Warren Buffett: ‘Stay Away’ From Bitcoin
blogs.wsj.com
blogs.wsj.com
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.
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.
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.)
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.
Bitcoin first mover advantage is bunk.
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.
In the long view, Bitcoin only has brand strength.
Time will tell, and I believe ultimately vindicate my arguments.
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.
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.
Not so easy for the primary source anyway (seeking alpha has a lot of link rot). Best I can find is his letter to the 2011 annual letter, quoted here http://www.investopedia.com/stock-analysis/streetauthority/0...
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.
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).
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.
So at what number of years does a store-of-value transition from "no intrinsic value" to "intrinsic value"?
> it's entire value lies in being a medium of exchange
So why is that somehow "extrinsic" value and not "intrinsic" value?
As near as I can tell, all currencies fit this description, and bitcoin is just yet-another-currency (And isn't that just what it's supposed to be?)
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.
Not to mention hacking, the Mt Gox debacle, etc...
Real currency is more convenient, and real commodities have intrinsic value.
"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!
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?
Even if there would be an altcoin that achieves stability there would be huge adoption hurdles.