I believe he is right and wrong. I see potential huge collapses in the future due to [1] and many people who don't believe in CryptoCurrencies and only invest for their portfolios will see huge loses. I can imagine some crashes taking years to recover.
However in the long term I see CryptoCurrency as the future and a viable store of value. I think Buffett is right to warn investors not to invest. Only invest if you understand and believe in these technologies.
I sort of cringe with family and friends getting too deep into it because of the historic rate of return.
I'm the sort of person that will hold their coins even if we go to $0.
[1] - A major Government feeling threatened in several years due to a handful of CryptoCurrencies really screwing them over. (See Zerocoin for tax haven, Bitcoin for smashing into value of USD, Ethereum for immortal web servers) declaring that all these currencies and the systems running on top of them (file sharing servers, child porn, unbreakable messaging, etc..) are now illegal.
I think the only reason they will prevail is that the countries that continue to embrace these technologies will benefit from them and become stronger. Eventually the countries that banned them may have to unban them to remain relevant.
I invested a lot of money into bitcoin. Then I lost it.
Just one datapoint. But there's no question that bitcoin is extremely dangerous to anyone who buys it. You can lose your private keys. You can have your coins stolen. You can put your trust into the wrong web service.
One thing I've realized is that bitcoin is mostly about greed right now. There's no reason to buy it unless you want something that can only be procured via bitcoin, or unless you want to make a lot of money. But unless you're very lucky, you won't make a lot of money. You'll probably lose money.
I would agree with Buffet. Unless someone comes up with a compelling reason to buy bitcoin, then don't.
I think Buffett is attacking a straw man here. I don't think anybody is really arguing that BTC itself, as it exists as the balances of addresses on the blockchain, has intrinsic value. Just like fiat currency it has none. The payment technology, and the applications it enables, do have intrinsic value, however. He admits as much in this interview. He seems to recognize the distinction between a payment network and the currency itself.
That means as a first mover in this space, however, that BTC is likely to go up in value with adoption, and probably reach a peak and will either remain a widely used currency or be supplanted by a currency with more attractive monetary policy. That's what a lot of early adopters of BTC are speculating.
If there was a way for a casual investor to invest in the cryptocurrency space without investing in specifically BTC, I absolutely would sell my BTC and buy into it But to date there aren't any publically traded BTC companies, AFAIK (Please correct me if I'm wrong.)
First mover advantage is only relevant when there is substantial switching cost or other barriers. If bitcoin is successful as a payment technology, it will be added parallel to cards, and thus part of a payments "suite." What will the extra cost be of adding dogecoin or litecoin?
In the best case it's going to be like Amex vs Visa vs MasterCard. Except those networks have enormous real world costs creating barriers that crypto currency doesn't have.
With BitCoin first mover advantage is expressed in how many vendors accept it over other currencies, and how much infrastructure there is in terms of exchanges, payment processors, and financial proudcts. Yes it is true that it would be trivial to exchange all my BTC for another cryptocurrency, but the reason I don't is because there is already so much infrastructure in the mainstream for BitCoin, and more every day. The cost of switching to another currency would be losing access to all this available, mainstream infrastructure and seriously limit my buying power.
For another currency to supplant BitCoin it would have to fundamentally offer something that BitCoin does not, in a way that convinces mainstream operators like BitPay and CoinBase to start offering solutions for those currencies. So far 99% of the cryptocurrencies are just slight adjustments of the parameters of BTC. The only two technologies so far that may offer something that BitCoin does not are Ripple and Ethereum. It will probably take a few years, if not more, for those technologies to gain widespread adoption because people are just barely wrapping their heads around BitCoin - let alone smart contracts and autonomous corporations.
A lot of is also brand strength. You see the exchanges and other mainstream enterprises latching onto the BitCoin brand because they do not want to dilute the brand and confuse their potential customers.
You talk about bitcoin as if it is established. Were it already mature your arguments would be valid, but it is still nascent. What % of the OECD has bought something with bitcoin?
In the long view, Bitcoin only has brand strength.
Time will tell, and I believe ultimately vindicate my arguments.
This is a case of a famous, high status person making a statement without credible arguments. In other words, if a non-famous person said this, nobody would take him seriously (or noteworthy), because he doesn't really contribute anything to the discussion about bitcoin. The internet is full of good comments about bitcoin (for and against), but more visibility is given to Buffet's comments because of his status.
I guess media is to be blamed here to some degree. If someone is famous, then the media will make a story about anything that increases ad revenue. And also users of social media like Hacker News.
Buffet's status and fame come more or less entirely from his nearly unequaled life-long skill at picking long-term quality investments. He has more than earned the respect to be able to say something like this and be believed.
People don't just listen to him because he's famous – do you think they'd listen to Kanye about Bitcoin? – they listen to him because he's the greatest investor alive.
You should read about his involvement with Blue Chips. Here is a Wikipedia link[0] that sheds some light into the subject. Buffett is not against different currencies. Its mostly the fact that bitcoin is not supported by anything. It is merely a bubble.
There's no telling what will happen to bitcoins, but my point is, interest is no sign of value. Now if I could invest in cats, that would be a different story.
Just in case this was a reply to my now-deleted comment: Sorry about that. I deleted it because I replied to the wrong comment. I reposted it elsewhere: https://news.ycombinator.com/item?id=7405339
The problem with it being an effective way to exchange money but not a meaningful store of value is that the former depends upon the latter. I'm curious as to whether there are any altcoins that solve this problem by, say, pinning the value to USD (or a basket of currencies) and allowing for a continually increasing monetary supply.
If there were a series of altcoins pinned to existing fiat currencies, it might have the strange consequence of allowing decentralized, unregulated forex. The altcoins might exert an influence on the values of their respective currencies. It'd be interesting to say the least.
it's funny you mention because I believe I have cracked the problem of pinning an altcoin to the usd but I fail to see how it would get adoption in the first place. There is no deflationary or early-adopter reward in it, the only value would be that the coins in the system would be transferrable with no transaction fee and that they won't lose value relative to the USD so it is safe to keep them in their digital form.
I reckon these are the same problems Paypal faced early on. Why take good old USD out of your bank account and put them into an account you can only use for certain payment processing? They figured it out, but maybe it's too late now? I'd like to think it isn't
> “the idea that it [bitcoin] has intrinsic value is a joke.”
I would love to hear Warren Buffet on the "intrinsic value" of gold.
Edit: With the comment of thatthatis in mind, WB uses "intrinsic value" as future income potential. That use then makes me wonder about his "intrinsic value" of dollars, euros and yen.
It is one of the very few metals that do not oxide in normal conditions, this makes :
Any metal very good electrical contact: just putting a single layer of gold over any metal will make the metal a fantastic electrical contact without the oxide layer that any metal will develop over time. This application alone is of great use in anything that plugs, just look around and you see gold in any electronic device.
You can make the best quality IR reflectors with it.
You can cover plastic with a very small layer of it and make mylar that in used in everything from refrigerators to accident blankets.
Gold (and platinum)is one of the the most used metals in any electronic, chemistry, biochemistry or physics laboratory as not being dissolved or attacked from most chemicals makes the extremely useful.
It is also great value because:
It is very dense.
It could be divided ad infinitum without (oxidation)damages.
It is easy to know it is gold and not something different.
It is beautiful.
It is very rare and appreciated, because of its aesthetic and its industrial properties.
Which makes it one of the best material for exchanging goods possible. It is also the preferred way to store wealth around the world when US of America does not threat with its weapons(guess what are China, Rusia, Iran or Brasil using to exchange goods between them as they have a military army on their on).
Gold reserves has been the first thing the US has sto... errr has taken from Ukraine in order to "protect" it. Let me tell you when the gold is coming back:never.
It seems that "intrinsic value" is a measure of the ability to produce future wealth. With that definition, I put the edit above to include dollars, euro and yen.
You're right, Buffett does include dollars, euros, yen and gold as not having intrinsic value. In addition to the link above where Buffett warns against gold as an investment, he also frequently warns against the hidden danger (compounded inflation) when holding cash.
http://finance.fortune.cnn.com/2012/02/09/warren-buffett-ber...
I was at one of the Berkshire annual meetings when he commented on that. He said, "why would I keep a bunch of yellow metal? In ten years, I still have the same amount of gold. But if I buy a great business like Coca-Cola, in ten years the employees of Coca-Cola will have been working hard to expand the business and I'll have more than when I started. So buying gold is kind of stupid." (It's been a number of years, so this is a paraphrase)
Gold actually does have intrinsic value, even if it isn't the best investment: it is a metal, it doesn't tarnish or corrode, it looks nice, and it is easily malleable. So gold gets used for electronic contacts (no corrosion, good conductivity) and jewelry (pretty, doesn't corrode, malleable) come to mind. Gold hasn't been used as a coin in years, but is still valuable, thus demonstrating that it has intrinsic value.
What can you make out of bitcoin? Nothing. If everyone lost their bitcoin keys (and therefore could not use them as a medium of exchange,) you could do nothing with them. Hence, no intrinsic value. He is pointing out that bitcoin is medium of exchange, not something with intrinsic value. A check has no intrinsic value, either (e.g. an expired paycheck), it's entire value lies in being a medium of exchange, not within itself.
Gold looks pretty, has various technological uses, is legitimately rare in the real world, and has thousands of years of human valuation.
The US Dollar has hundreds of years backed by the full faith and credit of the United States (which despite expected snark, is greater than more or less anyone in the world long term).
The inventor of Bitcoin is anonymous, it is rather more vulnerable to software problems than gold or the dollar, it is difficult to exchange for other currency, has questionable legal status around the world, and it's value is disproportionally based on amateur investors (speculators).
Paraphrasing: You pay some guys to dig it up, then you move it halfway around the world, then you bury it again and pay some guys to guard it. I'll pass.
I see a parallel. At one point, somewhere, I suspect we had the same argument when we moved to paper currency.
"It's just a piece of paper. You don't actually have the goods. It has no intrinsic value!
But it's a promise to provide goods!
What if people decide the promise is no good? The only reason you can spend it is if other people believe the promise and are willing to give you something for it! It's not a currency, though. There's no physical thing--it is just paper! Would you want to work all day and just get clumps of paper at the end of the day? What if the number of peieces of paper people want for a loaf of bread changes? If you work for pigs, you can at least eat the pig.
Anyone could just print on paper and "make money." People can steal it easily since it is so small!
Fiat currency works because the issuing government guarantees its value... When a government can no longer guarantee its value, it's worthless (see Zimbabwe).
How is it guaranteed, exactly? At what government office can I turn it in for...something that isn't more paper?
Essentially, the argument usually reduces to "because you can pay your taxes with it and not go to jail" which is a neat trick, because the amount due for those taxes is at the government's discretion, as well as the amount of dollars in existence.
Dont-throwme-in-jail-coin (USD) has a value, but lets not pretend it is more reified than an additional direct payment use case for governmental extortion. What's the difference if you can trade a given currency for USD with one more step and achieve your tax-paying ends?
Buffet is most definitely not a person who could simply miss the point of Bitcoin. I'm sure he understands it. Therefore, his statement must have an agenda. Maybe it's a non-obvious agenda, because he's not known to be involved in anything that Bitcoin may directly influence and hurt. But there must be a reason why he says something he most likely doesn't believe himself.
I find it hard to believe people that rich can make judgements this wrong about anything. I think Buffet had a history of saying "I don't understand it, therefore I don't invest", but not discouraging others to invest. It is possible he doesn't understand Bitcoin, but it is a lot less likely he makes a fool of himself instead of saying "you know, I just don't get it, so don't ask me about it".
However in the long term I see CryptoCurrency as the future and a viable store of value. I think Buffett is right to warn investors not to invest. Only invest if you understand and believe in these technologies.
I sort of cringe with family and friends getting too deep into it because of the historic rate of return.
I'm the sort of person that will hold their coins even if we go to $0.
[1] - A major Government feeling threatened in several years due to a handful of CryptoCurrencies really screwing them over. (See Zerocoin for tax haven, Bitcoin for smashing into value of USD, Ethereum for immortal web servers) declaring that all these currencies and the systems running on top of them (file sharing servers, child porn, unbreakable messaging, etc..) are now illegal.
I think the only reason they will prevail is that the countries that continue to embrace these technologies will benefit from them and become stronger. Eventually the countries that banned them may have to unban them to remain relevant.