people invested in it and not mostly weird internet libertarians who thought Obama was going to take their savings and drug dealers (I'm sure other people were investing in Bitcoin in 2011 but these are the guys I was aware of)

cryptoz2• 8 years ago

The experimentation of ideas around what money is is certainly not "nonproductive" and to dismiss it like that is silly. He might not like it for any reason at all and that's fine, but to call it nonproductive is ridiculous.

tomdell• 8 years ago

All right, then - how is it productive?

serg_chernata• 8 years ago

Seeking ways to improve existing systems, financial or not, is a productive activity in my book. How successful the effort is, is another discussion entirely.

cryptoz2• 8 years ago

We have a global conversation about technology and money backed by large scale experiments. The production value is the basis for the future of trust and money in a digital world.

More productive work has been done by Bitcoin devs and users than much of the normal finace work and money spent when it comes to investment and future value creation though experimentation right now. To dismiss all of that as nonproductive is ridiculous because it is very clearly extremely productive. This is true regardless of how much money an investment in Bitcoin might make.

brosirmandude• 8 years ago

It depends on your definition of productive but in my opinion it's creating wealth, companies, & jobs.

People are going into work every day to work on crypto-related products. Bitcoin & other cryptocurrencies are putting food on the table for those people.

maire• 8 years ago

I have been curious about the case for bitcoin.

A short time ago all currency was on the gold standard. Then it was loosely based on the underlying productivity of the country that issued the currency. Then it was loosely based on the underlying safety of the country that issued the currency. Even gold has bounced around in value.

Having said that, I am still not convinced that bitcoin is a viable monetary standard. There is no way (that I can see) to evaluate its underlying value. Underlying value is needed for trust. Trust is needed for exchanging goods and services. Monetary standards are just stand ins for barter.

Please convince me.

fixermark7• 8 years ago

I'd be more excited about the productivity if my observations didn't suggest people experimenting in the space were ignoring history.

We've had a century or so of modern economic theory and thousands of years of history before that time to study how money, tangible goods, production, and consumption interact. Maybe I'm not being charitable, but a lot of the cryptocurrency experiments feel like tossing that history out the window and starting over from base principles---which would be fine if I didn't watch them recapitulate the same mistakes nation-states have made throughout history.

To take BTC as a specific example: it's considered a feature of the currency that there is no fiat institution that can just print more BTC. Which is great up until the point that a hacker compromises an exchange and re-assigns a giant pile of value to anonymous criminals (or just makes it evaporate), and there's no back-stop institution to make victims whole. In a world where FDIC insurance exists, why would I bother with that nonsense? We've already had history from the Great Depression to observe the ramifications of common people getting screwed when the money storage and transfer institutions they rely upon go haywire; I don't see a need to jump feet-first into the barrel of unregulated transaction institutions again (and for BTC specifically, without those institutions available to close out transactions quickly, the lag on BTC transaction resolution makes it undesirable for day-to-day spending).

Talyen42• 8 years ago

He's thinking of it in investing terms, underlying asset value, cash flows, etc. Because the media asks him "Should we buy bitcoin?" every damn day of the year.

I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.

Does he also think that the US Dollar is rat poison because it's not a productive asset? He holds like $80b cash.

"But bitcoin has high fees" well yeah, there are 1,000 newer cryptos with lower fees. (and plenty of scams)

"But local stores don't use it" well yeah, nobody used credit cards in the 40s either. (and now cash is dead)

"But it's not user friendly" well yeah, neither was the internet until ~2000. (i've seen nearly zero progress in crypto here, btw)

sincerely• 8 years ago

cash is dead

lol

adbachman• 8 years ago

He holds like $80b cash ... now cash is dead

dmix• 8 years ago

Somewhat of a class-based statement, definitely not dead among the working/lower class.

If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash...

coliveira• 8 years ago

This guy must be living in a bubble to think that cash is dead...

dizzystar• 8 years ago

His argument is that debit cards aren't cash or something...

The laughter is justified not only for the illogic of this, but the fact that this is somehow a good reason to buy Bitcoin.

KaoruAoiShiho• 8 years ago

Do you really think he's going to come out as friendly to bitcoin on any of these?

I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.

zingmars• 8 years ago

and now cash is dead

Maybe it is in your little corner of the first world, but this certainly isn't true for most of the world. Plenty of people are still using cash and it isn't going away anytime soon.

AndrewKemendo2• 8 years ago

Buffett/Munger have always argued that Gold and other commodities are equally worthless investments based on fear and ponzi like attributes[1]. No surprise then they feel even worse about Bitcoin.

The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."

While perhaps true, such rebuttals ignore the arguments being made by folks like Buffett around predictability, likelihood of a return, confidence in underlying asset value, volatility etc... So the argument isn't about whether or not you can make money on these things, it whether it's a prudent instrument to invest your money into.

[1] http://www.minyanville.com/trading-and-investing/commodities...

voidpointer• 8 years ago

The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."

Mortgages have been payed off with lottery wins. That doesn't make lottery tickets a good investment.

AndrewKemendo2• 8 years ago

Yea that's basically the point, it's a terrible argument to say that it worked.

s73v3r_10• 8 years ago

"The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin.""

Weren't there a bunch of people who went in debt recently to buy BTC when it was close to $20k?

triviatise• 8 years ago

He has always said he doesnt understand technology and has resisted investing in it. While the value is fluctuating heavily due to speculation, over time it will stabilize.

Bitcoin will resist inflation and is somewhat out of control of governments or any central authority. People in countries where the govt has screwed up the currency can use it to get money out of the country or as a stable store even if dollars or other physical currency is in scarce supply. My family fled china carrying their wealth as gold and bank checks. Today, people can transfer their wealth as bitcoin across international borders.

The fundamental properties of money are:

<<Fungibility: its individual units must be capable of mutual substitution (i.e., interchangeability). Durability: able to withstand repeated use. Portability: easily carried and transported. Cognizability: its value must be easily identified. Stability of value: its value should not fluctuate.>>

It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value.

tptacek• 8 years ago

He's the third-largest shareholder of Apple behind Vanguard and Blackrock.

Cyph0n• 8 years ago

And he regrets not investing in Amazon back in the 90s. I believe that he only recently started to invest in tech.

jpmattia• 8 years ago

He's the third-largest shareholder of Apple behind Vanguard and Blackrock.

He waited until 2016 before investing, not exactly an early adopter.

EpicEng• 8 years ago

Stability of value: its value should not fluctuate.

Big problem for crypto. It's a spec market currently and shows no signs of settling down. Add that to the fact that transactions are a nightmare and... I just don't see this happening any time remotely soon. Also, if you think the powers that be are going to allow their currencies to be supplanted... well, they won't.

eastWestMath• 8 years ago

But the value of bitcoin could very easily stabilize at 0 if it falls out of vogue...

45h34jh53k4j2• 8 years ago

but will it? I would buy BTC at $1, at $10, at $100... There are many like me. I think its foolish to think that it will reach 0. Too many folks believe in it...

fixermark7• 8 years ago

Buffet may not be deeply knowledgeable of tech, but I think his assessment of a currency is trustworthy.

Just because BTC is electronically transacted doesn't exempt it from rules of supply and demand, speculation, value stabilization, &c.

beefield2• 8 years ago

While the value is fluctuating heavily due to speculation, over time it will stabilize.

Can you describe any mechanism that actually causes the price to stabilize and speculation to disappear? (Please, if possible, also define at least somewhat quantitatively what you mean by stable, and then discuss how successful this mechanism you first described has been stabilizing gold price during the last couple of thousand years when gold has been used as moneylike instrument and store of value.)

coralreef2• 8 years ago

Quantity of demand is equal to quantity supplied

boomlinde2• 8 years ago

That's a lot of "will" without the hows and whys that should go with it to make an interesting point.

gfo• 8 years ago

It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies.

If you're comparing the stability of the major currencies to Bitcoin you really need to look at the price charts for any digital currency.

Buffet always holds billions in cash which is constantly depreciating in value.

Buffett is always ready to use that cash to make deals. True, they have a lot of cash, but it's not like he doesn't constantly use it to make investments.

hudon• 8 years ago

Bitcoin will resist inflation and is somewhat out of control of governments or any central authority

Can you back this up? From what I can tell, governments can ban mining, shut down exchanges and co-erce developers. If the handful of devs that have commit access to Bitcoin were working for the CIA, would we know? What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?

Today, people can transfer their wealth as bitcoin across international borders.

Again, citation needed. How many Chinese people are doing this? The exchanges are banned, right? So how could your family buy Bitcoin in China? OTC? What's the spread on the OTC market in China versus US market? Is it actually worth it?

pdpi• 8 years ago

Can you back this up?

The money supply setup for Bitcoin is meant to make the currency deflationary by design. Whether that is successful or not remains to be determined.

gruez• 8 years ago

If the handful of devs that have commit access to Bitcoin were working for the CIA, would we know?

probably not, unless they're comically incompetent

What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?

not much, considering there are independent implementations, there's no auto-update for clients, and consensus code changes are heavily scrutinized. I'm sure they can ram a PR through if they really wanted, but it's going to be very obvious what's happening.

LargeWu• 8 years ago

From what I can tell, governments can ban mining, shut down exchanges and co-erce developers.

Cutting off exchanges from financial institutions will likely be the primary way the government attacks cryptocurrencies. Just look at what happened to online gambling 10 years ago. Online poker and sports gambling were booming. What the US did was prevent banking companies from doing business from gambling companies or intermediaries (e.g. Neteller). Basically overnight, online gambling became a shell of what it was previously. Sure there are still ways around it, but it's enough of a hassle that only the most die-hard players are going to find it worth it.

It doesn't take a huge stretch of the imagination to apply the same strategies to crypto. If financial institutions are prevented from doing business with Bitcoin, et al., it's basically game over, as long as its utility is dependent on buying with fiat currency.

fixermark7• 8 years ago

Question regarding the list of "fundamental properties of money":

Should "liquid" (easy to spend and trusted to be exchangeable for goods or services) be on that list? I wonder if it's generally left off because it's assumed, but BTC is not currently what I would consider "liquid;" the average time to confirm a transaction ranges from 30 minutes to (sometimes) over 16 hours [source: https://coincentral.com/how-long-do-bitcoin-transfers-take/]. So it's not a money I can spend on a pack of gum.

Contrast that with cash, checks, or credit cards, which generally clear in under a minute (checks being the notable exception, and indeed, the exception that makes them not always equivalently useful to the other two).

hndamien7• 8 years ago

Compare how liquid it is to real-estate. I'd say it is pretty liquid.

vitaflo• 8 years ago

It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies.

Lots of crypto supporters will talk about inflation like it's bad. Hyperinflation is bad. Typical monetary inflation is a feature not a bug. This is because of people's expectation of wage increases over time. This results in increased demand and spending on goods and services.

Bitcoin by its very nature is deflationary. This reduces demand and increases hoarding. The currency then acts less and less like a currency (sound familiar?). In a deflationary environment, wages would go down over time and workers do not accept reduced wages vs increased wages even if their purchasing power remains the same in both cases.

Small amounts of inflation is a psychological trick that actually helps keep the economy moving along. Outside of hyperinflation the inflationary argument for cryptocurrency is one not rooted in the reality of economics.

s73v3r_10• 8 years ago

"It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value."

I would say that fiat currencies are quite predictable. The last thing the Fed, for instance, wants to do is to come out of left field and change things. That would be disastrous for markets.

simonebrunozzi• 8 years ago

Fred Wilson of Union Square Ventures presents a counterargument to Buffett: https://avc.com/2018/05/is-buying-crypto-assets-investing/

fixermark7• 8 years ago

USV has invested in CryptoKitties (https://www.usv.com/blog/cryptokitties-1).

This doesn't invalidate his position, but it's worth remembering he is not an objective observer in the situation; his company is positioned to directly gain from a crypto-mania.

whitepoplar• 8 years ago

"Don't tell me what you think, show me what's in your portfolio."

furiousjulius• 8 years ago

Agreed but I think the opposite is much too prevalent. People with absolutely no experience using crypto currencies write articles bashing them without ever using them first hand. Im not advocating for them but I think to actually assess their use/value they must be tried.

mcguire4• 8 years ago

"Bitcoin has produced a transaction processing infrastructure that looks a lot like Amazon Web Services (something I am sure Buffett would agree is extremely valuable)."

How many transactions per minute can AWS do?

mr_spothawk2• 8 years ago

How many transactions per minute can AWS do?

How many transactions can the bitcoin network do if Amazon goes out of business or cancels AWS? (hypotheticals seem relevant here, to make the point)

How many transactions can your business perform if AWS blocks you, or your transaction type?

kartan• 8 years ago

"They are the fuel that powers a new form of technology infrastructure that is being built on top of the foundational internet protocols."

I can't get my head around this sentence.

Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.

That is exactly what collectibles are. Art has been used in this way for a long time.

https://www.theguardian.com/artanddesign/jonathanjonesblog/2...

Crypto-assets produce decentralized infrastructure.

There is pro and cons on decentralized currencies. (https://www.economist.com/news/briefing/21721354-contemporar...) But is nothing new, nor nothing that needs cryptocurrencies.

Cryptocurrencies are an interesting experiment. Its intrinsic value is zero. It can be used, like other collectibles to transfer wealth. How it works when people lose confidence in them is to be seen. It is usually ugly, even for currencies backed by countries (https://en.wikipedia.org/wiki/Hyperinflation).

Tulips where at least beautiful.

loceng• 8 years ago

I've been a long-time AVC commenter. It's marketing speak trying to legitimize attaching an added cost of the Pyramid-Ponzi scheme of incentivized crypto-assets into a transactional layer.

In the end it will cost less in the short-term (per transaction costs) and in the long-term (the unnecessary, unreasonable amount of wealth reallocated weighted towards earlier adopters) to compete not using blockchain for everything - especially not incentivized crypto-assets - as they're banking on and investing in perpetuating an ecosystem for.

Competition will exist to show the cost differences, however there will continue to be a strong and growing push by those who are already vested in and own any number of these incentivized crypto-assets, and the platforms/services that have tied themselves into them.

It's understandable that VC would enter the market once it gained enough traction, at least once the ecosystem matured enough, once there was enough hype, and gaps in the market were spotted by competent teams who were wanting to fill them, e.g. Coinbase as one example of USV's investments; selling services during a "gold rush" is likely the safest bet and most profitable.

Albert, another partner as USV has been evolving his understanding and has been working on a book called World After Capital - http://worldaftercapital.org/

USV as a whole have been evolving a thesis related to decentralization, which I believe they've perhaps mispurposefully attributed to being solved by blockchain; the thesis and conversation that Fred posted around years ago was relating to the idea of the The Independent Web - my blog post on this from 7 years ago: http://mattamyers.tumblr.com/post/2903098250/the-independent... - "The Independent Web, How Can It Work?"

The answer of trying to create collaboration by aligning everyone in a Pyramid-Ponzi scheme however is wrong and immoral IMHO, and there's a better way - as even with decentralization you still need centralization for governance, as without it you allow bad actors to flourish - and with the current system of incentivized crypto-assets, existing/known bad money certainly has entered that ecosystem.

Whenever I write responses like this to Fred or other people's posts who seem all-in for incentivized crypto-assets, the responses are none-to-shallow in depth. And I have gone into much more nuanced detail in other comments relating to why incentivized crypto-assets are overall bad for society. Perhaps the most purposefully ignored long-term negative is that there is a tipping point of adoption - let's say it's at "40%" adoption - where after that tipping point those later adopters are simply realizing the added cost of the increasing cost per "coin," and so they are no longer incentivized to collaborate. The danger here for society however is you now have up to "40%" of society vested into making sure this gets adopted fully by society, including any number of bad actors - who perhaps will have then hundreads of billions-to-trillions of dollars they want realized; this could be as subtle as enough politicians getting elected into government, or bribing existing, or of course the worst.

The solution, if blockchain is a necessary technology to use, is to have all existing fiat currencies globally merge - and only when governments are ready and under no pressure or force (and with no lobbying efforts by incentivized crypto-asset groups trying to indoctrinate based on their biased desires or ask to not be regulated..) - into a single digital ledger/currency. And with this solution instead of "you" giving me cash in exchange for a digital asset, "you" give cash to that government's mint and it gets converted into the digital ledger/removed from regular circulation; the conversion rate would likely only simply need to match going exchange rates between currencies - there will be some nuance to explore of course.

riffraff• 8 years ago

It feels like the author missed the fundamental bit of Buffet's investment/speculation split: that the goods you obtain in an investment are valuable in themselves, which cryptocurrencies are not, even if we consider them the foundation of a new world. Comparing Ethereum to Aws seems odd too.

whack2• 8 years ago

Buffett said investors would instead be much better off investing in U.S. stocks, which in turn are also a far better investment than 10- or 30-year U.S. government bonds... He said he would much rather have Berkshire’s pile of cash and equivalents be $30 billion, rather than the $108.6 billion it was at the end of March, but good deals have not emerged.

$100B is a colossal amount of money to have sitting around in the form of cash equivalents. I wonder why he hasn't just put it into the S&P 500, given that he belives the stock market is currently a good investment. Given the index's liquidity, I would think he'll still be able to sell it off quickly, if he needs the cash for an acquisition.

empath75• 8 years ago

You can’t just put 100B into vanguard. That kind of money distorts markets.

kolbe6• 8 years ago

S&P tracking ETFs are the most liquid equity instruments, but $100b is large even for them. The largest ETF by assets is SPY, with $250b. 'Liquid' for you or me or even Stevie Cohen isn't even close to the same thing as 'liquid' for Warren Buffett.

http://etfdb.com/compare/market-cap/

whack2• 8 years ago

SPY has a daily trading volume of $25B. I would have thought that this would allow someone to liquidate ~$1B every day, without distorting the market. This would have allowed Buffett to raise the cash needed for any acquisitions, in a relatively short period of time. Is there any hard data on how big a trade would have to be, to cause significant price distortion?

Speaking of which, it's also common for acquisitions to be carried out using stock, instead of cash. Given that acquirees are open to getting paid in stock, I would have thought they would be open to getting paid in SPY.

https://seekingalpha.com/article/4164368-spy-cost-liquidity

https://www.investopedia.com/ask/answers/06/macashstockequit...

bertjk• 8 years ago

Part of the point of keeping cash around though, is that you don't want your buying power to be correlated with market movements. It is entirely possible/likely that the next good deal that comes up does so in the middle of a market meltdown. Just see the deals he made buying during the 2008 financial crisis.

thepangolino• 8 years ago

As you said, $100B is a colossal amount of money. You can't get it in and out of the market like that. SPY, the most traded S&P500 ETF has a market cap of $230B.

bamazizi• 8 years ago

I'd argue, cryptocurrencies are the worst thing to happen to such a great concept, decentralized agreements.

Consensus algorithms have shifted focus away from decentralization and towards pushing cryptocurrency agendas. Shame!

fixermark7• 8 years ago

Yeah, and they haven't been terribly great for the gaming market either, as they're consuming production of graphics card components.

drcode6• 8 years ago

I find this to be such a curious argument: "The graphics card industry would be so much better off if these cryptocurrency people would stop giving AMD and Nvidia so much money!"

rdiddly• 8 years ago

Kind of started me thinking it was going to be a "Variety" headline... Something like "Berkshire's Buffett Blasts Bitcoin Buffoonery"

sizzzzlerz3• 8 years ago

Buffet's investing strategy is, and has always been, look for the intrinsic value in a company, buy them, and then hold on forever. As part of that intrinsic value is the management teams that are running the companies. A strong team is as valuable as any other asset. When Buffet does buy a company, he'll generally leave management in place and not interfere in the day to day running of the company. Bitcoin has no management and it has no intrinsic value. It's worth is whatever somebody is willing to pay for it. That is 180 degrees out of phase with the Buffet strategy.

mcguire4• 8 years ago

Further, when you buy a part of a company, you are buying a piece of a functioning economic unit. When you loan money, you are finding economic activity.

When you buy a Bitcoin, you are helping to convert electricity to heat.

piracy12• 8 years ago

Electricity into security

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nkrisc• 8 years ago

Think of them as shares of entropy.

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panarky4• 8 years ago

A thing doesn't have to be "a piece of a functioning economic unit" to be worth owning.

Examples: copper, gold, land, art, wireless spectrum, currency.

There's a perfectly valid rationale to hold each of these assets, and none of them are "productive" by themselves.

Each of these has scarcity and utility. That's what matters.

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sharemywin4• 8 years ago

I think bitcoin would need to be valued based on it's replacement value. The transaction fees other networks charge to transfer assets.

intercontinentalexchange has a value. visa has a value. etc.

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sharemywin4• 8 years ago

No company has an intrinsic value either. If I fired all the employees, sold all the assets it would be worth nothing.

The transactions are the value. The network has value.

If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company.

Is it a good way to buy and hold...of course not.

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trixie_6• 8 years ago

Bitcoin has tons of intrinsic value unique to crypto currencies that traditional currencies lack. Most importantly it can't be created/destroyed at will by a central government. Huge sums can be transferred globally at the speed of light with very low fees. Can't do that with gold or cash. With normal currency a wire transfer costs money and moving a lot of money from a bank account usually takes days. Also you can store a lot of it yourself, relatively securely compared to storing hundreds of thousands of dollars yourself. Oh and it's also backed up by a global ledger that is country or government agnostic. The electricity it takes to maintain it is nothing compared to the rest of the banking system. These properties are the very nature of crypto, that's why it's intrinsic.

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ggggtez• 8 years ago

If you ever studied economics, you'd know that scarcity is not intrinsically valluable. It might be a useful feature, but intrinsic value means having a minimum value. Gold can't be created, but it had real usefulness in manufacturing. Besides, you could make a new buttcoin tomorrow, but you can't make a new kind of Atom.

Stop proving that Bitcoin enthusiasts don't understand economics.

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s73v3r_10• 8 years ago

"Most importantly it can't be created/destroyed at will by a central government."

This is not cut and dry as to whether it is a benefit or not. Many people, myself included, don't consider it a benefit. Not having control over your currency makes it that much harder to respond in times of recession. Greece was hit quite hard by the Great Recession, and one of the reasons why is because they didn't have control over their currency, and so they couldn't lower the value of it. The Euro was still valued high due to the use by Germany and France.

"Huge sums can be transferred globally at the speed of light with very low fees."

Currently that's not true of Bitcoin, either. Transactions are slow, and fees are not low.

"The electricity it takes to maintain it is nothing compared to the rest of the banking system."

Is it? It takes a crazy amount of power, for what seems to be something that only a small amount of people are using, with a very anemic transaction throughput.

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ctrl_freak• 8 years ago

I don’t think that’s what “intrinsic” means. Would Bitcoin have any value if no one else were using it?

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lolsal• 8 years ago

I am largely ignorant to the details of BTC and other coins, but your comment seems incorrect.

Most importantly it can't be created/destroyed at will by a central government.

Couldn't someone destroy/steal my BTC wallet though? I'd have no recourse for justice, right? Also, doesn't the Federal Reserve print money mostly at will?

Huge sums can be transferred globally at the speed of light with very low fees.

I think the speed claim here is totally false[1].

With normal currency a wire transfer costs money

Don't all BTC transactions have confirmation fees?

and moving a lot of money from a bank account usually takes days.

This is true crypto currencies shine here. It can take 20 minutes to transfer $5 or $5,000,000.

The electricity it takes to maintain it is nothing compared to the rest of the banking system.

Maybe, but also maybe not. The rest of the banking system provides lots of services and protections that crypto currencies don't.

These properties are the very nature of crypto, that's why it's intrinsic.

These are properties of crypto currencies for sure, but that these are valuable properties is entirely subjective.

[1] https://blockchain.info/charts/avg-confirmation-time

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econochoice• 8 years ago

The government has taken control of Bitcoins in the past, and will continue to do so in the future. All it takes is a warrant.

Also, unlike cash, you're making your transaction history public. Any central government in the world can see this. You have to jump through a lot of hoops and use multiple blockchains to anonymize your Bitcoins.

Transfers incur a network fee with Bitcoin as well. I doubt anyone making a small purchase wants to pay fees that might be a significant percentage of, or exceed, their purchase subtotal.

You cannot send Bitcoins "at the speed of light". On average, the Bitcoin network processes 7 transactions per second.

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kolbe6• 8 years ago

This is totally reasonable, and I get why Warren should stay away from 'investments' in BTC. It's extremely wise to stay away from investments you don't understand, especially when you're a target like Buffett.

But what I can't get behind is his active and vocal bearishness. If he has a well-reasoned argument to make, then he should make it. If not, lay off.

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ThalesX• 8 years ago

I’m not a succesfull investor with decades of won bets but the amount of people pitching Bitcoin to me and wanting to talk about it drove me crazy for awhile.

I can’t imagine the frustration Warren Buffet feels when surrounded on all sides by digital snake oil peddlers.

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tim3338• 8 years ago

He has a well reasoned argument: https://finance.yahoo.com/news/bitcoin-rat-poison-buffett-tu...

ending:

It’s something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbours are getting rich and neither one of them understands. It will come to a bad ending. Charlie…

I see a lot of that.

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bmcusick• 8 years ago

Bingo. He's also a value investor. He understands cash flows. Bitcoin produces no cash flow.

Also, Buffet is the insider's insider. Banks work for him. He has exactly a 0.00000% chance of having his accounts frozen. The US Congress would hesitate to pick fights with his companies. When you have those kind of connections and power, you're not well placed to understand the benefits decentralized sources of authority provides.

What Buffet is missing is that bitcoin is an alternative to cash, and when lightning networks and side chains are widely deployed it will be very, very competitive with cash on most axes. Eventually (if hyperbitcoinization actually happens) even the variability will be less than any one national currency, since global demand and stabilizers will buffer it against any localized shock.

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jhall14685• 8 years ago

I think he understands it better than you give him credit for. He just doesn't see a future for it. To most investors the promise of Bitcoin is the same promise of snake oil.

Everything about Bitcoin is new and untested and most institutional investors abhor anything they can't quantify. Bitcoin is a huge gamble, and people like Gates and Buffet don't gamble.

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dnomad• 8 years ago

I think this is basically it. Good ol' Buffet. His argument against gold is similar [1]. It's always interesting to note the fundamental differences between these types of investors. Some investors place their faith only in things -- hard assets and hard money -- gold, bonds, and now bitcoin. Others like Buffet have maintained that the best thing to invest in is other human beings, specifically human ingenuity and sweat. This question -- whether wealth resides in things or in relations between people -- seems to drive a lot of investor psychology.

[1] http://www.businessinsider.com/warren-buf

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berberous2• 8 years ago

Your link is broken. What makes Buffet's annual letters so great though is the quality of his writing, so rather than fix your link I'll post his position on gold in his own words:

"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."

Source: http://www.berkshirehathaway.com/letters/2011ltr.pdf

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hd42• 8 years ago

rat poison squared

Very poor choice of words, heh.

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arkona32• 8 years ago

I don’t get his metaphor. Rat poison is not necessarily a negative thing as it helps people keep vermin under control.

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hd42• 8 years ago

I don't get how he didn't see making such a comment as an own goal, given how the average person sees the financial system these days.

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crasch4• 8 years ago

Buffett should follow his own advice, and stick to commenting on things that he understands.

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arkona32• 8 years ago

Like... finance, economics and investments?

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asdsa53252• 8 years ago

He seems to understand intrinsic value pretty well.

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drcode6• 8 years ago

If there's one thing I've learned in my 45 years, it's that actually no one has figured yet what the term "intrinsic value" really means. The more you dig into that term it just ends up meaning "what someone else is willing to pay for it" blended together with some fuzzy subjective notions of morality.

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radoslawc• 8 years ago

'Billionaire investor Warren Buffett on Monday said buyers of bitcoin, which he has characterized as “rat poison squared,” thrive on the hope they’ll find other people who will pay more for it.'

isn't this in a nutshell stock market form 'normal person' perspective? Or antiques market, or any other from thousands 'buy cheap - sell for more' types of market?

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dharma1• 8 years ago

To some degree, but the valuation of shares is (in theory) based on fundamentals - price to earnings ratio for instance - as well as speculation of how well it will be doing in the future. Companies can also choose to pay dividends if they have made a lot of cash, and choose to issue some of it to shareholders.

Valuation of Bitcoin to a large degree is purely based on market psychology, and it doesn't pay dividends.

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hndamien7• 8 years ago

It is actually used to replace banks and remitters and central banks. You know, it performs some utility like companies do.

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hapnin3• 8 years ago

This is like two old investors in buggy whips talking scaring people off of internal combustion engines. They have no idea what they're looking at but they'll make pronouncements anyway.

Bitcoin etc are currencies native to the network environment just as cash is native to the meatspace. Both have their advantages and shortcomings.

Wisdom is found in using things if they serve you and leaving them alone if they don't. Cash serves its purpose in the meatspace, cryptos serve their purpose on the network. Use them as they're useful.

I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about. It's even less wise to take advice from those who speak from ignorance.

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s73v3r_10• 8 years ago

"I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about."

He's talking about investment vehicles. I would say he knows more about those than most of us here on this board.

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hapnin3• 8 years ago

Everyone that listened to him 20 years ago missed Amazon, Google, etc.

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bdcravens2• 8 years ago

It's even less wise to take advice from those who speak from ignorance.

Being in Bitcoin since 2011, I've found most Bitcoin advocates tend to be of the ignorant sort with regard to both the technology and the economics. They tend to gather their information from what they're told to think on places like Reddit, and are quicker to communicate via memes than have an actual real conversation.

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hapnin3• 8 years ago

We've been in it about the same length of time. I agree with your assessment.

A lot of trade in the stock markets is based on similar dynamics: lack of clue on the investor's part, just go with what someone told you.

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throwaway5752• 8 years ago

Berkshire vice chairman and longtime Buffett confidant Charlie Munger was even more blunt.

"I like cryptocurrencies a lot less than you do," Munger said to Buffett. "To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out."

http://money.cnn.com/2018/05/07/investing/warren-buffett-bit...

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panarky4• 8 years ago

Curious that both Buffett and Bill Gates [0] are publicly criticizing Bitcoin right now.

People make big dumb investments every day, and you don't see Buffett and Gates talking to the media about it.

What's their objective? And why together? And why now?

[0] https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bit...

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drcode6• 8 years ago

Good question... Though likely the answer is pretty mundane: It's probably something they keep being asked about in interviews, and they feel some obligation to dampen the hype on cryptcurrency- Also, there's a "survivorship bias" issue, in that both guys got very successful using business strategies involving an unrelated domain, so of course they would say "If you want to build wealth, maybe instead focus on these other asset classes that worked really well for me."

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tim3338• 8 years ago

Yeah that and I think an effort to stop the public getting burnt.

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Buffett bashes Bitcoin as nonproductive, thriving on mystique

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