I wrote a piece on 31 October 2017 called ‘Buffett is the bubble, not bitcoin’.
It was a bit cheeky of me.
But there was a serious point to be made.
I argued that the Buffett style of capitalism — a situation where the same big funds locked up stock in the big companies and therefore dissuaded price competition — was causing more price bubbles in markets than a decentralised, competitive crypto market ever would.
You can read more about that here.
But it was in response to Warren Buffett’s public claims at the time that ‘Bitcoin is a real bubble.’
At the time the bitcoin price was US$6,900.
It’s now at US$14,475 and has been as high as US$20,000 since Buffett’s original comments.
I bring this up today because Buffett’s at it again.
Here’s what he had to say in an interview with CNBC’s Squawk Box:
‘In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending,
‘When it happens or how or anything else, I don’t know.
‘If I could buy a five-year put on every one of the cryptocurrencies, I’d be glad to do it but I would never short a dime’s worth.’
But crucially, he went on to say this…
‘I get into 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.’
Let me get this straight…
He admits he doesn’t know anything about them, but still predicts they will end badly.
Unfortunately for his legions of supporters, the ‘Oracle of Omaha’ has a track record of missing out on big tech trends.
Consider the following stocks that Buffett missed out on…
Apple Inc. [NASDAQ:AAPL] is probably the success story of the past two decades.
The numbers are dazzling.
An article in Fortune celebrating the 35th anniversary of the IPO noted that 100 shares purchased in 1980 would have been worth US$632,800 by 2015 — not including dividends — for a gain of 28,663%.
That was vastly better than not only the S&P 500, but even Warren Buffett’s Berkshire Hathaway, which would have turned a US$2,200 investment into ‘only’ US$167,200 during the same time period.
Buffett first invested in Apple in 2016.
Talk about late to the party.
And it’s not the only big winner he’s missed out on.
Google, Facebook, Amazon, the big three of the last few decades were all deemed too risky for Buffett.
So when he says he thinks Bitcoin will fail…well, I’ll let you be the judge of how well qualified he is to state that.
Don’t get me wrong, Buffett is a great investor. But he freely admits that he doesn’t invest where he doesn’t understand. And he freely admits he doesn’t understand bitcoin or cryptocurrencies.
He’ll be right eventually
I said at the start Buffett criticised bitcoin in October last year when bitcoin was at US$6,900
Buffett actually first chirped in to the crypto scene in 2014.
At that point he called bitcoin ‘a mirage’.
Bitcoin at that time was trading around US$400.
The thing is this…
You know the saying ‘a broken clock is right twice a day’?
It applies to all sorts of finance professionals, from perma-bears to perma-bulls. Stocks, the markets, commodities — they all move in cycles.
And speculative manias all tend to overshoot reality. Until they eventually come crashing down.
Buffett knows this, hence his proclamations.
But unfortunately for anyone who follows his sage advice, he hasn’t done the necessary homework to have a worthwhile opinion.
When it comes to analysing crypto, he’s irrelevant.
If he’d taken the time to understand the role and technology behind cryptocurrencies and still made this judgement, I’d have a lot more time for it.
After all he’s a very smart man. And a very smart investor.
And eventually he’ll be right.
Cryptos will overshoot their value, some — maybe many — will fail altogether. Big losses for the unprepared and the overoptimistic.
But bitcoin might be $1 million by the time this happens.
And the world of commerce that Buffett’s investments live in might be running on a sea of blockchain, powered by the surviving cryptocurrencies.
The ‘mirage’ will turn out to have been real.
Editor, Money Morning
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