Berkshire Hathaway CEO Warren Buffett and Vice Chairman Charlie Munger both came out swinging against bitcoin this week.
Buffett called bitcoin “rat poison squared,” while Munger was cruder, comparing the cryptocurrency to “turds” and “selling baby brains.”
The irony here is rich and layered. Munger and Buffett are legendary value investors known for advising people to invest in what they know and avoid what they don’t.
Clearly, neither of these gentlemen knows much about crypto (or technology in general). Buffett reportedly doesn’t even use email, so how can he hope to understand digital assets like bitcoin? I would argue that he can’t. And he shouldn’t attack assets he doesn’t understand.
It’s worth noting that Berkshire Hathaway essentially missed out on the entire tech boom. The firm missed on Google, Amazon, Microsoft and others. It did buy Apple, but only in 2016, when it was more of a value stock than a growth one.
Meanwhile investors like Peter Thiel, PayPal founder and first investor in Facebook, and Marc Andreessen, legendary venture capitalist and web entrepreneur, are bullish on bitcoin.
So Buffett and Munger’s lack of tech savvy provides some insight into why these legends don’t invest in crypto. But considering how nasty and personal the attacks were, I suspect there’s more at play here.
Talking Their Book
In a CNBC appearance in 2017, Buffett was asked what his favorite bank stock is. His reply was telling: “What’s your favorite child?”
Clearly, he loves them all. And Berkshire Hathaway has made a great deal of money investing in the banking, insurance and traditional payment sectors.
Today Berkshire Hathaway remains one of the largest owners of bank stocks in the world.
The firm’s top holding is Wells Fargo. It holds approximately $30 billion in Wells Fargo shares. It also owns around $20 billion worth of Bank of America shares. Berkshire arguably saved Goldman Sachs in 2008 with a $5 billion investment that netted a $3.1 billion profit.
Berkshire Hathaway’s fifth-largest holding is American Express. The firm is also a long-term owner of Moody’s, the ratings agency that contributed to the last financial crisis by slapping AAA ratings on what were essentially junk bonds.
These stocks, which make up the core of Berkshire Hathaway’s portfolio, are exactly the types of firms that crypto is disrupting. Bitcoin was designed to eliminate the need for financial middlemen. It’s a decentralized, peer-to-peer monetary system specifically designed as an alternative to the current financial system.
In the long run, crypto has the potential to replace banks with decentralized computer networks.
So it’s only natural that Buffett and Munger are lashing out at crypto “whippersnappers.” It’s a new industry that they don’t understand beyond the fact that it threatens their portfolio.
From “Mirage” to “Rat Poison Squared”
The last time Buffett criticized bitcoin publicly was in 2014, when bitcoin was trading around $600. At that time, he called it “a mirage” and advised investors to “stay away.”
Back then, Andreessen made an excellent rebuttal. Now that Buffett has doubled down on his bitcoin bashing, I believe it’s worth revisiting Andreessen’s original reply from 2014. Here’s an excerpt:
This is a standard trope of technology criticism by people who don’t understand technology… “Yes, sure, it’s great technology, but it won’t be useful or valuable in the way that those crazy nerds think it will be useful or valuable.” I’ve heard it my whole life applied to every new important technology. It’s fake sophistication – it sounds nuanced but it’s not.
Andreessen is completely on point. Buffett and Munger simply don’t see the big picture with crypto. And their portfolio of traditional financial stocks likely clouds their judgment.
What’s most interesting to me is just how nasty the most recent attacks were. Why would Munger feel the need to say “I think the people pushing it are a disgrace”?
It seems a bit much. But when you consider the fact that cryptocurrency is essentially a direct attack on the traditional financial system, and then look at Berkshire’s portfolio, it starts to add up.
The legacy financial system is starting to get scared. And it should be.
Good investing,
Adam