Legendary investor Warren Buffett has lashed out at the crypto world again.
This time he did so during an interview with CNBC’s Squawk Box television program.
"#Bitcoin is a gambling token and it doesn't have any intrinsic value. But that doesn't stop people from wanting to play the roulette wheel," says Warren Buffett on #crypto. pic.twitter.com/6MQAiyrS5J
— Squawk Box (@SquawkCNBC) April 12, 2023
The topic of conversation at the time was really financial betting in the markets, and Buffett wanted to cite Bitcoin as an example.
He was referring specifically to people who are looking for easy money in the financial markets, but said that the impulse to participate in something that seems to be able to provide guarantees is a human instinct that has always been there.
He reiterated that he believes Bitcoin is worthless, comparing investing in crypto to playing roulette.
Summary
Crypto is gambling, according to Warren Buffett
On the fact that the crypto market is populated by hordes of gamblers who are merely looking for possible easy money, one can hardly disagree with Buffett.
However, Buffett makes a mistake about conflating Bitcoin and altcoins.
The vast majority of altcoins are in fact clones of Bitcoin created by someone who used them to get rich, but for Bitcoin things are different.
When Satoshi Nakamoto mined the first 50 BTC in 2009 their market value was zero, and he continued to mine them for almost a year and a half, along with Hal Finney and other pioneers, without them having a market.
Moreover, in late 2010 he disappeared, perhaps because he died. Indeed, the over 1.1 million BTC he mined were never used, so Satoshi appears never to have cashed his Bitcoin.
Moreover, in 2008 the Fed had launched its first major quantitative easing campaign, continuing to create dollars out of thin air and put them on the market until well into 2014.
It seems no coincidence that it was in 2011 when the Fed’s balance sheet went from $2.3 trillion to $2.9 trillion that the price of Bitcoin had its first big spike.
Curiously enough, in November of 2012 there was the first halving of Bitcoin, and the following month the Fed went back to expanding its balance sheet, bringing it to $4.4 trillion within a year and a half. 2013 was the year of the first major crypto bull run in history.
Warren Buffett’s position on Bitcoin and the crypto market
Buffett makes an obvious mistake by not distinguishing Bitcoin from other cryptocurrencies.
Back in the day, he even called it rat poison, only to later invest a billion dollars in Latin America’s largest cryptocurrency exchange bank.
Then again, he had also used the concept of investment as a bet to badmouth Robinhood, making it clear that he doesn’t resent Bitcoin alone.
The fact is that Buffett is used to investing in companies that produce wealth, whereas Bitcoin is not a company and does not produce wealth.
He is for all intents and purposes an investor, and not a speculator, but the financial markets are actually populated mostly by speculators, with the real investors being a minority.
Thus, what he says about Bitcoin carries the same weight as what he says when he rails against speculators who bet on speculative stocks like GameStop in search of quick and exceptional gains.
However, just as traditional markets are full of speculators whose actions overshadow those of real investors, something similar happens in the Bitcoin market.
However, the same cannot be said of crypto markets in general, where in several cases there is indeed speculation based solely on expectations of large gains in a short time.
The real investors in Bitcoin
It is worth remembering that the classic speculator is precisely the one who buys in order to resell at a profit in the shortest possible time, while, for example, a large part of the world’s existing Bitcoin turn out to have been stationary for years.
Out of about 19.3 million existing BTC, there are 2.6 million that turn out to have been standing still for more than ten years, and 5.4 million that have been standing still for at least five years, that is, since before the conclusion of the second-to-last major bull run.
There are another 4.5 million that have been stationary for two to five years, so in total there are almost 10 million that have been stationary for at least two years, that is, since April 2021.
Thus, less than half of the existing BTC have been moved in the past two years, making it very clear that there are a lot of holders in the Bitcoin market.
The same cannot certainly be said of all other cryptocurrencies, if only because there are very few that are more than five or even 10 years old.
Warren Buffett’s misunderstanding
The misunderstanding underlying Warren Buffett’s reasoning is that Bitcoin can be considered an asset similar to stocks.
But instead, Bitcoin is similar to the dollar, i.e., a currency that in itself does not generate wealth.
Except that while the dollar inevitably loses value over time, due in part and especially to the inevitable expansionary monetary policy of the central bank that issues it, Bitcoin has no issuer and no expansionary monetary policy, so it is less likely to lose value over time.
Buffett evidently views currency solely as a medium of exchange, and not as a store of value, perhaps simply because he has always been accustomed to coins that can do nothing but lose value over time.
As far as anyone knows, there is no fiat currency in the world that does not lose real value over time (i.e., purchasing power), and for those who have only ever seen fiat currencies that inevitably lose value for decades it can be very difficult to imagine that alternatives might exist.
These alternatives are not cryptocurrencies, but Bitcoin.Â
Sure, Bitcoin does not produce wealth, but at least it does not lose value due to the inevitably expansive monetary policies of central banks.
