Honestly, Bitcoin’s achievement and resilience over the years, always seem to make people forget that the digital currency is barely 10 years old, therefore, as much as mainstream investors like the legendary Warren Buffet all have well-intended reasons to ridicule the popular cryptocurrency, its present increasing adoption and widening scope suggests that Bitcoin might be here to stay and not just stay, it can be the major investment portfolio in the ever-evolving digitalized world.
‘The Oracle of Omaha’ as he is called firstly because he resides in Omaha and most importantly because his words are like gold to the investment community, Warren Buffet is a legend and a credible voice in the field of investment; the Chairman and CEO of Berkshire Hathaway with a net worth of more than $80 Billion, the investment icon made his wealth primarily by buying stocks and investing in companies over the years and despite his charity causes he is still among the top ten richest men in the world.
Hence, when he speaks regarding investing portfolios or assets, the investment community expectedly hold his statement in high regards and one of his famous comments is on Bitcoin with Buffet famously calling the cryptocurrency “probably rat poison squared” and further adding that “in terms of cryptocurrencies, generally, I can say that they will come to a bad ending”, a statement also backed by Berkshire’s Vice-chairman and Buffet’s right-hand man, Charlie Munger.
However, despite, Warren Buffet’s legendary investment status, the oracle of Omaha can also be wrong sometimes, with his recent U-turn regarding investing in gold, the most recent example, hence, does Bitcoin and Cryptocurrency have the potential and promise to prove Buffet wrong again?
Warren Has a Case but Bitcoin Proves Doubters Wrong
Obviously, Warren Buffet didn’t just make such statements about Bitcoin without having valid reasons behind his comments especially when he further expatiated on his stance by saying that:
“it’s a gambling device…there’s been a lot of frauds connected with it. There have been disappearances, so there’s a lot lost on it. Bitcoin hasn’t produced anything; it doesn’t do anything. It just sits there. It’s like seashell or something, and that is not an investment to me”
He would further compare the popular cryptocurrency to the button on his jacket by saying that:
“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 $2,000 by the end of the day…But the button has one use and it’s a very limited use”.
A critical look of Warren Buffet’s comments highlights his intelligence as his comments clearly points about two strong reasons for his stance despite the brevity; firstly, warren Buffets questions the security of Cryptocurrency, secondly, he addresses the one-dimensionality of Bitcoin and its limited scope or market application.
On the security of Bitcoin, Warren Buffet is right to be sceptical due to recent rumours of frauds and some disappearances over the years including the famous hack on Twitter that resulted in the hacker impersonating various Billionaires to scam people of their Bitcoins.
However, Bitcoin is built on Blockchain technology, one of the most secure technologies out there which even Warren Buffet testifies that it might have a lot of potentials although he later added that the technology doesn’t need cryptocurrency to be successful, yet, it still speaks of the present and potential security capabilities of the digital currency.
Besides, there is hardly a perfect system out there and the frauds associated with Bitcoin were in the early days and sometimes the Bitcoin Community actually intentionally expose security vulnerabilities in an effort to produce massive open-source responses in the form of security fixes further highlighting the collective efforts by the Bitcoin community to keep strengthening the security of the digital currency.
While the recent fraud via Twitter, first of all, speaks of the vulnerability in the Twitter security and more of the strength of Bitcoin’s security and privacy capabilities and the hacker knew that the closest to perfectly secure means to collect such large amounts via some of the most powerful men in the world with massive tech facilities and resources would be through a digital currency that would be very hard to trace.
Hence, although Warren Buffet points out a security vulnerability, Bitcoin still holds Security as one of its positive attributes and recently its security is one that can be trusted to a very large extent.
The second and most important case in Warren Buffets statement is with respect to the limited scope, application and the volatility of Bitcoin. Warren Buffet even in his brief statement highlights the fact that Bitcoin is mostly used for speculation (more like Gambling) and its application is also a major concern as it supposedly appears to be very limited.
Expectedly, he makes a very good case, because, in comparison to company stocks or other investment assets, Bitcoin is barely affected by the conventional economic factors of demand and supply or how fiat currencies are directly affected by inflation or deflation caused by economic dynamics, all of these supposed shortcomings is proven by its recent successes in the coronavirus pandemic era despite almost every other financial entity being hit negatively by the pandemic (although Bitcoin advocates actually see this as a sign of why more people should invest in Bitcoin).
Zoom stock is a perfect example of how Warren Buffet believes an investment portfolio that is not limited in scope and affected by the everyday forces of Demand and Supply, should behave; during the pandemic, the Zoom stock massively increased in value obviously due to the fact a lot of people began to adopt the platform for virtual meetings because of the movement restrictions caused by the pandemic, hence, there was increased demand for the zoom product, meaning that its stock portfolio has a direct relationship with everyday man economic or commercial activities, but in comparison to Bitcoin which is regarded as one of the most volatile assets, the cryptocurrency volatility is mostly affected by factors intrinsically to movements around the currency and not necessarily conventional economic factors, factors affecting the volatility of the popular digital currency includes among many other: large Currency Holder risks, High profile losses raising fear, Tax treatments.
However, Bitcoin has all the attributes and present impetus to be a major player in world commerce; firstly, the digital currency has evolved beyond a financial speculation tool for traders or ‘gamblers’ as can be evident with more everyday applications even in Emerging markets like the African Fintech space with some business analysts even pointing out how Bitcoin might have found its best place for everyday application in Africa, also, the large population of millennials in Africa see Bitcoin has a very viable means for cross border payments or trading due to the advantage Bitcoin gives over their corresponding weaker currencies on the foreign exchange market, and secondly, more major companies in the world are beginning to accept payments in Bitcoin with just recently the billion-dollar Technological Financial Service platform, PayPal, just included payment and transactions options via Bitcoin for its customers on its platform, therefore further solidifying Bitcoin’s emergence as a major financial entity in world commerce and Economics.
Honestly, Bitcoin’s achievement and resilience over the years and, always seem to make people forget that the digital currency is barely 10 years old, therefore, as much as mainstream investors like the legendary Warren Buffet all have well-intended reasons to ridicule the popular cryptocurrency, its present increasing adoption — additional reports suggest that mining Bitcoin is responsible for a massive 0.25% of the Global Electricity consumption — and widening scope suggests that Bitcoin might be here to stay and not just stay, it can be the major investment portfolio in the ever-evolving digitalized world.
Is Warren Buffet Wrong About Bitcoin? was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.