Bitcoin is not only the top digital currency on the market today; it’s an incredibly volatile investment. Opinions are sharply divided on bitcoin’s suitability as a currency, and as an investment; some consider it to be the future of money, while others believe it’s only the fad of the moment.
Falling squarely into the second category is Berkshire Hathaway’s (NYSE:BRK-A)(NYSE:BRK-B) guiding light, Warren Buffett. In recent remarks, he made his opinion on the cryptocurrency very clear, and he did not mince words.
Several times a year, Buffett holds a casual event in his hometown of Omaha, Neb., in which business students ask him questions about a myriad of finance and investing topics.
In the latest salon, he apparently received one about the famous cryptocurrency. Of it, he said, “You can’t value bitcoin because it’s not a value-producing asset.” Glancing at it through investor glasses, he added that it wasn’t possible to determine how high it will trade for. According to him, there’s “a real bubble in that sort of thing.”
This is a doubling-down of Buffett’s position on bitcoin specifically, and cryptocurrencies in general. He’s gone on the record previously with his criticisms of these instruments. In a 2014 Squawk Box segment on CNBC, Quicken Loans founder Dan Gilbert solicited his opinion of bitcoin. His answer was blunt: “Stay away from it,” he warned. “It’s a mirage, basically.”
Elaborating on his remarks, Buffett said bitcoin is “a very effective way of transmitting money, and you can do it anonymously and all that.” He added: “A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money?”
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He capped his criticism by saying that “[t]he idea that [bitcoin] has some huge intrinsic value is just a joke, in my view.”
For anyone who’s followed Buffett’s career to any extent, that stance shouldn’t come as a surprise. The concept of intrinsic value is fundamental to the celebrated investor, and thus central to the investing strategy of Berkshire Hathaway.
To quote the famous man himself: “Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” Buffett probably thinks that since Bitcoin is not a value-producing asset, it doesn’t even meet a basic standard for investment consideration.
Also, for him and Berkshire, the concept of a “moat” — a unique and hard-to-surmount business advantage — is critical. That’s why, for example, the company has held a monster stake in American Express for over 50 years. Yes, there are many credit cards on the market, but few if any boast the cachet and prestige of AmEx plastic.
In spite of its runaway popularity at the moment, bitcoin has no moat. It’s one of a great many cryptocurrencies — nearly 2,000, by a recent count — flooding the market these days. Its prominence and fame mean little; a better and more appealing rival could take its place. Things move fast in the digital world, and there are plenty of competitors fighting for success in the digital-coin segment.
We should keep firmly in mind that Buffett, a disciple of legendary value investor Benjamin Graham, is a financier of the old school. Fundamental worth is important to him; a business needs to have a solid foundation for him to consider it viable.
He’s also taken his time to come around to investments in sectors out of his comfort zone. For instance, it’s only been a few years since Berkshire finally, finally took a dive into tech stocks. In 2011, it revealed it had amassed a stake in IBM, a company that wasn’t and isn’t exactly on the technological cutting edge. So we shouldn’t expect a quick embrace of emerging tech like cryptocurrencies from the old master.
For every Buffett, however, there’s at least one other deep-pocketed investor who believes that bitcoin and its ilk are the world’s economic destiny. Those inclined to that side of the argument might just be proved right. However, they should be aware that at this early stage, cryptocurrencies are extremely speculative investments. As ever, what goes sharply up in the investment world can come crashing down just as fast. Caveat emptor.
