Among investors no one is regarded higher than Warren Buffett. The so-called Oracle of Omaha and CEO of Berkshire Hathaway has a reputation for success in the financial markets that is unequalled in modern investing history. You might think that Warren Buffett would be high on Bitcoin and other cryptocurrencies given his financial savvy, but you’d be wrong. Buffett has been one of Bitcoin’s most vocal critics. He has been joined in that criticism by his Berkshire Hathaway partner Charlie Munger.
What is Warren Buffett’s problem with Bitcoin and digital currency? We’re going to take a closer look at why the investing legend is holding strong to outdated views that may not reflect where the world’s financial landscape is headed.
About Warren Buffett
To help understand the feelings of Warren Buffett toward cryptocurrency, let’s begin with some background on the man himself. Buffett was born in 1930. Today, at 88 years of age, Buffett has a net worth of $82 billion and is still actively involved in the management of Berkshire Hathaway. The company is headquartered in Omaha, Nebraska. This is why Buffett is often referred to as the Oracle of Omaha. Buffett was also born in Omaha.
Buffett showed an interest in finance from a very young age. He attended multiple business schools before graduating from Columbia Business School. At Columbia Buffett would become fond of a concept known as value investing which was popularized by Benjamin Graham. His first business endeavor was the creation of Buffett Partnership, Ltd. in 1956. This partnership would eventually acquire a textile company called Berkshire Hathaway.
Buffett turned Berkshire Hathaway into a holding company and enlisted the services of Charlie Munger in 1978 to help with the company. As a vice chairman, Munger is second-in-command to Buffett and shares his views on Bitcoin and cryptocurrency. Munger is famously known for comparing Bitcoin to feces.
Buffett Battles Bitcoin
Let’s begin this section of our look at Warren Buffett and Bitcoin with a simple statement of fact:
Warren Buffett lost approximately $209 million by investing in Amazon instead of buying Bitcoin.
Remember that little tidbit. It’s going to be important as we look further at Buffett’s animosity toward cryptocurrency. You should know for now that Buffett is a man who does not like to lose. He likes being reminded that he lost even less.
Back in 2017 three prominent billionaires were asked what they thought about Bitcoin. Those questioned by The Motley Fool about Bitcoin were Mark Cuban, Richard Branson, and Warren Buffett. Their views were a remarkable illustration of the sentiment surrounding Bitcoin at the time. The digital token had just broken the $3,000 mark in value and was headed to the moon.
Branson was enthusiastic about the possibilities of Bitcoin and blockchain technology. Cuban was guarded, taking a centrist view of the cryptocurrency but reserving complete judgment. Buffett was openly hostile, calling Bitcoin a “mirage” and comparing it to writing someone a check. He had previously denounced Bitcoin as an investment as early as 2014.
Buffett claimed that the notion Bitcoin has value was some kind of joke. Just a few months later the entire world watched as the value of a single Bitcoin skyrocketed to almost $20,000. Buffett was obviously lost in the dust or watching from the shore as that boat sailed.
It is worthy to note here that Cuban has since warmed up more to crypto, having seen the potential of Bitcoin as an asset class. Branson has always remained on board. Buffett? Like a sullen child who is not invited to a party after calling the guest of honor names has continued to sulk and criticize Bitcoin at every opportunity.
Most recently, in his media interviews and an annual letter to Berkshire Hathaway stockholders that has become famous in its own right, Buffett has doubled down on his Bitcoin hostility. Among the more colorful descriptions given by Buffett and Munger to Bitcoin are “rat poison squared” and a “turd” that demented investors are trading among themselves to see who can accumulate the most fecal matter.
On a more mild scale Buffett has called Bitcoin a “gambling device” with “a lot of frauds connected to it.” Does this sound like sour grapes to you? Perhaps it should if you understand a little bit more about Warren Buffett’s personal history.
Buffett Holds Grudges and Admits They Cost Him Money
When Buffett made his move to take over a controlling interest in Berkshire Hathaway, he received a tender offer to buy back the shares he held. Seabury Stanton, the managing partner of the company at that time, made a verbal offer of $11 ½ per share. Buffett agreed to the deal. When the offer arrived in writing the amount was for $11 3/8. In response to what he perceived as a slight from Stanton, Buffett rejected the offer and starting buying more shares instead. He ultimately took control and fired Stanton.
What is interesting here is that Warren Buffet has since claimed that he could have made more money pursuing other investments, but that his need to avenge the slight demanded his takeover of Berkshire Hathaway. He has even gone so far as to call the move the worst investment he ever made! After all these years he still has not gotten over being mistreated.
Flash forward to the present and what you have is a man that was an early and vocal critic of Bitcoin. Buffett went on the record often predicting the demise of the cryptocurrency. Now, here we are in 2019 and the Oracle of Omaha has egg on his face. Even worse, he missed what may have been the largest bull market that Bitcoin will ever know. While he sat on his hands and made pronouncements with all the arrogance of the Wizard of Oz, Bitcoin has marched on.
Remember when we said that Buffett could have made much more money from buying Bitcoin than buying Amazon? Believe us when we say that he is aware of that, and probably doesn’t like it very much.
Buffett Softens on the Blockchain
Even though Buffett has continued to criticize Bitcoin as if doing that will somehow wreck the cryptocurrency and prove him right, he has softened on blockchain technology. Buffett now admits that he is interested in what blockchains can do and believes they may be beneficial. He also admits that he does not have a clear understanding of how blockchains work and what they do.
We will say this for Warren Buffett. He is able to admit when he does not have the knowledge needed to pursue an investment. For many years he has avoided most technology stocks, clearly stating that he does not understand the inner workings of the companies behind them.
Buffett is a Dinosaur
The biggest aversion that Warren Buffet has to Bitcoin may be that he simply is unwilling to embrace a world where fiat currency is no longer king. He is a dinosaur that sticks rigidly to his value investing model, and that has worked well for him. It is all he knows. The idea of a currency that you cannot see is something he simply cannot process.
If science and history have taught us anything it is that evolution is the guiding principle of nature. Things that do not evolve ultimately become extinct. We have a bold prediction. After the extinction of Warren Buffett there will be others who helm Berkshire Hathaway. Younger, more progressive leaders that are willing to accept the potential of cryptocurrency. At some point they will have no choice but to embrace digital currency because it will be the standard of financial evolution.
It would not surprise us then if Buffett, from his lofty seat in investment heaven, is still railing against Bitcoin as the world below him moves on as he is no fan indeed.