Buffett (with all due respect, and I have a lot of respect for him) doesn't understand Bitcoin, and doesn't add anything of value to the discussion. He's never been much of a technology investor, so this should surprise no one.
Just because you read the white paper and spend 20 hours a day refreshing news alerts for bitcoin doesn't make your investment a good one.
I agree this article doesn't add anything to the discussion. If anything, Bloomberg is making out by selling the proverbial shovels around here by fueling the hype machine.
Every time one says crypto is overvalued the reply looks like: “you don’t understand”, many times coming from somebody who barely understands what distributed and consensus mean. No pun intended.
It's also unlike gold in virtually every other way - it has infinite and infinitely available substitutes, it doesn't have physical characteristics and it's very easy to steal.
Bitcoin seems to be the first investment for a lot of people. Supply-and-demand, cash flow and market psychology is probably something you are not that used to thinking about.
(hmm, seems like I said about the same thing as you did, read your comment too quickly)
And just to be clear - I support the development and experimenting around Bitcoin/Cryptocurrency. I really believe there are yet-to-be-seen uses for the blockchain technology that could have severe, lasting impacts (hopefully for good!).
What I have a major problem with is the money-grubbers pushing the technology as a get-rich-quick scheme. It overshadows any discussion around progress or development and is just another way for the rich to get richer.
(This coming from someone who holds quite a bit of Vanguard index funds and a small number of cryptocurrency in his portfolio.)
Bitcoin's recent exponential growth screams "bubble" for anyone who knows what to watch for.
[1] http://www.in2013dollars.com/1950-dollars-in-2017?amount=1
It stored your value. It's the dollar that gained (or lost) value. You're attempting to move back into the dollar afterward, when the dollar's value has shifted.
What you're describing is that, as an example, a mistake was made by locking in your value by buying gold at a weak 1980 dollar price, then the dollar gained significant value in subsequent years, and then you're again trying to move back out of gold and into the dollar later (ie exchanging gold for dollars) after the dollar has climbed (while your value in the gold was set at that weak 1980 dollar). Your loss is the difference between the two different values of the dollar at two points in time separated by decades.
Gold 'lost' 70% of its value when priced in dollars, as the dollar regained immense value thanks to Volcker's policies breaking the inflation wave. That's a critical point you're leaving off (when priced in dollars).
The point being, you have to be a lot more precise about what gold gained or lost value vs. It performed differently when priced in different currencies vs the dollar. Most currencies did not see the kind of value gain the dollar did over that window.
This is one of the properties that makes it a store of value. If you buy gold in 1980, it will lock you in at the 1980 dollar value. It's the currency that is gaining or losing value, gold is storing your 1980 dollar value (which you used to buy the gold in 1980). You then try to get back out of your gold in 1999, you're attempting to swap a 1980 dollar that has been locked-in at that 1980 value for a 1999 dollar, when the two are not worth the same thing.
Gold also then went up several hundred percent as the Bush dollar dropped from ~2002 onward.
I agree that crypto is in a bubble right now, but that doesn't mean it has zero value as a technology.
Here[1] are the signs of asset bubbles. I've posted the signs I feel are most relevant to Bitcoin below.
> Rationalizing borrowing, lending and purchase decisions based on expected future price increases rather than the ability of the borrower to repay.
> Rationalizing asset prices by increasingly weaker arguments, such as "this time it's different" or "housing prices only go up."
> A high presence of marketing or media coverage related to the asset.
[1] https://en.wikipedia.org/wiki/Economic_bubble#Identifying_as...
I know people hate to hear this but unless you have a target price and a rational explanation as to why it's worth that much you're just gambling.
EDIT: More specifically anything with as much hype as crypto (and tech to a lesser extent) is not really in the value investing camp in which Buffet is trading. Avoiding them entirely is a very useful heuristic for him.
[0] http://fortune.com/2017/05/06/warren-buffett-berkshire-hatha...
He is a major investor in Apple and was a relatively-early backer of BYD, the Chinese battery technology company.
[1] https://www.cnbc.com/2017/02/27/billionaire-warren-buffett-m...
[2] http://money.cnn.com/2017/10/11/investing/byd-warren-buffett...
That goes to show that he's aware of the limits of his expertise, and clearly he has an opinion on bitcoin, so presumably he considers them within his range of expertise.
- I don't understand thing ABC, therefore I won't form an opinion on it (true fact, by his own admission... conservative and reasonable).
- Thing XYZ is generally acknowledged to be more complex and harder to understand than ABC (debatable, but I'd love to see someone show me how crypto is easier to understand than Google/Facebook/Amazon/Uber/etc.).
- Even though I don't understand ABC and won't form an opinion on it, I will form an opinion on XYZ which I understand even less (... wut? Why would anyone put stock in this statement, given the prior two statements?).
Bitcoin will die, crypto currency will survive.
At least the terrible transaction speeds will mitigate a substantial amount of damage.
Just as in the dotcom boom - the concept of dotcom businesses won (and absurdly so), but pretty much everyone who invested in dotcom businesses lost.
The real revelation came when someone decided to purchase bitcoin from someone else, from that point on bitcoin had value and it always will.
But you go ahead and try to sell some rocks you picked up off of the ground to someone and then report back here and let me know you did.
If the bitcoin doesn't gain a widespread practical use, it may well be that the long term value it has is, say, $100 / BTC, wiping out 99% of the value, and failing in any purpose as an inflation hedge or censorship-resistant store of value.
Saying that it has value because it's being bought for ever increasing price is the "greater fool" value foundation, i.e. saying that it has value because someone else will value it even more later, which actually works really well (and can earn you a lot of money) until suddenly it doesn't.
Other than that, any long-term valuation will have to be based on actual, practical, specific uses of Bitcoin (for example, but not limited to, as a transactional currency). It's easy to imagine realistic uses of Bitcoin that will justify some value, e.g. $10 or maybe $100 per BTC. However, the scenarios where the use is so massively valuable to justify a long-term market cap that matches a price of $10k or $100k per BTC require BTC to have a massive, very very widespread use - so either it will gain this massive use as a transactional currency (or something else), or the price won't be sustained nearly as high.
Do you really think this community has never heard of the Dutch tulip mania?
Everybody already knows cryptocurrencies are volatile and risky, what does this add to the conversation?
Yes, let's talk again about how it's a Ponzi scheme, has no intrinsic value, can't buy coffee with it, it's only good for drugs and crime.
Then supporters will say you can't trust banks, fiat is going to zero, and spew conspiracy theories about the Federal Reserve.
Then someone will hype a random token, then a banker will call it all a fraud.
Every. Single. Person. on this thread knows all of this already. Is there nothing new to talk about?
Likely. Also likely that most believe it was something that it wasn’t (a wide-spread market bubble): https://en.wikipedia.org/wiki/Tulip_mania#Modern_views
:D
You may disagree with his point of view, but to dismiss his input as absolutely irrelevant is out of touch, so is claiming he "doesn't add anything of value to the discussion": his opinion, by value of who he is and his experience, is value to the discussion in a field that is still about speculation and high risk investment.
I find it interesting how many people on here like to eat up the words of most mogul and take it as semi gospel, then balks when one of them goes against one of their pet love thing. This is not specific of cryptocurrencies, although due to their "get rich quick" attributes these tend to make it even stronger. Just goes to show how people are the same everywhere, even (hell, especially) the "more informed".
I don't personally believe in his point of view, I think while all current cryptocurrencies are going to fail or at least become a small sideshow especially the big names ones, the next wave will be smarter in what they try to be. Still, I value his input as much if not more as those of "self proclaimed cryptocurrency experts" who merely happened to have made one good bet. He made a ton more of those.
But apart from that, bitcoin and the concept of cryptocurrency are conceptually not that difficult. And even if they were, their value is not due to their technical novelty but due to their fundamental nature as financial instruments.
If Warren Buffet is warning against them, we do need to look at them and try to understand what is the problem he sees. As he knows more than most here about financial instruments.
The risks need not be technical in nature at all. For example, governments could fail to recognize cryptocurrencies as valid contracts thus voiding the benfit of legal systems. So, you own tokens of a house? Good luck enforcing that.
Another one is that courts could treat coins as chattels rather than legal tender / negotiable instruments. In that case cryptocoins that were stolen would thereafter be tainted and subsequent holders would be a risk for liability for trading stolen goods (even if they are other otherwise innocent third parties).
And Buffett has repeatedly said that it's a bad idea to invest in things you don't understand. He's also known for preferring longer-term investing to short-term speculation.
As for cryptocurrency values, of course they're all quite volatile. Anybody who reads HN is probably aware of this by now. Using them as a long-term store of value without actively managing a portfolio right now would be unwise.
Long-term, however, I expect distributed cryptocurrency will replace centralized fiat currency for most purposes. All it would take is an existing cryptocurrency that actually works well as a currency (not Bitcoin) combined with a financial crisis.
And personally, I don't really see what the "technology" brings to the party other than a specific bag of features. Kind of like Uber.
Aside from the amount of time it’s been in existence what is the difference between gold and something like bitcoin? Only ~4 of gold is used for industrial purposes the remainder is used for jewelery and stuff like bullion. Basically stores of value. It trades at a premium above its cost to extract, store and transport.
Though Thiel's de factor endorsement goes a long way...assuming his fund hasn't sold yet.