Warren Buffett is 87 years old. By any standards, he should be retired and living the good life. However, he is still out there making more money in a year than we can hope to make in a lifetime and has a net worth of around $83 billion at the time of writing. He is a philanthropist having pledged to give away 99% of his fortune to deserving causes during his lifetime or at death, via the Bill and Melinda Gates Foundation Source. When Fortune.com wrote that article in 2010, he says that 20% of shares have been distributed, and he says that he will continue to distribute 4% of his shares annually.
If you are not familiar with his history and how he rose to his current status, then ‘google’ it! You will be surprised to learn some key facts. Maybe even remove some biases you have about the guy.
However, before you criticise him for his views on Bitcoin, call him old and greedy, here is a summary of my first paragraph for you:
- He currently a has a net worth of around $83 billion. That takes a lot of intelligence and hard work to generate. Let us give him some credit for his mental horsepower before putting our ageist lenses on and say he does not understand Bitcoin just because this is a ‘new and disruptive area’. Look at it this way- with that amount of money; he can buy all the privileged information he needs to, that is unavailable to the rest of us mere mortals to help him make informed decisions when investing in Bitcoin.
- At 87 years of age with his net worth, background and experience in Finance he does not need to fear Bitcoin (with the weak argument doing the rounds that it will destroy his wealth). He can merely retire, cash in, get massages all day long and do pretty much whatever he wants.
- He is giving away 99% of his fortune away to deserving causes! I bet that one was news to you huh? It kind of makes you look at him differently when you consider he is willing to give way almost all of the wealth he has spent blood, sweat and tears to accumulate, for the benefit of others. It does demonstrate ‘High Protected Values’ in a person we are ready to dismiss so quickly. A person whose time and advice is most definitely worth a great deal more than the crypto magazines we read, and the self-proclaimed Reddit experts we follow.
Why is the world of cryptocurrency in such an uproar with Mr Buffett?
Image Source
It is his argument about Bitcoin which is:
“…….the fact that it's not a productive asset like land or corporate shares. That means price gains are dependent on more people coming into the market so one holder can sell it to the next at a higher price than they bought it for. The same argument goes for stamp collections and gold.” Source
I believe Mr Buffett is correct in what he is saying. To understand what a productive asset is please review these sources: Land Overview, Motley Fool Explanation, Investopedia Detailed Explanation.
Mr Buffett is not the only wealthy philanthropist to comment on Bitcoin in the same manner. The entrepreneur most respected for the PC revolution, Bill Gates had this to say about Bitcoin: “As an asset class, you're not producing anything and so you shouldn't expect it to go up. It's kind of a pure 'greater fool theory' type of investment," Gates said. "I would short it if there was an easy way to do it." Source.
I am pretty sure regardless of Mr Gates being 62 y/o he has a pretty good understanding of what Bitcoin is all about 😉
I believe we have to be brutally honest with ourselves that cryptocurrencies in themselves are not a 'productive asset' and are simply attractive because of the mass speculation which gives it its price. When the hype of Bitcoin started in the early spring of 2017, and everyone started jumping on board, it felt great. The barriers to entry are low, and anyone could participate with as little capital as he or she wanted during that year and virtually any coin you touched ‘mooned’. It was euphoric, and with access to platforms and the publications of Technical Analysis, it felt for the first time for the average person like they were proper investors.
However, in reality, it was just gambling in disguise as people just wanted the price to appreciate so that they could all buy Lambo’s and become multimillionaires overnight. The reality was tested when Bitcoin Futures were introduced at the end of 2017 and now the pessimists in the market could actually ‘short’ Bitcoin and the price tumbled from a peak of around $20,000 Source. It can be argued that the very media hype of Bitcoin Futures lead to the price being pumped to approximately $20,000 in the first place. Also, people did not have an appreciation of what allowing these financial institutions and instruments could mean as the media portrayed it as just being a positive thing for price appreciation. As I have discussed in my previous Post, did we let in the financial institutions for our greed and betray Satoshi Nakamoto’s vision, or was it indeed for the benefit of Bitcoin?
However, one thing that we cannot ignore and should not is the underlying technology 'Blockchain'. When fully deployed to its full potential it is most definitely a value-generating asset as it has the potential for executing asset transfers and storing transactions and contracts. Blockchain implemented in various industries can add value for example by changing transaction and information flow, business processes, reduce costs and in the long term potentially change the way we think about organisations themselves. Blockchain compared to a standard Cryptocurrency is most definitely a ‘productive or value-generating asset’.
Finally in a new young unregulated market, with very few credible advisors, as I discussed in another one of my previous Post, should we not have some individuals on our side who understand the financial beast that we have let into our tiny eco-system to guide us? Moreover, if we keep shunning these Giants of the Financial and Technological industry everytime they make a statement that does not sit well with us, we may very well miss out on the opportunity to learn and gain their experience in navigating these waters when they reciprocate our sentiments.
