Buffett bashes Bitcoin as nonproductive, thriving on mystique
reuters.com
reuters.com
When you buy a Bitcoin, you are helping to convert electricity to heat.
Add to this that the payout mechanics strongly incentivize pooled mining, even for people with powerful miners, and the "guarantees" get that much flimsier. A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power, and they've all been in the same room on multiple occasions. It's no different than the small handful of men who control the Fed / other major financial institutions in our fiat systems.
Bitcoin was an excellent thought experiment, but it's no wonder that Satoshi wants nothing to do with what it has become.
Also "A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power"
I think that's a bit hyperbolic. A small handful of men control where the hashing power currently is. However, that can change very quickly. If you don't like what a pool is trying to use your hashing power for, leave that pool.
Examples: copper, gold, land, art, wireless spectrum, currency.
There's a perfectly valid rationale to hold each of these assets, and none of them are "productive" by themselves.
Each of these has scarcity and utility. That's what matters.
intercontinentalexchange has a value. visa has a value. etc.
The transactions are the value. The network has value.
If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company.
Is it a good way to buy and hold...of course not.
If you have a functioning company making something and sell it, your company is worth almost nothing. That's true.
But those people and assets are still useful to someone else. They have a value.
Bitcoin can't be consumed the way assets and labor can.
Stop proving that Bitcoin enthusiasts don't understand economics.
Are you saying that the intrinsic value of gold is the price manufacturers of "useful" products from gold are willing to pay for it?
Scarcity relative to demand pushes up market prices (i.e. extrinsic value) but that's something entirely different...
Then what is the number? No, scarcity is an important attribute that contributes to perceived value, but it's not intrinsic. Otherwise any cryptocurrency that is scarce would have intrinsic value, as opposed to the many that are essentially 0.
This is not cut and dry as to whether it is a benefit or not. Many people, myself included, don't consider it a benefit. Not having control over your currency makes it that much harder to respond in times of recession. Greece was hit quite hard by the Great Recession, and one of the reasons why is because they didn't have control over their currency, and so they couldn't lower the value of it. The Euro was still valued high due to the use by Germany and France.
"Huge sums can be transferred globally at the speed of light with very low fees."
Currently that's not true of Bitcoin, either. Transactions are slow, and fees are not low.
"The electricity it takes to maintain it is nothing compared to the rest of the banking system."
Is it? It takes a crazy amount of power, for what seems to be something that only a small amount of people are using, with a very anemic transaction throughput.
Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster.
Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin.
Some people, not all people. And that's why I said that it unsure whether that's an actual value or not.
"Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster."
No, not really. Credit card transactions are far, far faster than a Bitcoin one. Bank transfers in Europe are quite fast, too.
"Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin."
You're gonna have to provide a citation for this.
> Most importantly it can't be created/destroyed at will by a central government.
Couldn't someone destroy/steal my BTC wallet though? I'd have no recourse for justice, right? Also, doesn't the Federal Reserve print money mostly at will?
> Huge sums can be transferred globally at the speed of light with very low fees.
I think the speed claim here is totally false[1].
> With normal currency a wire transfer costs money
Don't all BTC transactions have confirmation fees?
> and moving a lot of money from a bank account usually takes days.
This is true crypto currencies shine here. It can take 20 minutes to transfer $5 or $5,000,000.
> The electricity it takes to maintain it is nothing compared to the rest of the banking system.
Maybe, but also maybe not. The rest of the banking system provides lots of services and protections that crypto currencies don't.
> These properties are the very nature of crypto, that's why it's intrinsic.
These are properties of crypto currencies for sure, but that these are valuable properties is entirely subjective.
Also, unlike cash, you're making your transaction history public. Any central government in the world can see this. You have to jump through a lot of hoops and use multiple blockchains to anonymize your Bitcoins.
Transfers incur a network fee with Bitcoin as well. I doubt anyone making a small purchase wants to pay fees that might be a significant percentage of, or exceed, their purchase subtotal.
You cannot send Bitcoins "at the speed of light". On average, the Bitcoin network processes 7 transactions per second.
But what I can't get behind is his active and vocal bearishness. If he has a well-reasoned argument to make, then he should make it. If not, lay off.
I can’t imagine the frustration Warren Buffet feels when surrounded on all sides by digital snake oil peddlers.
If you read up on his comments on hold (someone copy-pasted it elsewhere in this thread), you will see that this is nothing more than his investment thesis. It seems to work well for him.
Statements like "rat poison squared" are not the same thing as disliking non-productive assets. I'm sure he doesn't think gold is going to $0. I want to hear why he thinks that Bitcoin is particularly destined for a price of zero. This is the analysis that he never gives us.
ending:
>It’s something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbours are getting rich and neither one of them understands. It will come to a bad ending. Charlie…
I see a lot of that.
Also, Buffet is the insider's insider. Banks work for him. He has exactly a 0.00000% chance of having his accounts frozen. The US Congress would hesitate to pick fights with his companies. When you have those kind of connections and power, you're not well placed to understand the benefits decentralized sources of authority provides.
What Buffet is missing is that bitcoin is an alternative to cash, and when lightning networks and side chains are widely deployed it will be very, very competitive with cash on most axes. Eventually (if hyperbitcoinization actually happens) even the variability will be less than any one national currency, since global demand and stabilizers will buffer it against any localized shock.
Everything about Bitcoin is new and untested and most institutional investors abhor anything they can't quantify. Bitcoin is a huge gamble, and people like Gates and Buffet don't gamble.
"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."
Source: http://www.berkshirehathaway.com/letters/2011ltr.pdf
Buffett thinks it's irrational to pay $1750 for one ounce of gold when he could own 22 shares of Exxon Mobil for the same price.
Let's assume he's correct. Since the value of Exxon Mobil should compound over the decades much faster than gold, it should be worth more today, right?
But markets are already discounting those future cash flows, isn't that already built in to the current market price of both Exxon Mobil and gold?
If the price of gold is irrationally high, then it's an irrationality that has lasted for centuries and will likely last centuries more.
Even Buffett isn't predicting that the "gold bubble" will burst, sending its price to zero, as everyone sells gold to buy Exxon Mobil.
So if he expects an asset will be valued irrationally high forever, is it really irrational buy it?
"Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard “cash is king” in late 2008, just when cash should have been deployed rather than held. Similarly, we heard “cash is trash” in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.
My own preference – and you knew this was coming – is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.
Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.
Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest."
As an aside Buffett and others are very unfair to tulips. A tulip can produce many offspring tulips which can be sold for cash and currently account for about 10% of Hollands GDP. Many tulip bubble buyers may have done ok buying holding and sticking in compost. Try that with a bitcoin or a share of Berkshire.
How many businesses from Jesus's time are still here today?
The gold that was around 2000 years ago is still here.
Bitcoin will resist inflation and is somewhat out of control of governments or any central authority. People in countries where the govt has screwed up the currency can use it to get money out of the country or as a stable store even if dollars or other physical currency is in scarce supply. My family fled china carrying their wealth as gold and bank checks. Today, people can transfer their wealth as bitcoin across international borders.
The fundamental properties of money are:
<<Fungibility: its individual units must be capable of mutual substitution (i.e., interchangeability). Durability: able to withstand repeated use. Portability: easily carried and transported. Cognizability: its value must be easily identified. Stability of value: its value should not fluctuate.>>
It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value.
He waited until 2016 before investing, not exactly an early adopter.
Big problem for crypto. It's a spec market currently and shows no signs of settling down. Add that to the fact that transactions are a nightmare and... I just don't see this happening any time remotely soon. Also, if you think the powers that be are going to allow their currencies to be supplanted... well, they won't.
Just because BTC is electronically transacted doesn't exempt it from rules of supply and demand, speculation, value stabilization, &c.
Can you describe any mechanism that actually causes the price to stabilize and speculation to disappear? (Please, if possible, also define at least somewhat quantitatively what you mean by stable, and then discuss how successful this mechanism you first described has been stabilizing gold price during the last couple of thousand years when gold has been used as moneylike instrument and store of value.)
Wishful thinking does not count. I know no law of nature nor economics that says that demand of money is stable. And if you allow fractional reserve bitcoin banking without regulation[1], money supply would be completely chaotic.
[1] I guess the question is how would you prohibit fractional reserve bitcoin banking? It's not like there exists any regulatory authority that could do that...
It is a supply and demand curve. Where they meet is the equilibrium. https://en.wikipedia.org/wiki/Supply_and_demand
Fractional reserve banking doesn't work with Bitcoin, unless you somehow trust a centralized party to always honor your withdrawal, or the coins never leave that internal system. Many exchanges could theoretically be running fractional reserve operations. But they are just risking themselves because once a rumour gets out, a bank run will occur and they will be exposed. Once you withdraw your coins from this trusted system, it is accounted for on the blockchain.
You're not answering the question, just tautologically rephrasing it.
Academic economists like Steve Keen have totally demolished the classic supply/demand curve: https://unlearningeconomics.wordpress.com/2012/06/25/debunki...
Here's a suitably scornful graphical version: https://www.youtube.com/watch?v=Y3wUqcapSU4
If you're comparing the stability of the major currencies to Bitcoin you really need to look at the price charts for any digital currency.
> Buffet always holds billions in cash which is constantly depreciating in value.
Buffett is always ready to use that cash to make deals. True, they have a lot of cash, but it's not like he doesn't constantly use it to make investments.
Can you back this up? From what I can tell, governments can ban mining, shut down exchanges and co-erce developers. If the handful of devs that have commit access to Bitcoin were working for the CIA, would we know? What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?
> Today, people can transfer their wealth as bitcoin across international borders.
Again, citation needed. How many Chinese people are doing this? The exchanges are banned, right? So how could your family buy Bitcoin in China? OTC? What's the spread on the OTC market in China versus US market? Is it actually worth it?
The money supply setup for Bitcoin is meant to make the currency deflationary by design. Whether that is successful or not remains to be determined.
probably not, unless they're comically incompetent
>What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?
not much, considering there are independent implementations, there's no auto-update for clients, and consensus code changes are heavily scrutinized. I'm sure they can ram a PR through if they really wanted, but it's going to be very obvious what's happening.
Cutting off exchanges from financial institutions will likely be the primary way the government attacks cryptocurrencies. Just look at what happened to online gambling 10 years ago. Online poker and sports gambling were booming. What the US did was prevent banking companies from doing business from gambling companies or intermediaries (e.g. Neteller). Basically overnight, online gambling became a shell of what it was previously. Sure there are still ways around it, but it's enough of a hassle that only the most die-hard players are going to find it worth it.
It doesn't take a huge stretch of the imagination to apply the same strategies to crypto. If financial institutions are prevented from doing business with Bitcoin, et al., it's basically game over, as long as its utility is dependent on buying with fiat currency.
And not a moment too soon. Gambling games are designed to be addictive, to bypass the judgment and decision-making centres in people's brains, and take their money. Providing places to go and gamble is one thing; people who walk in there ought to know they will probably lose every bean they walk in there with, so there's informed consent. Putting gambling games that accept real money on the web is effectively like putting coin-operated pokie machine in every living room (and these days every pocket) with a net connection. It's profoundly exploitative and totally deserved to be starved of financial oxygen IMHO.
Should "liquid" (easy to spend and trusted to be exchangeable for goods or services) be on that list? I wonder if it's generally left off because it's assumed, but BTC is not currently what I would consider "liquid;" the average time to confirm a transaction ranges from 30 minutes to (sometimes) over 16 hours [source: https://coincentral.com/how-long-do-bitcoin-transfers-take/]. So it's not a money I can spend on a pack of gum.
Contrast that with cash, checks, or credit cards, which generally clear in under a minute (checks being the notable exception, and indeed, the exception that makes them not always equivalently useful to the other two).
If the answer is no one, then this doesn’t seem like an interesting point of comparison for liquidity.
Lots of crypto supporters will talk about inflation like it's bad. Hyperinflation is bad. Typical monetary inflation is a feature not a bug. This is because of people's expectation of wage increases over time. This results in increased demand and spending on goods and services.
Bitcoin by its very nature is deflationary. This reduces demand and increases hoarding. The currency then acts less and less like a currency (sound familiar?). In a deflationary environment, wages would go down over time and workers do not accept reduced wages vs increased wages even if their purchasing power remains the same in both cases.
Small amounts of inflation is a psychological trick that actually helps keep the economy moving along. Outside of hyperinflation the inflationary argument for cryptocurrency is one not rooted in the reality of economics.
I would say that fiat currencies are quite predictable. The last thing the Fed, for instance, wants to do is to come out of left field and change things. That would be disastrous for markets.
This doesn't invalidate his position, but it's worth remembering he is not an objective observer in the situation; his company is positioned to directly gain from a crypto-mania.
How many transactions per minute can AWS do?
How many transactions can the bitcoin network do if Amazon goes out of business or cancels AWS? (hypotheticals seem relevant here, to make the point)
How many transactions can your business perform if AWS blocks you, or your transaction type?
> How many transactions can your business perform if AWS blocks you, or your transaction type?
I can't get my head around this sentence.
> Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.
That is exactly what collectibles are. Art has been used in this way for a long time.
https://www.theguardian.com/artanddesign/jonathanjonesblog/2...
> Crypto-assets produce decentralized infrastructure.
There is pro and cons on decentralized currencies. (https://www.economist.com/news/briefing/21721354-contemporar...) But is nothing new, nor nothing that needs cryptocurrencies.
Cryptocurrencies are an interesting experiment. Its intrinsic value is zero. It can be used, like other collectibles to transfer wealth. How it works when people lose confidence in them is to be seen. It is usually ugly, even for currencies backed by countries (https://en.wikipedia.org/wiki/Hyperinflation).
Tulips where at least beautiful.
In the end it will cost less in the short-term (per transaction costs) and in the long-term (the unnecessary, unreasonable amount of wealth reallocated weighted towards earlier adopters) to compete not using blockchain for everything - especially not incentivized crypto-assets - as they're banking on and investing in perpetuating an ecosystem for.
Competition will exist to show the cost differences, however there will continue to be a strong and growing push by those who are already vested in and own any number of these incentivized crypto-assets, and the platforms/services that have tied themselves into them.
It's understandable that VC would enter the market once it gained enough traction, at least once the ecosystem matured enough, once there was enough hype, and gaps in the market were spotted by competent teams who were wanting to fill them, e.g. Coinbase as one example of USV's investments; selling services during a "gold rush" is likely the safest bet and most profitable.
Albert, another partner as USV has been evolving his understanding and has been working on a book called World After Capital - http://worldaftercapital.org/
USV as a whole have been evolving a thesis related to decentralization, which I believe they've perhaps mispurposefully attributed to being solved by blockchain; the thesis and conversation that Fred posted around years ago was relating to the idea of the The Independent Web - my blog post on this from 7 years ago: http://mattamyers.tumblr.com/post/2903098250/the-independent... - "The Independent Web, How Can It Work?"
The answer of trying to create collaboration by aligning everyone in a Pyramid-Ponzi scheme however is wrong and immoral IMHO, and there's a better way - as even with decentralization you still need centralization for governance, as without it you allow bad actors to flourish - and with the current system of incentivized crypto-assets, existing/known bad money certainly has entered that ecosystem.
Whenever I write responses like this to Fred or other people's posts who seem all-in for incentivized crypto-assets, the responses are none-to-shallow in depth. And I have gone into much more nuanced detail in other comments relating to why incentivized crypto-assets are overall bad for society. Perhaps the most purposefully ignored long-term negative is that there is a tipping point of adoption - let's say it's at "40%" adoption - where after that tipping point those later adopters are simply realizing the added cost of the increasing cost per "coin," and so they are no longer incentivized to collaborate. The danger here for society however is you now have up to "40%" of society vested into making sure this gets adopted fully by society, including any number of bad actors - who perhaps will have then hundreads of billions-to-trillions of dollars they want realized; this could be as subtle as enough politicians getting elected into government, or bribing existing, or of course the worst.
The solution, if blockchain is a necessary technology to use, is to have all existing fiat currencies globally merge - and only when governments are ready and under no pressure or force (and with no lobbying efforts by incentivized crypto-asset groups trying to indoctrinate based on their biased desires or ask to not be regulated..) - into a single digital ledger/currency. And with this solution instead of "you" giving me cash in exchange for a digital asset, "you" give cash to that government's mint and it gets converted into the digital ledger/removed from regular circulation; the conversion rate would likely only simply need to match going exchange rates between currencies - there will be some nuance to explore of course.
It's probably no reflection on the rest of his thesis, but he's wrong about what was scarce in pre-agrarian societies (see 'The Original Affluent Society by Marshall Sahlins). Looks like an intriguing book though, thanks for sharing. Seems similar to the thesis of Jeremy Rifkin's 'Third Industrial Revolution' and 'Zero Marginal Cost Society' books.
As for your worst-case-scenario about crypto-currencies, replace them with over-valued real estate and we've already seen it play out at least once. The majorities (or 40% minorities in my country) who vote for fiscally conservative parties pushing austerity policies, despite all the evidence they make the problem worse not better, are desperately trying to prop up the value of their real estate investments and retirement funds. Like goldbugs and bitcoinbugs, they have an irrational fear and hatred of even mild inflation, as any inflation causes some erosion of the value of their stored wealth. This fear and hatred makes them willing to ignore the acid that austerity pours of the social fabric, and the way its gradual demolition of public services built up over generations, so it can feed the remains into barrel fires and convince itself this is "growth".
Consensus algorithms have shifted focus away from decentralization and towards pushing cryptocurrency agendas. Shame!
... in the short run, the production space hasn't ramped up to meet the demand from a new consumer sector and my graphics cards have jumped in price. ;) And (depending on how bullish you are on the notion of crypto solvers being a permanent need and not a bubble) the market may be setting up for a crash if these currencies turn out to be a flash-in-the-pan and demand evaporates overnight for solver hardware. I'm not super-convinced of that crash outcome though; it's a risk, but I'd rate it a low one.
I could change my t-shirt color, but I can't change the thing I actually want to do with the hardware or the configuration I need it in that's optimal for my use case.
The mining market is too unstable to bet trillions of dollars expanding fab capacity, which is why they haven't been able to increase production to match demand. So while they are currently sitting atop thrones of cash, they cannot accurately forecast demand. If either a) ethereum tanks or b) someone cracks ASIC mining for ETH & curriencies mined w/ GPUs, then all of a sudden they will see a huge drop in demand. Additionally, there would likely be a massive surge of fairly new used cards hitting the market, further dropping demand. That's a scary thought for a manufacturer, they could potentially end up sitting on large stocks of unsold inventory.
[1]:https://usethebitcoin.com/amd-worried-business-cryptocurrenc...
The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."
While perhaps true, such rebuttals ignore the arguments being made by folks like Buffett around predictability, likelihood of a return, confidence in underlying asset value, volatility etc... So the argument isn't about whether or not you can make money on these things, it whether it's a prudent instrument to invest your money into.
[1] http://www.minyanville.com/trading-and-investing/commodities...
Mortgages have been payed off with lottery wins. That doesn't make lottery tickets a good investment.
Weren't there a bunch of people who went in debt recently to buy BTC when it was close to $20k?
isn't this in a nutshell stock market form 'normal person' perspective? Or antiques market, or any other from thousands 'buy cheap - sell for more' types of market?
Valuation of Bitcoin to a large degree is purely based on market psychology, and it doesn't pay dividends.
Pipes perform utilities, not companies. What companies do is manage the social and financial infrastructure around making, or delivering, or laying, or servicing pipes. See the difference? What Buffet is saying is that when people speculate on BitCoin, they're buying over-priced pipes, in the hopes that some other sucker will pay even more for the same pipes. The companies that will make money out of crypto-$ long term are the ones sell services (like the hoteliers and general store owners in the gold rush), not the ones spending money (or god forbid going into dept) to buy crypto-tokens. Those service companies can pivot to selling similar services to another sector if (when) the crypto bubble bursts. They are the ones the likes of Buffet consider an investment.
People make big dumb investments every day, and you don't see Buffett and Gates talking to the media about it.
What's their objective? And why together? And why now?
[0] https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bit...
"I like cryptocurrencies a lot less than you do," Munger said to Buffett. "To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out."
http://money.cnn.com/2018/05/07/investing/warren-buffett-bit...
I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.
Does he also think that the US Dollar is rat poison because it's not a productive asset? He holds like $80b cash.
"But bitcoin has high fees" well yeah, there are 1,000 newer cryptos with lower fees. (and plenty of scams)
"But local stores don't use it" well yeah, nobody used credit cards in the 40s either. (and now cash is dead)
"But it's not user friendly" well yeah, neither was the internet until ~2000. (i've seen nearly zero progress in crypto here, btw)
lol
If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash...
Is it just me or aren't debit/credit cards much faster than paying with cash, too? Making change and then dealing with all of the coins is way higher effort than swipe, maybe pin or sign, and move on. And the sign step is going away, at least in the US, soon.
The laughter is justified not only for the illogic of this, but the fact that this is somehow a good reason to buy Bitcoin.
> I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.
Maybe it is in your little corner of the first world, but this certainly isn't true for most of the world. Plenty of people are still using cash and it isn't going away anytime soon.
$100B is a colossal amount of money to have sitting around in the form of cash equivalents. I wonder why he hasn't just put it into the S&P 500, given that he belives the stock market is currently a good investment. Given the index's liquidity, I would think he'll still be able to sell it off quickly, if he needs the cash for an acquisition.
Speaking of which, it's also common for acquisitions to be carried out using stock, instead of cash. Given that acquirees are open to getting paid in stock, I would have thought they would be open to getting paid in SPY.
https://seekingalpha.com/article/4164368-spy-cost-liquidity
https://www.investopedia.com/ask/answers/06/macashstockequit...
Very poor choice of words, heh.
In a manner of speaking, "history is written by the victors" applies to blockchains in more way than one (miners, orgs, hardforks, ...)
In Europe meanwhile, investing in the stock market is getting harder and harder, as new european rules (e.g. MIFID II) make any stock broker require to fill in a test and whatnot to prove basic stock market knowledge and competency, plus accept the risk to lose money explicitly.
There's a lot of people that invested money in the stock market they couldn't lose, due to promises of huge returns. Sounds familiar, doesn't it?
More productive work has been done by Bitcoin devs and users than much of the normal finace work and money spent when it comes to investment and future value creation though experimentation right now. To dismiss all of that as nonproductive is ridiculous because it is very clearly extremely productive. This is true regardless of how much money an investment in Bitcoin might make.
If people were honest, they'd admit that Bitcoin is flawed, that it was never intended or conceived as the perfect realized implementation of a digital currency, etc. It's a thought experiment that grew rapidly out of control.
The Lightning Network is a good example of an earnest try to make something workable out of Bitcoin, but even that has real difficulty overcoming some of bitcoin's core design flaws, which are: a) difficulty mechanism blocking out commodity miners and essentially assuring there will always be centralization, which means network security will always be dubious at best, fees will always be high, and other undesirable consequences; b) inability to provide reliable, rapid transaction confirmations; c) inherent scalability difficulties based on the amount of work needed to verify transactions.
Lightning networks address some of this for some partners, but even for those who find lightning networks a reasonable workaround (that is, those with sufficient btc to open, maintain, and populate mutual funding channels), there are additional negative trade-offs that make the process undesirable (if the counterparty can prevent them from crying 'foul' within the settlement deadline, a lot of money can be successfully stolen).
Continued insistence on Bitcoin/blockchain deployment as such is non-productive. Lessons should be extracted from the bitcoin experience and we should move on to something that tries to resolve Bitcoin's fundamental issues. Let's accept Bitcoin's role as a thought leader and early implementation of digital currency, but stop pretending that it's ever going to be useful as a major economic backbone.
People are going into work every day to work on crypto-related products. Bitcoin & other cryptocurrencies are putting food on the table for those people.
Scamming people can also put food on your table. Stealing can put food on your table. Neither is particularly productive.
based 100% on people trying to make a quick buck, and not based on solving a problem virtually anyone actually has.
by this bar, Dutch tulips in the 1600s were also extremely productive
A short time ago all currency was on the gold standard. Then it was loosely based on the underlying productivity of the country that issued the currency. Then it was loosely based on the underlying safety of the country that issued the currency. Even gold has bounced around in value.
Having said that, I am still not convinced that bitcoin is a viable monetary standard. There is no way (that I can see) to evaluate its underlying value. Underlying value is needed for trust. Trust is needed for exchanging goods and services. Monetary standards are just stand ins for barter.
Please convince me.
We've had a century or so of modern economic theory and thousands of years of history before that time to study how money, tangible goods, production, and consumption interact. Maybe I'm not being charitable, but a lot of the cryptocurrency experiments feel like tossing that history out the window and starting over from base principles---which would be fine if I didn't watch them recapitulate the same mistakes nation-states have made throughout history.
To take BTC as a specific example: it's considered a feature of the currency that there is no fiat institution that can just print more BTC. Which is great up until the point that a hacker compromises an exchange and re-assigns a giant pile of value to anonymous criminals (or just makes it evaporate), and there's no back-stop institution to make victims whole. In a world where FDIC insurance exists, why would I bother with that nonsense? We've already had history from the Great Depression to observe the ramifications of common people getting screwed when the money storage and transfer institutions they rely upon go haywire; I don't see a need to jump feet-first into the barrel of unregulated transaction institutions again (and for BTC specifically, without those institutions available to close out transactions quickly, the lag on BTC transaction resolution makes it undesirable for day-to-day spending).
> In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset.
- Buffett in http://www.berkshirehathaway.com/letters/1992.html
Bitcoin etc are currencies native to the network environment just as cash is native to the meatspace. Both have their advantages and shortcomings.
Wisdom is found in using things if they serve you and leaving them alone if they don't. Cash serves its purpose in the meatspace, cryptos serve their purpose on the network. Use them as they're useful.
I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about. It's even less wise to take advice from those who speak from ignorance.
He's talking about investment vehicles. I would say he knows more about those than most of us here on this board.
Indeed here's a quote from the 1998 letter
> Despite the pathetic technical skills of your Chairman, I'm delighted to report that GEICO, Borsheim's, See's, and The Buffalo News are now doing substantial business via the Internet.
Being in Bitcoin since 2011, I've found most Bitcoin advocates tend to be of the ignorant sort with regard to both the technology and the economics. They tend to gather their information from what they're told to think on places like Reddit, and are quicker to communicate via memes than have an actual real conversation.
A lot of trade in the stock markets is based on similar dynamics: lack of clue on the investor's part, just go with what someone told you.