Each time Warren Buffett makes a comment about Bitcoin, it makes headlines. To be fair, any time Buffett chimes in anything financial-related, it’s considered newsworthy. In 2014, he called Bitcoin a mirage, which as a much more popular opinion at the time. Recently, he commented “You can’t value bitcoin because it’s not a value-producing asset.”
Of course, this is written about mockingly by Bitcoin-proponents, as if Buffett should be expected to suddenly change everything he’s done throughout his career. Perhaps it’s merely others seeking validation, but nobody should be surprised. This is entirely consistent with how Buffett has always operated. Buffett invests heavily in what he knows, concentrates his bets, and looks at the underlying value of an asset with only some regard to price. It hasn’t exactly been a poor formula for success.
His comment may sound harsh, but he’s not even wrong. Though many have attempted to derive valuations methods for cryptoassets, most tend to agree that Bitcoin and Ethereum are more similar to a currency or gold, rather than a security. From that light, he’s entirely right to say it’s not a “value-producing asset.” Businesses produce value. Currencies are a means of exchange; no value is produced.
True believers in Bitcoin are actually quite similar to Buffett in many ways. Rather that getting caught up in the extreme volatility, they believe Bitcoin will be valuable in the long-run and act with that timeframe instead of trading. And while Buffett knows nothing about Bitcoin, those have followed the developments know it quite well and can’t imagine not being involved.
Buffett’s methodology can be extended well-beyond the stock market, but it needs to be adapted to individual situations. In the biography, “The Making of American Capitalist” Roger Lowenstein does an excellent job describing Buffett’s thinking and development.Some of the key takeaways are
- think long term
- don’t pay attention to what others have done
Baseball synonyms are big with Buffett, and he was a big fan of Ted Williams (the greatest hitter who ever lived according to this Red Sox fan). Williams would often let hittable pitches go by early in the count, while he waited for something better in his zone. Likewise, Buffett has no need to swing at every opportunity. He can wait to find things that are obvious opportunities to him. And unlike Williams, there’s no third strike possibility.
Buffet has avoided tech stocks mostly, rarely uses a computer. It would be shocking if he suddenly decided to get into BitCoin. Of course, it shouldn’t matter to anyone involved with Bitcoin.