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Warren Buffett: Bitcoin Is Pure FOMO

122 points by jamix 9y ago

root_axis 9y ago
Well that much is obvious. This doesn't speak to whatever utility bitcoin might have, but the recent uptick in price clearly has nothing to do with bitcoin's technical properties.
adamnemecek 9y ago
Warren Buffet has previously vowed not to invest in tech b/c he said he doesn't understand it. I think it changed in the last ~5 years. But I still don't think that he "understands" tech. The Beanie Babies comparison is straight up stupid. I can go to Africa right now and I can imagine that even some of the remoter parts will be aware of bitcoin.
- bcherny 9y ago
  > I can go to Africa right now and I can imagine that even some of the remoter parts will be aware of bitcoin. The Bay Area, ladies and gentlemen. In all seriousness, I doubt people in most of the world have heard of either.
  - Kinnard 9y ago
    I know cryptoppl active in Africa and ppl in remote parts of Africa who have heard of Bitcoin.
    - skinnymuch 9y ago
      I don't think that's the point. Of course people on Hacker News are likely to know people in remote places or barely 3rd world places who know about things like crypto[currency]
  - adamnemecek 9y ago
    I don't live in the bay area. idk if you saw this but UN has previously used Ethereum to send aid to refugees. https://www.coindesk.com/united-nations-sends-aid-to-10000-syrian-refugees-using-ethereum-blockchain/ https://www.coindesk.com/united-nations-sends-aid-to-10000-s... You have to realize that in the US you have the luxury of stable (corrupt, but stable) government. A lot of other countries dont have that luxury. An international standard is a lot more enticing to someone from such a country than it is for you. Like stability is relative. What you can perceive as unstable, someone can perceive as unstable but stabler than the default.
    - Cacti 9y ago
      Using a blockchain as a ledger device is far, far different from investing in a cryptocurrency.
    - JumpCrisscross 9y ago
      > A lot of other countries dont have that luxury The intersection of (a) countries with reliable Internet access and broadly-available Internet-connected devices, (b) a useless national currency and (c) effective controls on the use of cash hard currency is small. The GDP of that intersection certainly doesn't support anything close to Bitcoin's price.
      - adamnemecek 9y ago
        You don't need A. Re B, which countries have a useful currency really? Say Hungarian Forint. Do you consider that a useful currency? Ok what do you think would be a justified price and why?
        imtringued 9y ago
        A useful currency is a stable currency with predictable small inflation or deflaction. It doesn't really matter if this currency is implemented with people having "faith" in the currency, backing the currency with real assets or via a blockchain without a central bank. A "currency" that can rise or fall by 30% on a single day is not useful as a currency.
  - BoorishBears 9y ago
    As a person from (West) Africa, I can tell you they've not only heard of Bitcoin but they're mining it, even in villages.
    - adamnemecek 9y ago
      I feel like some people really misunderstand developing countries. People living there are very much looking to participating in the world economy, because the local one isn't great.
    - Kinnard 9y ago
      What country are you in?
      - BoorishBears 9y ago
        I’m in the US, but I’m from Ghana, see above comment for details...
    - fivethree 9y ago
      You 6 days ago: >I lived in Downtown Hartford until last month, I don't recall many, if any bikes on roads. Then again, I do recall traffic being generally unsafe, I definitely would avoid riding a bike there.
      - BoorishBears 9y ago
        Look back further in my history and I mention being Ghanaian multiple times... If you need my life story I’m 23, was born in Ghana and spent about 10 years of my life US so a sizable portion, but spent 3 years in Ghana somewhat recently, and most of my family is still in the country. What a time we live in when people will dig into your history half-heartedly to try and claim you’re lying about where you’re from instead of believing us stupid monkeys have learned what a computer is or how to look up incredibly popular terms. My father recently forwarded me a blockhain convention (misremembered the link) in Ghana.
      - BoorishBears 9y ago
  - smnrchrds 9y ago
    > The Bay Area, ladies and gentlemen. Hear, hear. Meanwhile in remote areas of Africa, this is more like what functions as currency: "If you're in South Sudan and something big happens in your life — you get married, you buy property or pay a penalty for a crime — cows are most likely involved. Cows are currency and credit card and bank account rolled into one. In South Sudan, banks can go bankrupt — cows are more reliable. At least that's how it used to be." From Planet Money: https://www.npr.org/sections/money/2017/11/15/563788464/episode-805-war-and-peace-and-cows https://www.npr.org/sections/money/2017/11/15/563788464/epis...
    - TheCoelacanth 9y ago
      South Sudan is hardly typical of Africa, though. In 2017, it had the single highest score on the Fragile States Index (formerly called the Failed States Index) of any country in the world.
  - pteredactyl 9y ago
    Comment written on software and hardware designed in the Bay Area.
_red 9y ago
Goldman Sachs hasn't yet setup their own Bitcoin trading desk, but they are building it. No doubt Buffet is trying to temper enthusiasm until their trading platform is built. Once it is, suddenly he will "Understand it".
Kinnard 9y ago
Does Warren Buffett understand digital signatures?
- nugi 9y ago
  How would you explain to him how they make the distinction here? ...asking for a friend
  - Kinnard 9y ago
    Bitcoin is built off of two cryptographic primitives. They implement rights/powers in software. Here's a good example to grasp the idea: instead of asking the government not to read your emails (petitioning for the right of privacy) implement symmetric cryptography. You achieve the right instead of asking for it. Each cryptographic primitive does so and they can be connected up in ways that achieve more rights (Proof-of-Work>>Mining>>Cryptocurrency) Shameless: http://inbitbox.com http://inbitbox.com
- aviv 9y ago
  He understands that the global banking cartel already has a plan in place to crash bitcoin one way or another. And there are several ways. LOL you guys downvote fast. I say this as a hodler, but a realistic one.
- jopsen 9y ago
  The technology is not important to the value.
  - nwah1 9y ago
    Understanding the technology isn't, necessarily. You just need to understand the value proposition, transaction fees, etc. One can look at the balance sheets for TransferWise, and without understanding a single thing about HTTP, web services, SWIFT, or any other detail one can quickly get a sense that it is a viable business whose revenues exceed its costs, and whose prices are competitive. Same is true here. Warren Buffet is famously skilled at precisely this sort of thing. Unfortunately for Bitcoin, he doesn't see the value.
down 9y ago
Bitcoin saves lives in Venezuela, you people need to get your head from your asses, first world is not the only world.
- nugi 9y ago
  And bitcoin also pays for murders, launders money, etc. I feel, just as cash, it is quite ethics agnostic. Not knocking cryptocoin, just don't pretend it is a singular force for good. It is representation of capitol, albeit in a unique way.
  - realusername 9y ago
    I highly doubt Bitcoin is much used for laundering money, transactions are all happening in clear and if you try to hide traces by creating multiple addresses you are going destroy your capital in transfer fees (which are very high right now). It's clearly not the best currency to hide untraceable money.
    - byte1918 9y ago
      Wouldn't it be possible to temporarily switch to an intermediary altcoin (eg. ethereum, btc) ? I'm not invested nor an expert in any crytocurrency, so please correct me if I'm wrong.
      - realusername 9y ago
        Monero I think can be used for this, other main coins have a public ledger.
    - pluma 9y ago
      I'd argue it's easier to use BTC securely when you're already laundering money than when you want to use it legitimately. Just use throwaway wallets to receive BTC, pay for goods that can be converted to physical cash and proceed laundering that cash as usual. It's no surprise all the cryptolocker viruses asked for bitcoin payments or cash equivalent cards.
mholmes680 9y ago
"Rather, dollars are a temporary store of value, a means of transmitting that value from one person to another. As Buffett says, valuing bitcoin is like trying to value a paper check drawn on a bank. Pointless." I agree with the premise of the article, but isn't this quote a jump from that? Whats preventing bitcoin from being a temporary store of value to transmit from one person to another; Isn't there a second argument to be made on why its a bad _currency_ or not? I think something like this article: https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-is-an-implausible-currency https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-i...
- billmalarky 9y ago
  The author sort of covers that in this line: >I counter that just about nobody thinks of American cash as an investment, except for perhaps currency speculators. Of course that sort of ignores the fact that bitcoin investors are currency speculators...
  - aetherson 9y ago
    "Nobody thinks of American cash as an investment, except for perhaps those who invest in it."
    - deleted 9y ago
      [deleted]
    - JumpCrisscross 9y ago
      > Nobody thinks of American cash as an investment, except for perhaps those who invest in it Most buyers of U.S. dollars buy it for non-speculative purposes. Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up.
      - aetherson 9y ago
        > Most buyers of U.S. dollars buy it for non-speculative purposes. Sure! I didn't say, "except for perhaps those who buy it," I said, "for those who invest in it." > Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up. I agree, but don't feel like we would split these kinds of hairs when talking about other kinds of investment. Like, do we consider shorts and arbitrage and other more sophisticated forms of dabbling in financial markets to be "not investment" because they aren't "buy a stock; hope it goes up"? Perhaps when in technical discussion, but in common parlance, I feel like this is a distinction driven by emotion.
brndnmtthws 9y ago
It's interesting to note that most of the people who are pro-Bitcoin were born after 1980 or so. Could it be that Mr Buffett just doesn't get it?
- Cacti 9y ago
  Your argument is that one of the most successful investors in the history of mankind is physically incapable of understanding Bitcoin investment (or anything, for that matter) just because he's old?
  - adamnemecek 9y ago
    He has a different worldview. He's made his money on old way of investing. Some of it applies, some doesn't. He would not be the first successful person to be wildly wrong about a new thing.
    - epistasis 9y ago
      I would love hear one thing about investing before that doesn't apply now. Or one thing that Buffet doesn't understand about bitcoin that has any economic relevance. Those who say he doesn't get it seem infinitely more naive and ignorant than Buffet on this.
      - adamnemecek 9y ago
        One of the main differences is the fact that the value of a currency is fundamentally based on who accepts it. All economic theory prior to this is...i dont want to say outdated but needs to be reprioritized.
        Cacti 9y ago
        Are you seriously suggesting that "currency is fundamentally based on who accepts it" is a new idea?
aphextron 9y ago
As someone completerly uninvested in this whole mania, I still see Bitcoin as something with an inherent value. The real problem right now is that nobody knows what that inherent value really is. Even if the price were to crash 100x tomorrow, Bitcoin would still have some value because of the energy expenditure involved with Proof of Work. Of course people that are "investing" in it now are simply gambling. But Bitcoin itself will pretty much always have some worth because it will be impossible to recreate the amount of effort that went into mining it.
- JoeAltmaier 9y ago
  So there is inherent value in burning piles of cash, because 'cash went into creating it'? I don't get the logic.
  - hannasanarion 9y ago
    Yeah, that's like saying that a pound of shredded bills has value. Like, yeah, you can trade it, and yeah, value was spent to create it, but you can't get that back. It's not like buying bitcoin gives you back electricity.
    - rlefebvre 9y ago
      It is the scarcity that creates the 'value'. Unless everybody walks away from the idea that it is worth something (may happen), then its value is still driven by how difficult it is to create some.
      - root_axis 9y ago
        Scarcity doesn't create value. A copy of my personal memoir is extremely scarce, yet the value is zero. Further, bitcoin only has the illusion of scarcity, and clearly that's enough, but as was demonstrated by BCH, the supply of coins can be trivially increased. Enthusiasts will argue "BCH is not BTC, they're two separate currencies", but this is missing the point that "crypo-tokens" are an unlimited resource that is artificially limited through a consensus that can change at any time.
juanmirocks 9y ago
Sending small to large quantities of wealth worldwide quasi instantly and with small fees does have a tremendous value. Ask families of immigrants. Buffet hasn’t even invested in digital tech stocks. IMO, even after all the huge respect he deserves, he doesn’t get this technology. Other than that, I don’t doubt that many current “investors” are only FOMO movers
- davidw 9y ago
  > he doesn’t get this technology I'm sure he'd agree with you, but even people who 'get it', might think the tech may find a home someday, while steering well clear of Bitcoin itself.
- notyourwork 9y ago
  I agree and it makes me wonder how much the current price is drive by these FOMO investors versus actual believers. If we removed the first group does the price settle somewhere lower like $10k? I don’t really know but the surge is interesting.
  - PakG1 9y ago
    You have a third group: hungry sharks who saw the feeding frenzy and are tantalizing at ripping the shirts off of the backs of the first two groups.
  - AznHisoka 9y ago
    Heres a good thought experiment. How much would people pay for 1 bitcoin if they could never ever sell it(just exchange it for goods)? another one is: how much would people pay if you did not know the true “market value”? ie you dont know what people are selling a bitcoin for.
- ec109685 9y ago
  What makes it so that Bitcoin will be the medium to send that wealth and not another coin if Bitcoin’s value is too volatile? Given you can have an infinite number of crypto currencies, should one necessarily dominate indefinitely?
grondilu 9y ago
> “The idea that it has some huge intrinsic value is just a joke, in my view." It doesn't have intrinsic value. I'm not sure anyone can seriously make that claim. But neither has the dollar or any fiat currency. Money does not need intrinsic value to function as money. People seem to have agreed on that ever since the gold standard was given up. > "You can't value bitcoin, because it's not a value-producing asset," Again, neither is any currency. I'm a big fan of Warren Buffet but I disagree with him on this. IMHO cryptocurrencies are, at least technically, better currencies because they offer better accountability. Now, being technically superior is not enough : people have to use it. Money is a social tool : if nobody uses your currency, then your currency is worthless. In case of national currencies, this issue is solved with the recourse of the authority of the State, who decides that a currency is the currency. For cryptocurrencies, it is solved by social agreement, that is allomimetism.
KasianFranks 9y ago
He's said in the past about technology and software that "I just don't understand it" then he gives advice to people telling them not to invest. Classic Buffett and if you think about that it makes no sense. He also famously missed out on the appreciation of technology sector from about the mid 90's onward. I wonder what he thought of Netscape giving away their product freely while also being one of the greatest IPOs of all time.
- oblio 9y ago
  1. He seems to be doing just fine. 2. Netscape, really? That was your best example of a thriving tech business? You're making his point for him :))
fantasticsid 9y ago
He has none but he could be shorting it?
draw_down 9y ago
Pretty cool to see the reaction here that he just doesn’t understand investing.
PakG1 9y ago
Scrolling through these threads, I am surprised at how many people are suggesting that Buffet just doesn't get it. That's possibly not wrong. Buffet's desire to not get into stuff he doesn't understand is well-documented. He traditionally has stayed away from tech investments for primarily that reason, and definitely doesn't do bleeding edge tech when he finally does do tech. As the OP alludes to, Buffet actually commented similar stuff about Bitcoin already. His logic hasn't changed much from then till now in terms of seeing what the endgame is. http://www.businessinsider.com/why-buffett-doesnt-invest-in-technology-2014-3 http://www.businessinsider.com/why-buffett-doesnt-invest-in-... If people think Buffet doesn't get it, everyone's entitled to their opinion. But if you want to say he's wrong, you should explain what's wrong with his logic. The OP summarizes his logic really well, and I see nobody in these threads taking apart his logic. Quoting the OP: Intrinsic value is this continuous waterfall of cash. It’s not the stock price of Coke but the actual cash flow of the business, after costs. Buffett made his billions by divining when the gap is greatest between intrinsic value and a stock’s share price, then buying loads of shares, tickets to real cash flow other investors would want. Given that bitcoin is supposed to replace cash, what is the ultimate source of cash flow from digital coins created on the internet? It’s dollars flowing from the pockets of buyers who want to own those coins. Cut off the supply of new investors and the bitcoin craze ends. The fact is, bitcoin has no intrinsic value at all. While many digital coin “investors” would argue that neither does a dollar, I counter that just about nobody thinks of American cash as an investment, except for perhaps currency speculators. Yes, I've seen a comment somewhere in here that says, "hey, aren't people who buy American dollars currency speculators too?" Yeah, of course. But I don't see anyone attacking the part about whether or not Buffet's fundamental thinking of intrinsic value is applicable here. I will point to another interesting article that summarizes similar thinking in another way. This article is perhaps interesting because I've seen many people here describe Bitcoin as digital gold. http://www.nasdaq.com/article/why-warren-buffett-hates-gold-cm267928 http://www.nasdaq.com/article/why-warren-buffett-hates-gold-... He considers gold a nonproductiveasset because it doesn't produce anything of value. To illustrate this point, Buffett proposed this thought experiment in his 2011 letter to Berkshire shareholders: "Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be $9.6 trillion. Call this cube pile A. "Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-aroundmoney (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? "A century from now the 400 million acres of farmlandwill have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever thecurrency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will beunchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond." So, instead of nonproductive assets such as gold, Buffett prefers productive assets like farmland or companies that generate enormouswealth for shareholders -- companies like Exxon Mobil ( XOM ) , Coca-Cola or See's Candy. And he clearly explains why: "Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from thesale of the milk willcompound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). "I believe that over any extended period of time this category ofinvesting will prove to be the runaway winner… More important, it will be by far the safest." This last sentence is important. Investing in productive assets carries less risk. That's because, in the past,irrational exuberance has caused all sorts of nonproductive assets to suddenly skyrocket beyond any sane measure ofintrinsic value . The run-up on the prices of tulips in the 17th century is one colorful example. If Buffet is wrong, take apart his logic. Otherwise, we can only wait and see. Me, I wish I'd gotten in on Bitcoin when it was $1, who doesn't wish that? But... I have yet to figure out how the heck it's reaching these prices. I see it, and it doesn't make sense to me. And I think I understand tech better than the average layperson. In fact, the fact that it's so expensive and volatile makes it difficult to use even as a currency. That makes it even more of a "nonproductive asset".
tfolbrecht 9y ago
I appreciate the reporters critique, but what I believe they're missing is that there's an inherent value in the network and its market share in the space. Bitcoin is not the check, it's the store of value and the bank. Bitcoin is the investors, developers, the miners, the ledger, wallets(accounts), the speculators, the store of value. Bitcoin is the headline maker in the WSJ, NYT, etc. That multilayered coupling is what makes BTC valuable. The reporter talks about intrinsic value of companies, cash flow etc. The underlying healthy and stable economy is not some axiomatic truth. With BTC, You have all of the components to have currency emerge into existence and stay from bitcoins incentive system. How much is it worth? That depends on what the alternatives are worth, and that evaluation changes every day. I hope it's long term near worthless, but you can never be too sure.
alexeiz 9y ago
It's all smoke and mirrors. Just as Dimon called bitcoin investors 'stupid' at the very time he was already trading bitcoin, Buffett's downplaying of bitcoin is also a sign that he wants to get in on the action.
thisisit 9y ago
Buffett has described investing as ability to find the right pitch to swing at. He invests in companies which are within his "circle of competence": https://www.cnbc.com/2017/02/02/warren-buffett-simplifies-investing-with-a-baseball-analogy.html https://www.cnbc.com/2017/02/02/warren-buffett-simplifies-in... This lesson is apparently lost on many people.
- tedmiston 9y ago
  Buffett's whole approach to valuing companies to invest in doesn't really work for tech cos, especially software.
  - coldtea 9y ago
    Prudence?
    - tedmiston 9y ago
      More specifically, his approach of value investing / choosing to invest in companies per an intrinsic value based on fundamentals. https://www.investopedia.com/articles/01/071801.asp https://www.investopedia.com/articles/01/071801.asp
  - adventured 9y ago
    It works on some fronts. He particularly likes to invest into businesses with moats. It's a theme he has spoken about constantly for decades. His personal problem is he doesn't understand technology businesses well enough to identify what those are or when they exist. It's equivalent to the specialized knowledge required to understand which biotech companies have competitive advantages or not, Buffett would also fail on that knowledge front (that is, he'd fail at it, not due to the lack of moats existing, but due to his own inability to understand the businesses). Microsoft, Intel, Cisco, Facebook, eBay, Amazon, Google - all tech companies with massive moats around them (now or in the recent past) that have helped to protect their core monopolies (or quasi-monopolies). Microsoft had a ~13 PE ratio five years ago (while paying a dividend), Apple was down to something like an 11 PE (pre the recent market bubble run); those are the kind of valuations Buffett likes in quality companies. So why'd he wait to invest into Apple until after it had already gone up so much (why didn't he buy it early into the iPhone ramp)? For the same reason he made a bad investment mistake with IBM, he doesn't understand the technology business at all (he thought Watson was some kind of special competitive advantage, that it'd be a dynamite business etc; he had no idea what he was talking about, it was out of his expertise to pick the winners in that area). Microsoft had an epic moat circa 1995. Buffett was friends with Gates at the time. Why didn't he invest? Microsoft was an adjusted $5 / share in 1995, it's $85 now (and has paid out a lot in dividends etc). In that time it has generated several hundred billion dollars in profit. Buffett has publicly stated it was because he had no particular ability to understand their business, to identify its competitive advantages; that doesn't mean those things didn't exist. Others with specialized knowledge of tech could identify those advantages. Google as another example has had an extraordinarily obvious monopoly moat in search for 13 or so years at this point.
XR0CSWV3h3kZWg 9y ago
He didn't say that. That's what the author of the article said. Of course Warren buffett doesn't like it. He has made his name on being able to tell if a stock's price is above or below it's fundamentals. Bitcoin doesn't have fundamentals and it doesn't pay dividends.
- acoye 9y ago
  I would like to argue Bitcoin has a fundamental. The number of people using it and making up its value. `Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2)` https://en.wikipedia.org/wiki/Metcalfe%27s_law https://en.wikipedia.org/wiki/Metcalfe%27s_law
  - XR0CSWV3h3kZWg 9y ago
    The air can be thought of as a telecommunications network that everyone is connected to. Sure signal loss is a problem, but that can be fixed by amplification. That doesn't mean that you should invest in air. When I said fundamentals I meant something more on the lines of: cash flow return on assets conservative gearing history of profit retention for funding future growth soundness of capital management for the maximization of shareholder earnings and returns Bitcoin has none of those. Bitcoin does not have cash flow as the protocol doesn't take in or give out cash. There is no return on assets because there is no income. Conservative gearing means nothing here. Taken from https://www.investopedia.com/articles/fundamental/03/022603.asp https://www.investopedia.com/articles/fundamental/03/022603.... I am long on bitcoin, but not because it has any of the properties of a stock.
  - lamontcg 9y ago
    If people start to run for the exits, then that number goes down and there's no floor under that number. The system can unwind in a panic until nobody is using the system and the value of the system becomes zero. Which means that isn't any kind of fundamental value, you're just measuring popularity. Fundamentals are supposed to provide support to value when a security becomes unpopular and untrendy.
keypusher 9y ago
Buffett has never liked commodities or speculative assets. His primary strategy is to invest in wealth-producing assets. For instance, he said he would much rather own farmland than gold. And that's a great strategy. But it's not the only viable strategy.
arisAlexis 9y ago
I still don't undestand why HN instead of being at the forefront of innovation aligns up with old school money. I guess most here are dependent n the old system and VCs

122 points by jamix 9y ago

Well that much is obvious. This doesn't speak to whatever utility bitcoin might have, but the recent uptick in price clearly has nothing to do with bitcoin's technical properties.

adamnemecek 9y ago

Warren Buffet has previously vowed not to invest in tech b/c he said he doesn't understand it. I think it changed in the last ~5 years. But I still don't think that he "understands" tech. The Beanie Babies comparison is straight up stupid. I can go to Africa right now and I can imagine that even some of the remoter parts will be aware of bitcoin.

bcherny 9y ago
> I can go to Africa right now and I can imagine that even some of the remoter parts will be aware of bitcoin. The Bay Area, ladies and gentlemen. In all seriousness, I doubt people in most of the world have heard of either.
- Kinnard 9y ago
  I know cryptoppl active in Africa and ppl in remote parts of Africa who have heard of Bitcoin.
  - skinnymuch 9y ago
    I don't think that's the point. Of course people on Hacker News are likely to know people in remote places or barely 3rd world places who know about things like crypto[currency]
- adamnemecek 9y ago
  I don't live in the bay area. idk if you saw this but UN has previously used Ethereum to send aid to refugees. https://www.coindesk.com/united-nations-sends-aid-to-10000-syrian-refugees-using-ethereum-blockchain/ https://www.coindesk.com/united-nations-sends-aid-to-10000-s... You have to realize that in the US you have the luxury of stable (corrupt, but stable) government. A lot of other countries dont have that luxury. An international standard is a lot more enticing to someone from such a country than it is for you. Like stability is relative. What you can perceive as unstable, someone can perceive as unstable but stabler than the default.
  - Cacti 9y ago
    Using a blockchain as a ledger device is far, far different from investing in a cryptocurrency.
  - JumpCrisscross 9y ago
    > A lot of other countries dont have that luxury The intersection of (a) countries with reliable Internet access and broadly-available Internet-connected devices, (b) a useless national currency and (c) effective controls on the use of cash hard currency is small. The GDP of that intersection certainly doesn't support anything close to Bitcoin's price.
    - adamnemecek 9y ago
      You don't need A. Re B, which countries have a useful currency really? Say Hungarian Forint. Do you consider that a useful currency? Ok what do you think would be a justified price and why?
      - imtringued 9y ago
        A useful currency is a stable currency with predictable small inflation or deflaction. It doesn't really matter if this currency is implemented with people having "faith" in the currency, backing the currency with real assets or via a blockchain without a central bank. A "currency" that can rise or fall by 30% on a single day is not useful as a currency.
- BoorishBears 9y ago
  As a person from (West) Africa, I can tell you they've not only heard of Bitcoin but they're mining it, even in villages.
  - adamnemecek 9y ago
    I feel like some people really misunderstand developing countries. People living there are very much looking to participating in the world economy, because the local one isn't great.
  - Kinnard 9y ago
    What country are you in?
    - BoorishBears 9y ago
      I’m in the US, but I’m from Ghana, see above comment for details...
  - fivethree 9y ago
    You 6 days ago: >I lived in Downtown Hartford until last month, I don't recall many, if any bikes on roads. Then again, I do recall traffic being generally unsafe, I definitely would avoid riding a bike there.
    - BoorishBears 9y ago
      Look back further in my history and I mention being Ghanaian multiple times... If you need my life story I’m 23, was born in Ghana and spent about 10 years of my life US so a sizable portion, but spent 3 years in Ghana somewhat recently, and most of my family is still in the country. What a time we live in when people will dig into your history half-heartedly to try and claim you’re lying about where you’re from instead of believing us stupid monkeys have learned what a computer is or how to look up incredibly popular terms. My father recently forwarded me a blockhain convention (misremembered the link) in Ghana.
    - BoorishBears 9y ago
- smnrchrds 9y ago
  > The Bay Area, ladies and gentlemen. Hear, hear. Meanwhile in remote areas of Africa, this is more like what functions as currency: "If you're in South Sudan and something big happens in your life — you get married, you buy property or pay a penalty for a crime — cows are most likely involved. Cows are currency and credit card and bank account rolled into one. In South Sudan, banks can go bankrupt — cows are more reliable. At least that's how it used to be." From Planet Money: https://www.npr.org/sections/money/2017/11/15/563788464/episode-805-war-and-peace-and-cows https://www.npr.org/sections/money/2017/11/15/563788464/epis...
  - TheCoelacanth 9y ago
    South Sudan is hardly typical of Africa, though. In 2017, it had the single highest score on the Fragile States Index (formerly called the Failed States Index) of any country in the world.
- pteredactyl 9y ago
  Comment written on software and hardware designed in the Bay Area.

_red 9y ago

Goldman Sachs hasn't yet setup their own Bitcoin trading desk, but they are building it. No doubt Buffet is trying to temper enthusiasm until their trading platform is built. Once it is, suddenly he will "Understand it".

Kinnard 9y ago

Does Warren Buffett understand digital signatures?

nugi 9y ago
How would you explain to him how they make the distinction here? ...asking for a friend
- Kinnard 9y ago
  Bitcoin is built off of two cryptographic primitives. They implement rights/powers in software. Here's a good example to grasp the idea: instead of asking the government not to read your emails (petitioning for the right of privacy) implement symmetric cryptography. You achieve the right instead of asking for it. Each cryptographic primitive does so and they can be connected up in ways that achieve more rights (Proof-of-Work>>Mining>>Cryptocurrency) Shameless: http://inbitbox.com http://inbitbox.com
aviv 9y ago
He understands that the global banking cartel already has a plan in place to crash bitcoin one way or another. And there are several ways. LOL you guys downvote fast. I say this as a hodler, but a realistic one.
jopsen 9y ago
The technology is not important to the value.
- nwah1 9y ago
  Understanding the technology isn't, necessarily. You just need to understand the value proposition, transaction fees, etc. One can look at the balance sheets for TransferWise, and without understanding a single thing about HTTP, web services, SWIFT, or any other detail one can quickly get a sense that it is a viable business whose revenues exceed its costs, and whose prices are competitive. Same is true here. Warren Buffet is famously skilled at precisely this sort of thing. Unfortunately for Bitcoin, he doesn't see the value.

down 9y ago

Bitcoin saves lives in Venezuela, you people need to get your head from your asses, first world is not the only world.

nugi 9y ago
And bitcoin also pays for murders, launders money, etc. I feel, just as cash, it is quite ethics agnostic. Not knocking cryptocoin, just don't pretend it is a singular force for good. It is representation of capitol, albeit in a unique way.
- realusername 9y ago
  I highly doubt Bitcoin is much used for laundering money, transactions are all happening in clear and if you try to hide traces by creating multiple addresses you are going destroy your capital in transfer fees (which are very high right now). It's clearly not the best currency to hide untraceable money.
  - byte1918 9y ago
    Wouldn't it be possible to temporarily switch to an intermediary altcoin (eg. ethereum, btc) ? I'm not invested nor an expert in any crytocurrency, so please correct me if I'm wrong.
    - realusername 9y ago
      Monero I think can be used for this, other main coins have a public ledger.
  - pluma 9y ago
    I'd argue it's easier to use BTC securely when you're already laundering money than when you want to use it legitimately. Just use throwaway wallets to receive BTC, pay for goods that can be converted to physical cash and proceed laundering that cash as usual. It's no surprise all the cryptolocker viruses asked for bitcoin payments or cash equivalent cards.

mholmes680 9y ago

"Rather, dollars are a temporary store of value, a means of transmitting that value from one person to another. As Buffett says, valuing bitcoin is like trying to value a paper check drawn on a bank. Pointless." I agree with the premise of the article, but isn't this quote a jump from that? Whats preventing bitcoin from being a temporary store of value to transmit from one person to another; Isn't there a second argument to be made on why its a bad _currency_ or not? I think something like this article: https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-is-an-implausible-currency https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-i...

billmalarky 9y ago
The author sort of covers that in this line: >I counter that just about nobody thinks of American cash as an investment, except for perhaps currency speculators. Of course that sort of ignores the fact that bitcoin investors are currency speculators...
- aetherson 9y ago
  "Nobody thinks of American cash as an investment, except for perhaps those who invest in it."
  - deleted 9y ago
    [deleted]
  - JumpCrisscross 9y ago
    > Nobody thinks of American cash as an investment, except for perhaps those who invest in it Most buyers of U.S. dollars buy it for non-speculative purposes. Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up.
    - aetherson 9y ago
      > Most buyers of U.S. dollars buy it for non-speculative purposes. Sure! I didn't say, "except for perhaps those who buy it," I said, "for those who invest in it." > Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up. I agree, but don't feel like we would split these kinds of hairs when talking about other kinds of investment. Like, do we consider shorts and arbitrage and other more sophisticated forms of dabbling in financial markets to be "not investment" because they aren't "buy a stock; hope it goes up"? Perhaps when in technical discussion, but in common parlance, I feel like this is a distinction driven by emotion.

brndnmtthws 9y ago

It's interesting to note that most of the people who are pro-Bitcoin were born after 1980 or so. Could it be that Mr Buffett just doesn't get it?

Cacti 9y ago
Your argument is that one of the most successful investors in the history of mankind is physically incapable of understanding Bitcoin investment (or anything, for that matter) just because he's old?
- adamnemecek 9y ago
  He has a different worldview. He's made his money on old way of investing. Some of it applies, some doesn't. He would not be the first successful person to be wildly wrong about a new thing.
  - epistasis 9y ago
    I would love hear one thing about investing before that doesn't apply now. Or one thing that Buffet doesn't understand about bitcoin that has any economic relevance. Those who say he doesn't get it seem infinitely more naive and ignorant than Buffet on this.
    - adamnemecek 9y ago
      One of the main differences is the fact that the value of a currency is fundamentally based on who accepts it. All economic theory prior to this is...i dont want to say outdated but needs to be reprioritized.
      - Cacti 9y ago
        Are you seriously suggesting that "currency is fundamentally based on who accepts it" is a new idea?

aphextron 9y ago

As someone completerly uninvested in this whole mania, I still see Bitcoin as something with an inherent value. The real problem right now is that nobody knows what that inherent value really is. Even if the price were to crash 100x tomorrow, Bitcoin would still have some value because of the energy expenditure involved with Proof of Work. Of course people that are "investing" in it now are simply gambling. But Bitcoin itself will pretty much always have some worth because it will be impossible to recreate the amount of effort that went into mining it.

JoeAltmaier 9y ago
So there is inherent value in burning piles of cash, because 'cash went into creating it'? I don't get the logic.
- hannasanarion 9y ago
  Yeah, that's like saying that a pound of shredded bills has value. Like, yeah, you can trade it, and yeah, value was spent to create it, but you can't get that back. It's not like buying bitcoin gives you back electricity.
  - rlefebvre 9y ago
    It is the scarcity that creates the 'value'. Unless everybody walks away from the idea that it is worth something (may happen), then its value is still driven by how difficult it is to create some.
    - root_axis 9y ago
      Scarcity doesn't create value. A copy of my personal memoir is extremely scarce, yet the value is zero. Further, bitcoin only has the illusion of scarcity, and clearly that's enough, but as was demonstrated by BCH, the supply of coins can be trivially increased. Enthusiasts will argue "BCH is not BTC, they're two separate currencies", but this is missing the point that "crypo-tokens" are an unlimited resource that is artificially limited through a consensus that can change at any time.

juanmirocks 9y ago

Sending small to large quantities of wealth worldwide quasi instantly and with small fees does have a tremendous value. Ask families of immigrants. Buffet hasn’t even invested in digital tech stocks. IMO, even after all the huge respect he deserves, he doesn’t get this technology. Other than that, I don’t doubt that many current “investors” are only FOMO movers

davidw 9y ago
> he doesn’t get this technology I'm sure he'd agree with you, but even people who 'get it', might think the tech may find a home someday, while steering well clear of Bitcoin itself.
notyourwork 9y ago
I agree and it makes me wonder how much the current price is drive by these FOMO investors versus actual believers. If we removed the first group does the price settle somewhere lower like $10k? I don’t really know but the surge is interesting.
- PakG1 9y ago
  You have a third group: hungry sharks who saw the feeding frenzy and are tantalizing at ripping the shirts off of the backs of the first two groups.
- AznHisoka 9y ago
  Heres a good thought experiment. How much would people pay for 1 bitcoin if they could never ever sell it(just exchange it for goods)? another one is: how much would people pay if you did not know the true “market value”? ie you dont know what people are selling a bitcoin for.
ec109685 9y ago
What makes it so that Bitcoin will be the medium to send that wealth and not another coin if Bitcoin’s value is too volatile? Given you can have an infinite number of crypto currencies, should one necessarily dominate indefinitely?

grondilu 9y ago

> “The idea that it has some huge intrinsic value is just a joke, in my view." It doesn't have intrinsic value. I'm not sure anyone can seriously make that claim. But neither has the dollar or any fiat currency. Money does not need intrinsic value to function as money. People seem to have agreed on that ever since the gold standard was given up. > "You can't value bitcoin, because it's not a value-producing asset," Again, neither is any currency. I'm a big fan of Warren Buffet but I disagree with him on this. IMHO cryptocurrencies are, at least technically, better currencies because they offer better accountability. Now, being technically superior is not enough : people have to use it. Money is a social tool : if nobody uses your currency, then your currency is worthless. In case of national currencies, this issue is solved with the recourse of the authority of the State, who decides that a currency is the currency. For cryptocurrencies, it is solved by social agreement, that is allomimetism.

KasianFranks 9y ago

He's said in the past about technology and software that "I just don't understand it" then he gives advice to people telling them not to invest. Classic Buffett and if you think about that it makes no sense. He also famously missed out on the appreciation of technology sector from about the mid 90's onward. I wonder what he thought of Netscape giving away their product freely while also being one of the greatest IPOs of all time.

oblio 9y ago
1. He seems to be doing just fine. 2. Netscape, really? That was your best example of a thriving tech business? You're making his point for him :))

fantasticsid 9y ago

He has none but he could be shorting it?

draw_down 9y ago

Pretty cool to see the reaction here that he just doesn’t understand investing.

PakG1 9y ago

Scrolling through these threads, I am surprised at how many people are suggesting that Buffet just doesn't get it. That's possibly not wrong. Buffet's desire to not get into stuff he doesn't understand is well-documented. He traditionally has stayed away from tech investments for primarily that reason, and definitely doesn't do bleeding edge tech when he finally does do tech. As the OP alludes to, Buffet actually commented similar stuff about Bitcoin already. His logic hasn't changed much from then till now in terms of seeing what the endgame is. http://www.businessinsider.com/why-buffett-doesnt-invest-in-technology-2014-3 http://www.businessinsider.com/why-buffett-doesnt-invest-in-... If people think Buffet doesn't get it, everyone's entitled to their opinion. But if you want to say he's wrong, you should explain what's wrong with his logic. The OP summarizes his logic really well, and I see nobody in these threads taking apart his logic. Quoting the OP: Intrinsic value is this continuous waterfall of cash. It’s not the stock price of Coke but the actual cash flow of the business, after costs. Buffett made his billions by divining when the gap is greatest between intrinsic value and a stock’s share price, then buying loads of shares, tickets to real cash flow other investors would want. Given that bitcoin is supposed to replace cash, what is the ultimate source of cash flow from digital coins created on the internet? It’s dollars flowing from the pockets of buyers who want to own those coins. Cut off the supply of new investors and the bitcoin craze ends. The fact is, bitcoin has no intrinsic value at all. While many digital coin “investors” would argue that neither does a dollar, I counter that just about nobody thinks of American cash as an investment, except for perhaps currency speculators. Yes, I've seen a comment somewhere in here that says, "hey, aren't people who buy American dollars currency speculators too?" Yeah, of course. But I don't see anyone attacking the part about whether or not Buffet's fundamental thinking of intrinsic value is applicable here. I will point to another interesting article that summarizes similar thinking in another way. This article is perhaps interesting because I've seen many people here describe Bitcoin as digital gold. http://www.nasdaq.com/article/why-warren-buffett-hates-gold-cm267928 http://www.nasdaq.com/article/why-warren-buffett-hates-gold-... He considers gold a nonproductiveasset because it doesn't produce anything of value. To illustrate this point, Buffett proposed this thought experiment in his 2011 letter to Berkshire shareholders: "Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be $9.6 trillion. Call this cube pile A. "Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-aroundmoney (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? "A century from now the 400 million acres of farmlandwill have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever thecurrency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will beunchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond." So, instead of nonproductive assets such as gold, Buffett prefers productive assets like farmland or companies that generate enormouswealth for shareholders -- companies like Exxon Mobil ( XOM ) , Coca-Cola or See's Candy. And he clearly explains why: "Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from thesale of the milk willcompound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). "I believe that over any extended period of time this category ofinvesting will prove to be the runaway winner… More important, it will be by far the safest." This last sentence is important. Investing in productive assets carries less risk. That's because, in the past,irrational exuberance has caused all sorts of nonproductive assets to suddenly skyrocket beyond any sane measure ofintrinsic value . The run-up on the prices of tulips in the 17th century is one colorful example. If Buffet is wrong, take apart his logic. Otherwise, we can only wait and see. Me, I wish I'd gotten in on Bitcoin when it was $1, who doesn't wish that? But... I have yet to figure out how the heck it's reaching these prices. I see it, and it doesn't make sense to me. And I think I understand tech better than the average layperson. In fact, the fact that it's so expensive and volatile makes it difficult to use even as a currency. That makes it even more of a "nonproductive asset".

tfolbrecht 9y ago

I appreciate the reporters critique, but what I believe they're missing is that there's an inherent value in the network and its market share in the space. Bitcoin is not the check, it's the store of value and the bank. Bitcoin is the investors, developers, the miners, the ledger, wallets(accounts), the speculators, the store of value. Bitcoin is the headline maker in the WSJ, NYT, etc. That multilayered coupling is what makes BTC valuable. The reporter talks about intrinsic value of companies, cash flow etc. The underlying healthy and stable economy is not some axiomatic truth. With BTC, You have all of the components to have currency emerge into existence and stay from bitcoins incentive system. How much is it worth? That depends on what the alternatives are worth, and that evaluation changes every day. I hope it's long term near worthless, but you can never be too sure.

alexeiz 9y ago

It's all smoke and mirrors. Just as Dimon called bitcoin investors 'stupid' at the very time he was already trading bitcoin, Buffett's downplaying of bitcoin is also a sign that he wants to get in on the action.

thisisit 9y ago

Buffett has described investing as ability to find the right pitch to swing at. He invests in companies which are within his "circle of competence": https://www.cnbc.com/2017/02/02/warren-buffett-simplifies-investing-with-a-baseball-analogy.html https://www.cnbc.com/2017/02/02/warren-buffett-simplifies-in... This lesson is apparently lost on many people.

tedmiston 9y ago
Buffett's whole approach to valuing companies to invest in doesn't really work for tech cos, especially software.
- coldtea 9y ago
  Prudence?
  - tedmiston 9y ago
    More specifically, his approach of value investing / choosing to invest in companies per an intrinsic value based on fundamentals. https://www.investopedia.com/articles/01/071801.asp https://www.investopedia.com/articles/01/071801.asp
- adventured 9y ago
  It works on some fronts. He particularly likes to invest into businesses with moats. It's a theme he has spoken about constantly for decades. His personal problem is he doesn't understand technology businesses well enough to identify what those are or when they exist. It's equivalent to the specialized knowledge required to understand which biotech companies have competitive advantages or not, Buffett would also fail on that knowledge front (that is, he'd fail at it, not due to the lack of moats existing, but due to his own inability to understand the businesses). Microsoft, Intel, Cisco, Facebook, eBay, Amazon, Google - all tech companies with massive moats around them (now or in the recent past) that have helped to protect their core monopolies (or quasi-monopolies). Microsoft had a ~13 PE ratio five years ago (while paying a dividend), Apple was down to something like an 11 PE (pre the recent market bubble run); those are the kind of valuations Buffett likes in quality companies. So why'd he wait to invest into Apple until after it had already gone up so much (why didn't he buy it early into the iPhone ramp)? For the same reason he made a bad investment mistake with IBM, he doesn't understand the technology business at all (he thought Watson was some kind of special competitive advantage, that it'd be a dynamite business etc; he had no idea what he was talking about, it was out of his expertise to pick the winners in that area). Microsoft had an epic moat circa 1995. Buffett was friends with Gates at the time. Why didn't he invest? Microsoft was an adjusted $5 / share in 1995, it's $85 now (and has paid out a lot in dividends etc). In that time it has generated several hundred billion dollars in profit. Buffett has publicly stated it was because he had no particular ability to understand their business, to identify its competitive advantages; that doesn't mean those things didn't exist. Others with specialized knowledge of tech could identify those advantages. Google as another example has had an extraordinarily obvious monopoly moat in search for 13 or so years at this point.

XR0CSWV3h3kZWg 9y ago

He didn't say that. That's what the author of the article said. Of course Warren buffett doesn't like it. He has made his name on being able to tell if a stock's price is above or below it's fundamentals. Bitcoin doesn't have fundamentals and it doesn't pay dividends.

acoye 9y ago
I would like to argue Bitcoin has a fundamental. The number of people using it and making up its value. `Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2)` https://en.wikipedia.org/wiki/Metcalfe%27s_law https://en.wikipedia.org/wiki/Metcalfe%27s_law
- XR0CSWV3h3kZWg 9y ago
  The air can be thought of as a telecommunications network that everyone is connected to. Sure signal loss is a problem, but that can be fixed by amplification. That doesn't mean that you should invest in air. When I said fundamentals I meant something more on the lines of: cash flow return on assets conservative gearing history of profit retention for funding future growth soundness of capital management for the maximization of shareholder earnings and returns Bitcoin has none of those. Bitcoin does not have cash flow as the protocol doesn't take in or give out cash. There is no return on assets because there is no income. Conservative gearing means nothing here. Taken from https://www.investopedia.com/articles/fundamental/03/022603.asp https://www.investopedia.com/articles/fundamental/03/022603.... I am long on bitcoin, but not because it has any of the properties of a stock.
- lamontcg 9y ago
  If people start to run for the exits, then that number goes down and there's no floor under that number. The system can unwind in a panic until nobody is using the system and the value of the system becomes zero. Which means that isn't any kind of fundamental value, you're just measuring popularity. Fundamentals are supposed to provide support to value when a security becomes unpopular and untrendy.

keypusher 9y ago

Buffett has never liked commodities or speculative assets. His primary strategy is to invest in wealth-producing assets. For instance, he said he would much rather own farmland than gold. And that's a great strategy. But it's not the only viable strategy.

arisAlexis 9y ago

I still don't undestand why HN instead of being at the forefront of innovation aligns up with old school money. I guess most here are dependent n the old system and VCs