The important points
- The main reason why Warren Buffett is not a fan of Bitcoin is that it produces nothing.
- Buffett likes investments that create value on their own.
- Buffett also said he only invests in things he understands.
Billionaire business mogul Warren Buffett isn’t a big fan of Bitcoin (BTC). Years ago, he told reporters it was ‘probably rat death squared’. In recent years, he has been more cautious, refusing to attend his company’s annual meeting Berkshire Hathaway over the past year to comment on his views. That didn’t stop his deputy, Charlie Munger, from telling those in attendance that cryptocurrencies are “disgusting and against the interests of civilization.”
Why Buffett Doesn’t Believe in Bitcoin
Buffett’s main concerns with bitcoin are that it has no intrinsic value and yields nothing. He’s also not a fan of gold for similar reasons. Buffett likes assets like farms, businesses or real estate, which in themselves generate income. He calls them “commercial cows” which are valued not as a medium of exchange but by their ability to produce milk.
He told CNBC in 2018, “If you and I buy different cryptocurrencies, they won’t multiply. There won’t be a bunch of rabbits in front of us. You’ll just sit there. And I have to hope that next time you’ll be more excited after I buy them for you, and then I’ll be more excited and buy them for you.”
Some of Bitcoin’s biggest critics agree with Buffett. They argue that Bitcoin’s value is only going up because people are speculating that they can sell it to someone else for a profit. This is why many are warning that the cryptocurrency industry is a bubble that will soon burst.
Bitcoin enthusiasts disagree, pointing to the main cryptocurrency’s usefulness as a means of payment or a store of value. They also argue that bitcoin’s scarcity – only 21 million are mined – makes it valuable. Scarcity is one of the characteristics of a useful currency.
Weren’t there recent headlines indicating that Buffett had changed his mind?
They have. But these stories were a bit exaggerated. Buffett’s company, Berkshire Hathaway, merged with a Brazilian fintech company called Nubank invested. But bitcoin is only a very small part of Nubank’s business. And Nubank is a very small part of Berkshire Hathaway’s investment portfolio.
In fact, there are a few lightly crypto-related companies in Berkshire Hathaway’s portfolio. But that doesn’t mean Buffett has flip-flopped. It’s just that Berkshire Hathaway invests in several large financial institutions. And the rise of cryptocurrencies means that some of these institutions have now opened the door – albeit slightly – to cryptocurrencies.
Should you buy Bitcoin?
Buffett is a very successful investor and it is wise to take note of his concerns. Cryptocurrencies are a relatively new and unregulated industry and we don’t know what will happen next. Bitcoin could become the digital currency of the future, but maybe not. In any case, there are still many obstacles to overcome before this happens. This uncertainty makes it a risky investment.
Therefore, the rule of thumb when investing in cryptocurrencies is: only spend the money you can afford to lose. If Buffett is right and the market crashes completely, that’s disappointing but not a financial disaster. As we have seen over the past few years, the price of Bitcoin is extremely volatile and can lose 50% in a matter of months. As a new crypto investor, you have to be prepared for this to be a roller coaster ride.
Another reason Buffett doesn’t want to buy bitcoin is because he only invests in things he understands. This is sound logic for any investor. If you decide to invest in Bitcoin, make sure you understand the basics of the blockchain, the main risks of crypto investing, and the factors that can impact Bitcoin’s performance over the long term. Don’t buy Bitcoin because others are – take the time to research the industry for yourself and make your own decisions.
The decision to buy bitcoin not only has something to do with understanding bitcoin, but also your personal financial situation. If you have other financial goals, such as increasing your emergency fund or reducing your debt, you should focus on those things first. Risky investments should not come at the expense of the fundamentals that will give you financial security in the future.
The article Should you invest in Bitcoin? Warren Buffett thinks this appeared first on The Motley Fool Germany.
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This article was written by Emma Newbery and was published on Fool.com on 04/12/2022. It has been translated so that our German readers can join in the discussion.
The Motley Fool owns stocks and recommends Bitcoin.
The Motley Fool owns and recommends Berkshire Hathaway (B shares) and Bitcoin. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares).
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