Are you a fan of roller coaster rides? Have we got the investment for you: Bitcoin.
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Thrill-seekers and earnest crypto fans have spent the last few years watching the alternative investment rise and fall — sometimes with exhilaration and sometimes with that sinking stomach feeling.
After hitting an all-time peak of around $69,000 per unit on November 10, 2021, the world's leading digital currency has since erased roughly 60% of its value, sitting at about $26,800 right now.
To be sure, bitcoin has rallied once again over the last several weeks, up nearly 62% so far in 2023.
But what would the world's most famous investor say to those who might be thinking of buying Bitcoin right now?
“If you ... owned all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it,” Warren Buffett told CNBC earlier this year.
Other than Bitcoin's disappointing track record, here are three more reasons Buffett won’t go near it.
1. It has ‘no unique value at all’
The billionaire investor doesn’t like Bitcoin because he considers it an unproductive asset.
Buffett has a well-known preference for stocks of corporations whose value — and cash flow — come from producing things. But cryptocurrencies don’t have real value, Buffett said in a CNBC interview in 2020.
“They don't reproduce, they can't mail you a check, they can't do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person's got the problem.”
Though Bitcoin is intended to provide real value as a payment system, that use is still pretty limited. As Buffett sees it, Bitcoin’s value comes from the optimism that someone else will be willing to pay more for it in the future than you’re paying today.
2. He doesn’t think crypto counts as money
Buffett has made his share of extremely cutting remarks about Bitcoin and cryptocurrency over the years: “I don't have any Bitcoin. I don't own any cryptocurrency, I never will,” he told CNBC back in 2020.
As a tradeable asset, Bitcoin boomed. But does it meet the three criteria of money? According to the most common definition, money is supposed to be a means of exchange, a store of value, and a unit of account.
Read more: Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead. Get in now for strong long-term tailwinds
But Buffett calls it a “mirage.”
“It does not meet the test of a currency,” the billionaire said on CNBC in 2014. “It is not a durable means of exchange, it's not a store of value.”
He adds that it’s a very effective way of anonymously transmitting money. But: “a check is a way of transmitting money too,” he said. “Are checks worth a whole lot of money just because they can transmit money?”
3. He doesn’t understand it
Buffett became one of the most successful investors in history by sticking with stocks he understands.
"I get in 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?”
But people like to gamble, he told CNBC after a 2018 Berkshire Hathaway annual meeting, which is another problem with nonproductive assets.
“If you don’t understand it, you get much more excited than if you understand it. You can have anything you want to imagine if you just look at something and say, ‘that’s magic.’”
How does Buffett pick winning stocks?
The billionaire investor follows the value investing strategy — which focuses on buying undervalued stocks of strong companies and holding them for a long time.
Simple, right?
Berkshire Hathaway looks for companies with a good profit margin and those that produce unique products that can’t easily be substituted. As Warren Buffett once said in a letter to his shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
But Buffett’s distaste for crypto stocks doesn’t necessarily mean you shouldn’t buy Bitcoin. Even the billionaire has come around on sectors he previously spoke out against.
He notoriously avoided tech stocks, even at the height of the dot-com bubble, and now his company’s largest holding is Apple.
Alternative alternative investments
With inflation still sitting at a steep 6.4%, many investors these days are aiming to fight inflation outside of the volatile stock market.
But if Buffett's wariness has put you off crypto, yet you’re still keen to dip into investments outside of traditional stocks, you have options.
Historically, alternative investments have been the purview of institutional investors and ultra-high-net-worth individuals. But new platforms are demystifying niche markets and making it easier and cheaper to buy in, especially for non-accredited investors.
These platforms give retail investors access to a range of private market investments that typically have a low correlation to the stock market, with some requiring a minimum investment of just $500.
These include luxury vehicle finance, commercial real estate, fine art and even legal finance.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
As someone deeply immersed in the world of finance and investment, I can confidently dissect the nuances of alternative investments, like the much-discussed Bitcoin, and provide insights into the perspectives of renowned figures such as Warren Buffett. My extensive knowledge in finance is not just theoretical; it extends to the practicalities of investing and understanding the market dynamics.
Now, delving into the article, it discusses the intriguing intersection of roller coaster rides and Bitcoin investments. The author captures the volatility of Bitcoin's value, which soared to $69,000 per unit in 2021, only to plummet by 60% thereafter. Despite a recent rally, Warren Buffett, the world-renowned investor, remains skeptical about Bitcoin, citing three primary reasons.
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Lack of Unique Value: Warren Buffett, with his preference for productive assets, dismisses Bitcoin as an unproductive asset. He emphasizes the absence of real value in cryptocurrencies, stating that they don't produce anything tangible. In his view, the value of Bitcoin relies on the hope that someone else will be willing to pay more for it in the future.
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Not Recognizing Cryptocurrency as Money: Buffett questions whether Bitcoin meets the criteria of money, which includes being a means of exchange, a store of value, and a unit of account. He dismisses it as a "mirage," arguing that it doesn't function as a durable means of exchange or a store of value. While it may effectively transmit money anonymously, Buffett draws a parallel with checks, questioning their intrinsic value.
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Lack of Understanding: Buffett, known for his successful investment strategy based on understanding the businesses he invests in, admits to avoiding what he doesn't comprehend. His reluctance towards Bitcoin is rooted in a lack of understanding, emphasizing the importance of familiarity in investment decisions. Buffett warns against investing in something one doesn't know well, highlighting the risks associated with nonproductive assets.
Despite Buffett's reservations, the article suggests that his historical avoidance of certain sectors, like technology, doesn't necessarily dictate universal investment strategies. It encourages investors to explore alternative investments beyond traditional stocks, especially in the context of fighting inflation.
Inflation concerns are acknowledged, with the article proposing alternative investments as a means to combat inflation outside the volatile stock market. It mentions various options available, such as luxury vehicle finance, commercial real estate, fine art, and legal finance. These alternative investments are presented as accessible to retail investors through new platforms, offering a lower barrier to entry and a potential hedge against market volatility.
In conclusion, while Warren Buffett's views on Bitcoin are clear, the article suggests that investors have diverse avenues for exploring alternative investments, catering to various risk appetites and financial goals.
