Dissecting Warren Buffet's Opposition To Cryptocurrencies
"Stay away from it. It's a mirage, basically," asserted Warren Buffet on Bitcoin.
Believe it or not, he made this statement way back in March, 2014, in an interview featured by CNBC. At that time, Bitcoin was trading at $600. Since then Bitcoin has swelled to more than $10,000 a piece! And yet, Warren Buffet has refused to give an inch. Going on record, Buffet had declared that the idea that Bitcoin had any intrinsic value was a complete joke.
So why is the Midas of Wallstreet so skeptical about cryptocurrencies?
He made his fortune with a simple yet elegant strategy-
As per Buffet, the intrinsic value of a business is the discounted value of cash that can be taken out of a business during its lifetime. In 2016, his company Berkshire Hathaway invested in Apple for the first time. At the time, Apple's total market capitalisation was roughly $550 billion. Almost 60% Americans use an Apple product today and the company's global clout continues to grow, while its market capitalisation has crossed $900 billion. Buffet took a bet on Apple because he believed that as a company it was highly undervalued. The increasing adoption of its products continues to drive the company's intrinsic value.
Buffet's perception of cryptocurrencies is quite commendable. Bitcoin or for that matter all cryptocurrencies are increasingly becoming more and more speculative. Consider this, Bitcoin has a reported market capitalisation of $180 billion. Now a lot of us can swear by the sword that Bitcoin would one day overshadow fiat money. But at the very moment, there's not much you could do with Bitcoin other than trade, unless you're in South Korea or the USA.
Bitcoin is precisely the antithesis of Warren Buffet's philosophy. He prefers to invest in companies which are highly undervalued but whose products have widespread adoption. Bitcoin has neither. To this day there are only 22 million active Bitcoin wallets and yet a single Bitcoin is priced at more than $10,000.
Yes, Warren Buffet might be wrong and I hope he is. Bitcoin might turn out to be a valuable resource if it beats fiat currency. But then its a big "MIGHT". Cryptocurrencies have just gone mainstream and a lot can change by the end of 2018. While cryptocurrencies will not get blown away in a jiffy, but the recent volatility in the crypto markets clearly shows that even the mighty Bitcoin is not infallible.