14 ms·
Buffett bashes Bitcoin as nonproductive, thriving on mystique
- internetman55 9y agoI can't agree or disagree on any investment recommendations as I have no expertise in the area, but I have that is pretty much what my gut reaction to Bitcoin/crypto has always been
- ashoon 9y agoAs I've learned a bit about blockchain, I feel cryptocurrency is distracting from the broader implications of the technology. It's going to be hard enough for non-technical users to see the underlying value of immutable, distributed data and applications, so that conflation is unfortunate.
- blattimwind 9y agoAs we've seen many times now immutability is not a strong property (indeed, none of the properties provided by blockchains are) of them, so not all that useful. E.g. Ethereum's various hard forks to un-do things. In a manner of speaking, "history is written by the victors" applies to blockchains in more way than one (miners, orgs, hardforks, ...)
- DennisP 9y agoEthereum has had exactly one hard fork to undo something. All the rest were protocol upgrades.
- Mithorium 9y agoThe technology has existed for many years already, and it has already made 'broader implications', see git. The only thing new about it is that people now call it 'blockchain' instead of a merkle tree. The reason banks and governments don't use better technology to track land titles or whatever other applications is that they're always slow to adopt technology, not because 'blockchain' is a new concept
- davnicwil 9y agoBut this isn't really the case. Both git and blockchain track a history of actions, true, the difference is that in git anyone can rewrite history at any time and there is then no way to agree amongst untrusted parties whose history is the true one. With blockchain, there is. That's the innovation, that's what makes blockchain novel.
- solean 9y agoBlockchain without Bitcoin is not an innovation. How do you incentivize people to secure the network?
- Cthulhu_ 9y agoIt's actually very similar to the stock market, it's just that there's no company backing it and there's no rules. It's why people were warned against investing so much not that long ago. In Europe meanwhile, investing in the stock market is getting harder and harder, as new european rules (e.g. MIFID II) make any stock broker require to fill in a test and whatnot to prove basic stock market knowledge and competency, plus accept the risk to lose money explicitly. There's a lot of people that invested money in the stock market they couldn't lose, due to promises of huge returns. Sounds familiar, doesn't it?
- internetman55 9y agoWell I trust the stock market more cause normal people invested in it and not mostly weird internet libertarians who thought Obama was going to take their savings and drug dealers (I'm sure other people were investing in Bitcoin in 2011 but these are the guys I was aware of)
- cryptoz 9y agoThe experimentation of ideas around what money is is certainly not "nonproductive" and to dismiss it like that is silly. He might not like it for any reason at all and that's fine, but to call it nonproductive is ridiculous.
- tomdell 9y agoAll right, then - how is it productive?
- serg_chernata 9y agoSeeking ways to improve existing systems, financial or not, is a productive activity in my book. How successful the effort is, is another discussion entirely.
- s73v3r_ 9y agoI think the question then, is Bitcoin doing that. And whether it is or not varies from person to person.
- cryptoz 9y agoWe have a global conversation about technology and money backed by large scale experiments. The production value is the basis for the future of trust and money in a digital world. More productive work has been done by Bitcoin devs and users than much of the normal finace work and money spent when it comes to investment and future value creation though experimentation right now. To dismiss all of that as nonproductive is ridiculous because it is very clearly extremely productive. This is true regardless of how much money an investment in Bitcoin might make.
- cookiecaper 9y agoI agree in principle, but I think that there are fundamental problems with Bitcoin that make it intrinsically unsuitable for its stated purpose of being a decentralized world currency. Any success it makes along that axis essentially occurs in spite of itself, based on the commitment of people who are riding the hype wave to try to make something good of it. If people were honest, they'd admit that Bitcoin is flawed, that it was never intended or conceived as the perfect realized implementation of a digital currency, etc. It's a thought experiment that grew rapidly out of control. The Lightning Network is a good example of an earnest try to make something workable out of Bitcoin, but even that has real difficulty overcoming some of bitcoin's core design flaws, which are: a) difficulty mechanism blocking out commodity miners and essentially assuring there will always be centralization, which means network security will always be dubious at best, fees will always be high, and other undesirable consequences; b) inability to provide reliable, rapid transaction confirmations; c) inherent scalability difficulties based on the amount of work needed to verify transactions. Lightning networks address some of this for some partners, but even for those who find lightning networks a reasonable workaround (that is, those with sufficient btc to open, maintain, and populate mutual funding channels), there are additional negative trade-offs that make the process undesirable (if the counterparty can prevent them from crying 'foul' within the settlement deadline, a lot of money can be successfully stolen). Continued insistence on Bitcoin/blockchain deployment as such is non-productive. Lessons should be extracted from the bitcoin experience and we should move on to something that tries to resolve Bitcoin's fundamental issues. Let's accept Bitcoin's role as a thought leader and early implementation of digital currency, but stop pretending that it's ever going to be useful as a major economic backbone.
- deleted 9y ago[deleted]
- Talyen42 9y agoHe's thinking of it in investing terms, underlying asset value, cash flows, etc. Because the media asks him "Should we buy bitcoin?" every damn day of the year. I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc. Does he also think that the US Dollar is rat poison because it's not a productive asset? He holds like $80b cash. "But bitcoin has high fees" well yeah, there are 1,000 newer cryptos with lower fees. (and plenty of scams) "But local stores don't use it" well yeah, nobody used credit cards in the 40s either. (and now cash is dead) "But it's not user friendly" well yeah, neither was the internet until ~2000. (i've seen nearly zero progress in crypto here, btw)
- sincerely 9y ago>cash is dead lol
- adbachman 9y ago> He holds like $80b cash > ... > now cash is dead
- dmix 9y agoSomewhat of a class-based statement, definitely not dead among the working/lower class. If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash...
- loeg 9y ago> If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash... Is it just me or aren't debit/credit cards much faster than paying with cash, too? Making change and then dealing with all of the coins is way higher effort than swipe, maybe pin or sign, and move on. And the sign step is going away, at least in the US, soon.
- AndrewKemendo 9y agoBuffett/Munger have always argued that Gold and other commodities are equally worthless investments based on fear and ponzi like attributes[1]. No surprise then they feel even worse about Bitcoin. The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin." While perhaps true, such rebuttals ignore the arguments being made by folks like Buffett around predictability, likelihood of a return, confidence in underlying asset value, volatility etc... So the argument isn't about whether or not you can make money on these things, it whether it's a prudent instrument to invest your money into. [1] http://www.minyanville.com/trading-and-investing/commodities/articles/Warren-Buffett-brka-gold-investing-investing/10/3/2012/id/44617 http://www.minyanville.com/trading-and-investing/commodities...
- voidpointer 9y ago> The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin." Mortgages have been payed off with lottery wins. That doesn't make lottery tickets a good investment.
- AndrewKemendo 9y agoYea that's basically the point, it's a terrible argument to say that it worked.
- hndamien 9y agoMaybe it depends how many mortgages it pays off?
- s73v3r_ 9y ago"The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."" Weren't there a bunch of people who went in debt recently to buy BTC when it was close to $20k?
- triviatise 9y agoHe has always said he doesnt understand technology and has resisted investing in it. While the value is fluctuating heavily due to speculation, over time it will stabilize. Bitcoin will resist inflation and is somewhat out of control of governments or any central authority. People in countries where the govt has screwed up the currency can use it to get money out of the country or as a stable store even if dollars or other physical currency is in scarce supply. My family fled china carrying their wealth as gold and bank checks. Today, people can transfer their wealth as bitcoin across international borders. The fundamental properties of money are: <<Fungibility: its individual units must be capable of mutual substitution (i.e., interchangeability). Durability: able to withstand repeated use. Portability: easily carried and transported. Cognizability: its value must be easily identified. Stability of value: its value should not fluctuate.>> It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value.
- tptacek 9y agoHe's the third-largest shareholder of Apple behind Vanguard and Blackrock.
- Cyph0n 9y agoAnd he regrets not investing in Amazon back in the 90s. I believe that he only recently started to invest in tech.
- sizzzzlerz 9y agoHe bought IBM in 2011. That was his first venture in tech companies. Apple came along in 2016.
- hndamien 9y agoSo he probably lost money on that.
- simonebrunozzi 9y agoFred Wilson of Union Square Ventures presents a counterargument to Buffett: https://avc.com/2018/05/is-buying-crypto-assets-investing/ https://avc.com/2018/05/is-buying-crypto-assets-investing/
- fixermark 9y agoUSV has invested in CryptoKitties (https://www.usv.com/blog/cryptokitties-1 https://www.usv.com/blog/cryptokitties-1). This doesn't invalidate his position, but it's worth remembering he is not an objective observer in the situation; his company is positioned to directly gain from a crypto-mania.
- whitepoplar 9y ago"Don't tell me what you think, show me what's in your portfolio."
- furiousjulius 9y agoAgreed but I think the opposite is much too prevalent. People with absolutely no experience using crypto currencies write articles bashing them without ever using them first hand. Im not advocating for them but I think to actually assess their use/value they must be tried.
- jhall1468 9y agoThat's a silly argument. You don't need to drink Coke to assess it's value. If you don't see value in Bitcoin on its face, buying a pizza with it won't change much.
- mcguire 9y ago"Bitcoin has produced a transaction processing infrastructure that looks a lot like Amazon Web Services (something I am sure Buffett would agree is extremely valuable)." How many transactions per minute can AWS do?
- 9y ago
- whack 9y ago> Buffett said investors would instead be much better off investing in U.S. stocks, which in turn are also a far better investment than 10- or 30-year U.S. government bonds... He said he would much rather have Berkshire’s pile of cash and equivalents be $30 billion, rather than the $108.6 billion it was at the end of March, but good deals have not emerged. $100B is a colossal amount of money to have sitting around in the form of cash equivalents. I wonder why he hasn't just put it into the S&P 500, given that he belives the stock market is currently a good investment. Given the index's liquidity, I would think he'll still be able to sell it off quickly, if he needs the cash for an acquisition.
- deleted 9y ago[deleted]
- empath75 9y agoYou can’t just put 100B into vanguard. That kind of money distorts markets.
- kolbe 9y agoS&P tracking ETFs are the most liquid equity instruments, but $100b is large even for them. The largest ETF by assets is SPY, with $250b. 'Liquid' for you or me or even Stevie Cohen isn't even close to the same thing as 'liquid' for Warren Buffett. http://etfdb.com/compare/market-cap/ http://etfdb.com/compare/market-cap/
- whack 9y agoSPY has a daily trading volume of $25B. I would have thought that this would allow someone to liquidate ~$1B every day, without distorting the market. This would have allowed Buffett to raise the cash needed for any acquisitions, in a relatively short period of time. Is there any hard data on how big a trade would have to be, to cause significant price distortion? Speaking of which, it's also common for acquisitions to be carried out using stock, instead of cash. Given that acquirees are open to getting paid in stock, I would have thought they would be open to getting paid in SPY. https://seekingalpha.com/article/4164368-spy-cost-liquidity https://seekingalpha.com/article/4164368-spy-cost-liquidity https://www.investopedia.com/ask/answers/06/macashstockequity.asp https://www.investopedia.com/ask/answers/06/macashstockequit...
- bamazizi 9y agoI'd argue, cryptocurrencies are the worst thing to happen to such a great concept, decentralized agreements. Consensus algorithms have shifted focus away from decentralization and towards pushing cryptocurrency agendas. Shame!
- fixermark 9y agoYeah, and they haven't been terribly great for the gaming market either, as they're consuming production of graphics card components.
- drcode 9y agoI find this to be such a curious argument: "The graphics card industry would be so much better off if these cryptocurrency people would stop giving AMD and Nvidia so much money!"
- fixermark 9y agoYou make a great point in the long run; more money flowing into graphics cards should imply more R&D and improved technology (although if there's a lack of synergy between "developments good for faster graphics" and "developments good for faster mining," I'd expect innovation to follow the money). ... in the short run, the production space hasn't ramped up to meet the demand from a new consumer sector and my graphics cards have jumped in price. ;) And (depending on how bullish you are on the notion of crypto solvers being a permanent need and not a bubble) the market may be setting up for a crash if these currencies turn out to be a flash-in-the-pan and demand evaporates overnight for solver hardware. I'm not super-convinced of that crash outcome though; it's a risk, but I'd rate it a low one.
- drcode 9y agoRight, but the "short run" argument sort of sounds like saying "I hate people that wear green tshirts because they keep buying Teslas and people like me who wear red tshirts can't get one because of them!"
- rdiddly 9y agoKind of started me thinking it was going to be a "Variety" headline... Something like "Berkshire's Buffett Blasts Bitcoin Buffoonery"
- sizzzzlerz 9y agoBuffet's investing strategy is, and has always been, look for the intrinsic value in a company, buy them, and then hold on forever. As part of that intrinsic value is the management teams that are running the companies. A strong team is as valuable as any other asset. When Buffet does buy a company, he'll generally leave management in place and not interfere in the day to day running of the company. Bitcoin has no management and it has no intrinsic value. It's worth is whatever somebody is willing to pay for it. That is 180 degrees out of phase with the Buffet strategy.
- mcguire 9y agoFurther, when you buy a part of a company, you are buying a piece of a functioning economic unit. When you loan money, you are finding economic activity. When you buy a Bitcoin, you are helping to convert electricity to heat.
- piracy1 9y agoElectricity into security
- 45h34jh53k4j 9y agoenergy into money. We always wanted a universal energy based currency -- it is bitcoin.
- cookiecaper 9y agoIn practice, it's not very secure because the difficulty mechanism ensures that hash power always centralizes. Any widespread commodity miner will automatically defeat itself -- that's why all of those early ASIC startups fizzled out. As soon as they shipped something, their value proposition was nullified. Add to this that the payout mechanics strongly incentivize pooled mining, even for people with powerful miners, and the "guarantees" get that much flimsier. A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power, and they've all been in the same room on multiple occasions. It's no different than the small handful of men who control the Fed / other major financial institutions in our fiat systems. Bitcoin was an excellent thought experiment, but it's no wonder that Satoshi wants nothing to do with what it has become.
- hd4 9y ago>rat poison squared Very poor choice of words, heh.
- crasch4 9y agoBuffett should follow his own advice, and stick to commenting on things that he understands.
- arkona3 9y agoLike... finance, economics and investments?
- asdsa5325 9y agoHe seems to understand intrinsic value pretty well.
- drcode 9y agoIf there's one thing I've learned in my 45 years, it's that actually no one has figured yet what the term "intrinsic value" really means. The more you dig into that term it just ends up meaning "what someone else is willing to pay for it" blended together with some fuzzy subjective notions of morality.
- asdsa5325 9y agoNo. What someone else will pay for something is extrinsic value.
- drcode 9y agoExactly, now just add some subjective moralizing to it and now you'll reach parity with most people's notion of "intrinsic value".
- tim333 9y agoPerhaps, though: > In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset. - Buffett in http://www.berkshirehathaway.com/letters/1992.html http://www.berkshirehathaway.com/letters/1992.html
- radoslawc 9y ago'Billionaire investor Warren Buffett on Monday said buyers of bitcoin, which he has characterized as “rat poison squared,” thrive on the hope they’ll find other people who will pay more for it.' isn't this in a nutshell stock market form 'normal person' perspective? Or antiques market, or any other from thousands 'buy cheap - sell for more' types of market?
- dharma1 9y agoTo some degree, but the valuation of shares is (in theory) based on fundamentals - price to earnings ratio for instance - as well as speculation of how well it will be doing in the future. Companies can also choose to pay dividends if they have made a lot of cash, and choose to issue some of it to shareholders. Valuation of Bitcoin to a large degree is purely based on market psychology, and it doesn't pay dividends.
- hndamien 9y agoIt is actually used to replace banks and remitters and central banks. You know, it performs some utility like companies do.
- strypey 9y ago> it performs some utility like companies do. Pipes perform utilities, not companies. What companies do is manage the social and financial infrastructure around making, or delivering, or laying, or servicing pipes. See the difference? What Buffet is saying is that when people speculate on BitCoin, they're buying over-priced pipes, in the hopes that some other sucker will pay even more for the same pipes. The companies that will make money out of crypto-$ long term are the ones sell services (like the hoteliers and general store owners in the gold rush), not the ones spending money (or god forbid going into dept) to buy crypto-tokens. Those service companies can pivot to selling similar services to another sector if (when) the crypto bubble bursts. They are the ones the likes of Buffet consider an investment.
- hapnin 9y agoThis is like two old investors in buggy whips talking scaring people off of internal combustion engines. They have no idea what they're looking at but they'll make pronouncements anyway. Bitcoin etc are currencies native to the network environment just as cash is native to the meatspace. Both have their advantages and shortcomings. Wisdom is found in using things if they serve you and leaving them alone if they don't. Cash serves its purpose in the meatspace, cryptos serve their purpose on the network. Use them as they're useful. I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about. It's even less wise to take advice from those who speak from ignorance.
- s73v3r_ 9y ago"I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about." He's talking about investment vehicles. I would say he knows more about those than most of us here on this board.
- hapnin 9y agoEveryone that listened to him 20 years ago missed Amazon, Google, etc.
- s73v3r_ 9y agoYes, they had a couple of misses. But I'd say his hits have more than made up for it.
- tim333 9y agoNot really. He said he wasn't buying tech because he didn't understand it, not that others shouldn't buy. Indeed here's a quote from the 1998 letter > Despite the pathetic technical skills of your Chairman, I'm delighted to report that GEICO, Borsheim's, See's, and The Buffalo News are now doing substantial business via the Internet.
- bdcravens 9y ago> It's even less wise to take advice from those who speak from ignorance. Being in Bitcoin since 2011, I've found most Bitcoin advocates tend to be of the ignorant sort with regard to both the technology and the economics. They tend to gather their information from what they're told to think on places like Reddit, and are quicker to communicate via memes than have an actual real conversation.
- throwaway5752 9y agoBerkshire vice chairman and longtime Buffett confidant Charlie Munger was even more blunt. "I like cryptocurrencies a lot less than you do," Munger said to Buffett. "To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out." http://money.cnn.com/2018/05/07/investing/warren-buffett-bitcoin/index.html http://money.cnn.com/2018/05/07/investing/warren-buffett-bit...
- panarky 9y agoCurious that both Buffett and Bill Gates [0] are publicly criticizing Bitcoin right now. People make big dumb investments every day, and you don't see Buffett and Gates talking to the media about it. What's their objective? And why together? And why now? [0] https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bitcoin-if-i-could.html https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bit...
- drcode 9y agoGood question... Though likely the answer is pretty mundane: It's probably something they keep being asked about in interviews, and they feel some obligation to dampen the hype on cryptcurrency- Also, there's a "survivorship bias" issue, in that both guys got very successful using business strategies involving an unrelated domain, so of course they would say "If you want to build wealth, maybe instead focus on these other asset classes that worked really well for me."
- tim333 9y agoYeah that and I think an effort to stop the public getting burnt.