Being one of the richest people on the planet, mostly self-made, his words and opinions have a sperm whale's weight on any financial investor's opinions. So when it came to the cryptocurrency bitcoin, I must say, I was surprised to hear his comments on it when he said them a few years ago. I didn't believe him then, but wasn't sure why. But re-reading his quote today, I think I know why...
Warren Buffett
(Credit: David A. Grogan | CNBC) Article
"Stay away from it. It's a mirage basically. It's a method of transmitting money. It's a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?" Buffett said on CNBC in 2014. "I hope bitcoin becomes a better way to do it. But you can replicate it a bunch of different ways. The idea that it [bitcoin] has some huge intrinsic value is just a joke in my view."
Seems like he understands what it is but not why so many value it. In fact, is this not the very premise to which made him a multi-billionaire? This is what intrigued me. Why such a wise investor would drop one of his highest principals. He is a master at recognising undervalued companies, so why not this one? (Hint: Bitcoin is no company).
Well... it leapfrogged him. Many may not know this but he had his emails printed out and read to him. He accepted the technological change around him, but he didn't seek to engage with it. So he was left behind understanding it, but that's ok... because others were paid to understand it for him. But now the next leap has come and he is too far behind to truly understand the potential. I mean, he wouldn't even exercise the potential when he did have email. He just accepted it as another way of transmitting information.
If Bitcoin is a method of transmitting only money, then the internet is a method to only transmit emails. Money is only one of the apps of Bitcoin. Just like email is only one of the apps of the internet. Real cheques transmit information, a very specific kind. And agreed, you would not invest really in the cheque producing company because, well, they just address a very specific market. But bitcoin, is programmable (you read that right, not just Ethereum). If Bitcoin is a cheque, it's an e-cheque on steroids and has it's own DNA evolving with each transaction (Article).
But he only sees a cheque. You can't blame him. He is an expert in his field. Just like an IT architect was back in the 80's with mainframes. So he is a great company investor. And exactly... bitcoin is no company. So:
The world changes and if you don't change with it, you are not only left behind, but left as a master of an ever decreasing small world.
He does save himself a little when he says he hopes bitcoin becomes a better way to transmit money, but... "but"... usually negates the previous sentence. In any case, we need machines to be able to pay humans and themselves. The future is incredible and it's just starting with autonomous cars driving themselves to auto shops to get repaired and paying mechanics themselves. They can't use a bank account as they are not people and they sure would be expensive to add features like robot arms to sign cheques!
You can copy bitcoin, sure, but you can't copy the network effect. Intrinsic value is in the network (look at social media), not the protocol itself. The protocol just secures it. It is honest. It is open. It doesn't lie. It doesn't cheat. It does exactly what it says it will do. No more NSFs.
But he's got billions, and he is not one to flaunt it or spend it as such. So in the end, he can laugh at bitcoin, he's rich enough... and still live out the remainder of his years as a billionaire.
