Buffett: Bitcoin not a currency [video]
video.cnbc.com
video.cnbc.com
Case in point: The Zimbabwean dollar remained a currency through its hyperinflation period, and is still considered a currency (however useless) even though it is no longer the official currency of Zimbabwe. Now that Zimbabwe officially accepts relatively stable foreign currencies, prices of goods have stabilised in that country.
One is a currency, the other is a commodity.
If you owed someone a debt of 30,000 British pounds, you could repay that debt with the pennies, and they would have to accept it. So pennies are both a legal tender and a currency in that case.
Pennies are only legal tender for amounts not exceeding 20p
edit: Also, as the link makes clear, you don't have to accept them even below 20p. All that legal tender means is:
> that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender. It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation
However, your second point agrees with what I was trying to say. The fact that a business does not accept change below a certain amount has nothing to do with whether a denomination is legal tender or not. Legal tender only has to do with cancelling out or paying debts.
From the child post: >>Yup, one of the common misconceptions about money. There's also no legal requirement to give change.
This also has nothing to do with whether a coin/denomination is legal tender or not.
Currencies have value based on the stability of the government, how many goods are priced in that currency, the GDP and trade balance of the country, etc. I'd guess that Buffet is confident in his ability to measure the value of a currency.
Bitcoin is not a currency. I'd bet that Buffet doesn't feel confident about measuring the value of bitcoin.
Bitcoin is not bullion. Bitcoin is not bank notes. Bitcoin is not fiat currency. Bitcoin is something new.
In this case, when Buffett said that bitcoin is not currency, I think he specifically meant that bitcoin is not fiat currency, or any other type of currency where the method of measuring value is well understood.
The main idea behind value investing, as far as I can tell, is to buy things that are being sold for much less than their intrinsic value. If you can't determine the intrinsic value, then on what basis would you invest?
Not that bitcoin doesn't have value - it's just that for someone that practices value investing like Buffett, there's not enough information to decide to invest.
I'm sure there are lots of people who feel that they know the "correct" definition, many with a compelling justification for its validity, but without consensus the word is little more than a rhetorical value judgement.
If people want to have meaningful discussions about new topics which fall outside the established semantic shorthands of past discussion, it generally better to avoid those words entirely.
There are lots of unambiguous claims one can make about Bitcoin, and I really wish people would talk in terms of those, instead of endlessly arguing about what names we're allowed to call it.
Also, if your defence of Bitcoin as a currency is to compare it to the Zimbabwean Dollar (a currency ridiculed and later abandoned) then is it OK if I ever need a lawyer that I pass on you and go to the next guy? ;-)
I don't read what he's saying as anti-Bitcoin per se, he's just saying that right now the massive variability around it means that it's not really a functional currency. That's a valid view and not one he's alone in holding - most economists, hell most people, whether they're pro or anti-Bitcoin will accept that the current fluctuations are problematic when it comes to day to day use.
Oh here it was, page 24
https://docs.google.com/gview?url=http://fm.cnbc.com/applica...
All my links are auto-dead now. I can only comment :-(
:(
But they seem to allow military A10 and F15 posts, no problem.
Now they suddenly just made it so I can only reply in comments like once an hour, I had to wait a long time to reply to this.
You're submitting too fast. Please slow down. Thanks.
This is someone's cowardly way of bullying me off HN, or a big bug - I suspect the former.
So Bitcoin fanatics who believe Bitcoin will replace fiat are wrong - unless they're willing to accept major changes to the system that go against their usual beliefs. (And even then, I doubt many governments would sit idly by, for good reason.) But for practical people who don't want to deal with buyer fraud, exorbitant fees, and lack-of-privacy, Bitcoin is great.
Buffett may be a killjoy and trying to preserve the current system which tends to benefit the wealthy and well-connected. I'd guess he probably has a lot of stake in that. But he is correct for now.
It would be like saying the Internet is not a phone system.
There is still a lot of uncertainty in assessing the value of bitcoin. Is it more like bullion? Currency? Tulip bulbs? The answer is like you said, it's something new, but it's not clear yet how to properly value that. If you don't fully understand where the value comes from, then it's safest to not invest.
In that moment, shells were a currency. It doesn't matter that no adults on the beach would accept the shells as payment for their Coke or that shells aren't legally endorsed by a government.
If we played this game today, we would have our phones out and trade our wares in bitcoin and it too would be a currency. Whether or not it's a good or reliable or sustainable currency is a totally different matter.
In other ways it's different - most currencies are backed and regulated by governments. Though things like cigarettes have been used as currency in prisons. I guess the test is whether you can go buy stuff with the thing in which case bitcoin qualifies while gold does not.
The question of what units you use to price future transactions is interesting and more what Buffett is talking about. Like if I'm going to offer to sell you some oil next month I'll probably price it in $usd as that's conventional, and almost certainly not in bitcoin as who knows what it'll be worth in a months time. You could argue though that we could do with some other unit to price contracts, say something like average annual US wage divided by something, that would not be change value much with inflation in the way that fiat currencies do, so you could use it for say pension payments and say in 50 years we'll pay 0.5 average wages or some such which is kind of what you want rather than saying us$40k - who knows what that will buy in 50 years.
AFAIK his holdings in 2008 got bailed out, saving his financial empire from destruction.
Frankly, I don't care what Buffet or Soros say and I don't see how they could have earned the money if not with corruption, insider trading, you name it ...
Very unlike start-up founders where you exactly know why they got the money...
Moreover Berkshire Hathaway is in the insurance business, and life insurance is a way of circumventing the estate tax.
Not surprisingly, buffet is an advocate of estate taxes.
As for Soros, he is well known for manipulating the price of the pound. It's often lauded as a 'brilliant move' but the net effect of what he did was to screw over poor and middle-class britons.
Depends on your POV. The BOE was manipulating its currency by trying to keep it stable and thus overvalued compared to other European currencies. Soros' fund forced the BOE to give up on that endeavour and let the pound find its fair value.
Buffett is a long term investor. Soros is a currency speculator who sometimes manipulates markets to his own advantage. Could not be more different in terms of their methods. That said Soros has repeatedly proposed simple legal changes to put him and his kind out of business, but while it's legal and profitable to do what he does, he does it.
http://www.wallstreetmanna.com/2009/11/warren-buffett-loves-...
or this:
http://truthingold.blogspot.com/2011/08/think-buffet-investm...
Not sure about 2009, but look here, they carry $30 billion in cash assets:
http://finance.yahoo.com/q/bs?s=BRK-A+Balance+Sheet&annual
It is hard to say how much of his success is due to his skill and how much of it is survivor bias (with him being the lucky lucky survivor). It's a neat issue.
Though his point about Bitcoin may be valid, we should take it with a grain of salt. Buffet is often predisposed to be standoff-ish about emerging (digital) technology.
Why? His point is valid. Just because something is digital doesn't make it magical and certainly doesn't make it a good idea.
For all intents and purposes, the dollar has been digital for a while. Certainly, there is the analog equivalent and certainly it is centralized, but it's definitely digital.
I want a pure decentralized digital currency as much as the next guy, but bitcoin is definitely not there yet.
i would say bitcoin is the closest contender yet, compared to all prior art in digital currency.
When WB says he doesn't understand the business of bitcoin, it's because NO ONE understands the business of bitcoin. The market is a wild west of boom and bust every year. Buying bitcoin is speculating, not investing.
Thus the old system fear Bitcoin because with Bitcoin you do not need the banks. With Bitcoin the banks cannot create new debt/credit money through thin air so the banks do not have a special privilege in that system. The banks took Satoshi Nakamotos family home via foreclose and then he created Bitcoin, score settled.
http://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto....
But I would agree Bitcoin is not a currency Bitcoin it is a new economic system where alternative crypto currencies compete with the Central banks FIAT money. Bitcoin also competes with credit cards and payment providers such as Paypal and money wire transfers Credit Union.
Because otherwise, it's entirely possible for banks to "create debt/credit money through thin air"
Fractional reserve itself is not impossible (a bank offering BTC denominated accounts could lend out some of the BTC and not retain enough on hand to cover all deposits.)
But because of the supply characteristics of bitcoin, you'd probably have to charge depositors to store money rather than giving them low-to-zero interest, and give loans at zero-to-low interest compared to typical major fiat currency rates for otherwise similar loans, and then why would depositors pay to store with you rather than keep coins in their own wallet?
So, fractional reserve is possible, but it may be tricky to make a viable business model out of it.
Secondly, assuming you're taking on risk, there's no reason at all you wouldn't be paid a fair amount of interest. I believe under the gold standard, government debt had a small but positive rate of interest, and other debt (and equity securities) were riskier and had a higher premium. (Graham and Dodd's Security Analysis)
But I agree that if you are just trying to save money without any risk, like people in the old days who just saved gold coins or paid off their mortgage, that's different and should not earn a lot or any interest. And trust banks at your peril.