Buffett's Take On Crypto: Why He's Not Investing

Warren Buffett, the billionaire investor known as the sage of Omaha, has been very vocal about his dislike of cryptocurrencies, famously calling Bitcoin rat poison squared. He has said that he will never invest in any cryptocurrency because he believes it has no intrinsic value and is not a durable means of exchange or a store of value. However, in a surprising turn of events, Buffett's company Berkshire Hathaway recently invested $1 billion in Nubank, a digital bank that focuses on crypto. This has left many wondering if Buffett is changing his tune on crypto or if he sees a different kind of opportunity in digital financial service providers.

Warren Buffett's stance on crypto

Warren Buffett, the famous investor known as the "sage of Omaha", has made his stance on crypto quite clear over the years. He has called Bitcoin "rat poison squared" and vowed that he will never own any cryptocurrency. True to his word, Buffett has not invested in crypto directly. However, his company, Berkshire Hathaway, has made indirect investments in the crypto space.

Buffett's aversion to crypto stems from several key reasons:

• Lack of Intrinsic Value: Buffett believes that Bitcoin and other cryptocurrencies have no underlying value. He argues that they don't produce earnings or dividends and their value is purely based on speculation. In his view, crypto is similar to the tulip mania of the 17th century, lacking any intrinsic worth.
• Investing in Understanding: Buffett follows a strategy of only investing in things he understands. He has stated that he doesn't want to take positions in assets he knows nothing about. As a value investor, he prefers companies with stable and recurring cash flow, which crypto lacks.
• Not a Durable Currency: Buffett disagrees with the notion that Bitcoin is a viable currency. He told CNBC that it is "not a durable means of exchange" and "not a store of value." He believes it fails to meet the fundamental criteria of money.
• Speculative Bubble: Buffett views the crypto phenomenon as a speculative bubble that will eventually burst. He acknowledges that crypto prices can soar for a while but predicts that cryptocurrencies will "come to bad endings."
• Association with Criminal Activity: Buffett's business partner, Charlie Munger, has been particularly vocal about his distain for crypto. Munger wishes cryptocurrency had never been invented and associates it with kidnappers and extortionists, deeming it "contrary to the interests of civilization."

Despite Buffett's strong stance against direct investment in cryptocurrencies, his company, Berkshire Hathaway, has made indirect forays into the crypto space. In 2021, Berkshire invested $500 million in Nubank, a Brazilian digital bank that offers a Bitcoin exchange-traded fund (ETF). This investment was followed by an additional $1 billion investment in Nubank in 2024. These moves suggest that while Buffett maintains his personal distaste for crypto, he recognises the potential of the underlying blockchain technology and the growing demand for digital financial services.

Why Buffett avoids crypto

Warren Buffett, the famous investor known as the "sage of Omaha", has been vocal about his dislike of cryptocurrencies, including Bitcoin, which he has called "rat poison squared". Here are the reasons why Buffett avoids crypto:

Lack of Intrinsic Value

Buffett believes that Bitcoin and other cryptocurrencies have no underlying or intrinsic value. He is a value investor who looks for companies that are undervalued, produce stable and recurring cash flow, and have the potential to increase in book value. In contrast, he considers Bitcoin and other cryptocurrencies to be unproductive assets that do not generate any earnings or dividends. In his view, the value of crypto is purely based on speculation and what someone else is willing to pay for it.

Understanding the Investment

Buffett has a well-known investment strategy of only investing in things he understands. He once said, "I get into enough trouble with things I think I know something about. Why in the world should I take a long or short position in something I don't know anything about?". He prefers to invest in companies with strong business models and competitive advantages, rather than speculative assets like crypto, which he considers too risky.

Not a Durable Means of Exchange

Buffett does not view crypto as a legitimate currency or a store of value. He told CNBC, "It is not a durable means of exchange, it's not a store of value". He believes that crypto is not widely accepted as a means of payment and is too volatile to be a reliable store of value.

Association with Criminal Activity

Buffett's business partner, Charlie Munger, has been particularly critical of Bitcoin, calling it "disgusting and contrary to the interests of civilization". Munger expressed concerns about the use of crypto in illegal activities such as kidnapping and extortion. He also criticised the idea of creating a new financial product that could disrupt traditional financial systems.

Regulatory and Environmental Concerns

While Buffett has not directly commented on this, the recent crypto crash and the concerns around its environmental impact may have reinforced his negative views. The massive energy consumption and carbon footprint associated with crypto mining and transactions could be seen as a significant downside by Buffett, who has supported renewable energy initiatives in the past.

In summary, Warren Buffett avoids crypto because he believes it lacks intrinsic value, is too speculative, and does not function effectively as a currency. He also has concerns about its association with criminal activities and the potential regulatory and environmental implications.

Buffett's preferred investments

Warren Buffett's distaste for crypto is well-known, with the billionaire investor once referring to Bitcoin as "probably rat poison squared". However, his preferred investments are varied and numerous.

Buffett's company, Berkshire Hathaway, has had unparalleled success since 1965, with compound annualized gains of 19.8% compared to 10.2% for the S&P 500. His investment model is transparent, straightforward, and consistent. Buffett himself has said that he invests in large, blue-chip companies with solid balance sheets and attractive valuations. He also looks favourably on companies with strong management teams.

Berkshire Hathaway's top five holdings as of December 31, 2023, were:

• Apple Inc. (50% of its stock portfolio)
• Bank of America Corp (10% of its portfolio)
• American Express Company (8% of its portfolio)
• The Coca-Cola Company (6.8% of its portfolio)
• Chevron (5.4% of its portfolio)

In addition to these public companies, Berkshire Hathaway also owns several subsidiaries, including GEICO Insurance, BNSF Railways, Duracell, and International Dairy Queen Inc.

Buffett's strategy is to buy and hold these blue-chip stocks for the long term. He also tends to avoid speculative investments and non-productive assets, instead favouring companies that produce unique products that can't be easily substituted.

Overall, Buffett's preferred investments are in large, stable companies with strong management and solid balance sheets. He invests for the long term and is not afraid to make significant new investments or drop longtime holdings.

Buffett's criticism of crypto

Warren Buffett, the billionaire chief executive of Berkshire Hathaway, has been one of the most vocal critics of bitcoin and cryptocurrencies. He has described bitcoin as "probably rat poison squared", and has said he will never invest in it. Here are some of the reasons for Buffett's criticism of crypto:

Lack of Intrinsic Value

Buffett believes that Bitcoin has no underlying value. He is a value investor, preferring to invest in companies that are undervalued, produce stable and recurring cash flow, and have the potential to increase in book value. In contrast, he sees Bitcoin as having no intrinsic value because it doesn't produce earnings or dividends. Instead, its value is based solely on what someone is willing to pay for it. Buffett has compared this to the tulip craze of 1637, arguing that Bitcoin has no inherent value.

Lack of Understanding

Buffett has a well-known investment strategy of only investing in things he understands. He told CNBC in 2018, "I get into enough trouble with things I think I know something about. Why in the world should I take a long or short position in something I don't know anything about?". This is consistent with his approach to other investments, such as his initial reluctance to invest in tech stocks like Apple, Facebook, or Microsoft.

Not a Viable Currency

Buffett does not believe that Bitcoin is a durable means of exchange or a store of value. He told CNBC that it will never work as a currency, and that it is not a productive asset. He has compared Bitcoin to "magic", saying that people have attached magic to lots of things throughout history. Buffett's long-time associate, Charlie Munger, has also criticised Bitcoin, stating that he doesn't welcome a currency that is useful to kidnappers and extortionists.

Speculative Investment

Buffett is not a speculative investor. He prefers to invest in companies with a wide economic moat and a history of steady and consistent growth. Bitcoin, on the other hand, is a highly speculative investment that does not fit his buy-and-hold investment strategy.

Buffett's crypto investments

Buffets Crypto Investments

Warren Buffett, the world-renowned investor, has been vocal about his aversion to cryptocurrencies, famously describing Bitcoin as "probably rat poison squared". Despite his harsh criticism, Buffett has never outrightly stated that he would never invest in crypto. In recent years, his actions seem to contradict his words, with his company Berkshire Hathaway making significant investments in the crypto space.

Berkshire Hathaway's Crypto Ventures

While Buffett himself has not directly invested in cryptocurrencies, his company, Berkshire Hathaway, has made moves into the crypto industry. In 2021, Berkshire Hathaway invested $500 million in Nubank, a Brazilian digital bank that offers crypto services. This initial investment was followed by a $1 billion purchase of Nubank shares in 2024, indicating a continued interest in the crypto space.

Nubank is a neobank, operating primarily through digital services rather than physical locations. The bank's investment unit, NuInvest, allows users to invest in a Bitcoin exchange-traded fund (ETF), marking a significant step towards mainstream adoption of cryptocurrencies.

Buffett's Stance on Crypto

Warren Buffett has been highly critical of cryptocurrencies, particularly Bitcoin. He has stated that he does not own any cryptocurrency and never will. His main arguments against crypto include:

• Lack of Intrinsic Value: Buffett believes that Bitcoin and other cryptocurrencies have no underlying value. He argues that they do not produce earnings or dividends and their value is purely based on speculation.
• Speculative Investment: Buffett avoids highly speculative investments and prefers companies with a wide economic moat. He views Bitcoin as a risky and speculative asset.
• Not a Durable Currency: Buffett does not consider Bitcoin to be a durable means of exchange or a store of value. He argues that it fails to meet the fundamental criteria of money.
• Lack of Understanding: Buffett follows the investment principle of only investing in what he understands. He has stated that he does not understand cryptocurrencies and therefore chooses to avoid them.

The Future of Buffett and Crypto

Despite Warren Buffett's strong stance against cryptocurrencies, his company's investments in crypto-friendly banks indicate a recognition of the potential opportunities in the industry. While Buffett himself may never personally invest in crypto, his influence on the industry cannot be overlooked. With his reputation as a savvy investor, Buffett's actions, even indirectly, impact the market.

As the crypto industry continues to evolve and gain mainstream acceptance, it is possible that Buffett's views may soften over time. However, for now, he remains firmly against adding crypto to his personal investment portfolio.

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