Billionaire Buffett Calls Bitcoin A Bubble Ignoring The Largest Equity and Debt Bubbles In History

in #bitcoin4 years ago

I’m officially calling this International Bitcoin Week. Because it seems almost everyone has come out with their opinion on it.

In 2014, when asked about bitcoin, legendary investor Warren Buffett said, “Stay away from it. It's a mirage, basically.”

Back then he said,

“It's a method of transmitting money. It's a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money? Are money orders? You can transmit money by money orders. People do it. I hope bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways and it will be. The idea that it has some huge intrinsic value is just a joke in my view.”

No, Warren, “checks” aren’t worth a whole lot of money. Banks are though.

Poor, senile old man.

Now, in 2017, the bitcoin “mirage” apparently isn’t a mirage anymore after it has topped the billionaires net-worth. According to Warren Buffett, it’s a bubble and "You can’t value bitcoin because it’s not a value-producing asset."

This is the same criticism that “value investors” like Buffett or supporters of the fractional reserve banking model like JP Morgan’s David Kelly often levy against gold. It has no intrinsic value (nothing does), and “does not provide any cash flow, a right to future earnings,” and so on.

Which, when it comes to traditional equity or debt, claims against assets and capital help value investors estimate present values using the discounted cashflow model or PE multiple.

It could be noted that this is not really an intrinsic value as such, and TDV’s Senior Analyst, Ed Bugos, has written an extensive critique of the value investing approach in his book “Defensive Investing: A Beginner’s Guide and Primer To Investing Within the Context Of Business Cycles and Sectors” (which is available for free to TDV subscribers), and deals with the effects of the Fed on investing post-1929.

Buffett ends a few weeks where Jamie Demon, Ajay Banga and the Prince of Saudi Arabia have attacked bitcoin.

Notice what they all have in common? They are beholden to the fasco-communist crony rigged market system, and like to echo the establishment’s narratives, often without thinking. They don’t understand money, or economics, the causes of the business cycle, or even the source of innovation itself.

And, yes, Warren Buffett may be one of the best value investors of all-time, but he is completely ignorant on money.

Interestingly, his father did. But Warren was a spoiled rich kid who didn’t even take notice when he had one of the smartest men in the world when it came to understanding capitalism and money, Murray Rothbard, at the dinner table as a child.

Warren hated economics, unlike his gold loving and much smarter father. Warren’s hate for gold likely stemmed from a hatred of his father.

But now this hate has broadened to bitcoin, calling it a bubble.

As a TDV reader, you know bubbles are a monetary phenomenon. They are caused by the creation of money (unbacked fiat) out of thin air, manufactured by the fractional reserve banking system, supported by government and central banking legislation, and legal tender laws forcing merchants to accept a currency they wouldn’t accept otherwise if they were not forced after gold was outlawed as money in the USSA in the 1930s.

This entire apparatus is necessary to support the banking system because the model is bankrupt and fraudulent. This is the system that Buffett and Demon support. And the reason that Buffett hasn’t had a great track record in calling tops and other bubbles is because he doesn’t get the difference between the thing called an “asset” and the thing called “money.”

If he listened at the dinner table more often he might have realized that money is an entirely different kind of economic good. It is not an asset. The problem of valuing gold or bitcoin cannot come down to measuring future earnings power or extrapolating yields because they are not equity or debt. They are commodity-assets of a particular kind: monetary.

Rothbard and Mises had a lot to say about the way money is valued. Foremost, it is subjective. It has to have an initial objective value, but its ultimate valuation is 100% dependent on only one thing - how many people eventually adopt it. The more it is adopted, the more it grows in value. This is how all money became money.

Its circulation spread and as it was desired more and more as a currency or money, its original value would grow. The value of gold as money is many times greater than that of gold as a mere commodity before it was adopted by humans as money.

It is because Warren - and other value investors who still live in the pre-1929 Benjamin Graham world don’t grasp these points that they are stuck in the past, looking at reams of historical data and applying a straight line in extrapolating it out into the future rather than thinking about the source of change and the role of money and technology in our society.

If Warren paid attention, he’d notice that there are giant bubbles everywhere. There is the bubble in equity on Wall Street; there is the bubble in real estate prices (again), there is a bubble in government bonds, in art, collectibles, and the US dollar.

Not that a bubble hasn’t formed in bitcoin now. If the definition of a bubble is that buyers are buying it only because it has been going up and for no other reason other than that they expect it will continue to then it might be a bubble. Or it might not.

There’s no point in rehashing the value of blockchain here. We know it has value and many bitcoin buyers are, if anything, guilty only of looking out too far ahead in how the blockchain (and the tokens) are going to change the economy, a task that “value investors” detest.

They hate looking into the future. In my opinion, that makes them historians rather than value investors, and they generate returns by the sole virtue of the subsidy the Fed provides.

If there is anything that investors are buying just because the price is going up despite the fact that it is overvalued or the fundamentals are not there, look no further than stocks and bonds.

Warren may feel comfort in the historical basis of his calculation of future earnings and present values in the same way that some gold bugs feel comforted by the tangibility of gold in the face of the superior monetary features of bitcoin. In both cases, a backward-looking analysis and a false sense of security are perhaps at play.

Certainly though, it is remarkable that we live in a sea of bubbles everywhere fueled by the world wide suppression in interest rates and constant expansion in unsound guvmint money, and out of this vast sea of bubbles, the Buffetts of the world pick on the smallest; bitcoin!

Bitcoin has a total market cap of about $100 billion currently. Warren Buffett, one man, has a net worth of $80 billion… Warren could, if bitcoin holders were foolish enough to sell at these prices, buy nearly all the bitcoins in the world. Yet, he calls bitcoin a bubble.

I call Warren Buffett a bubble. About to pop.

It’s not really his fault… he’s incredibly old. I’d have to check exact dates, but he may have been born before the Gutenberg press was invented. How could he possibly understand what is currently going on?

In fact, Warren Buffett is famous for saying “Never invest in a business you cannot understand.” This was after he was asked about missing out on the opportunity to invest in Google and Amazon.

So, at least he understands his limitations.

That is very wise. No investor should ever invest in something they don’t understand.

So, don’t invest in it Warren. By the time you are looking to invest in blockchain technologies (which likely is never at your age), it will likely be time for us to sell.

But that’s still a long way down the road.

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Warren doesn't invest in anything he can't understand. There is a lot of complexity in cryptocurrency which makes him uneasy at this stage in the technology.

Not really true. He invested in IBM, and clearly does not understand their future,

He thought he understood IBM, invested in it, then realized his mistake & divested. His philosophy of investing is not suitable for technology stocks, but it's great for other types of instruments.

When billionaires call something a bubble, it's most likely the opposite 🐂

No need to pick on your elders. Everyone is entitled to a few mistakes.

I think when the big guys call it a bubble or fraud it means either 3 things....#1 they dont like it..#2 they dont understand it, or #3 they want to keep the price low so they can keep buying it up cheap.

Most likely #3 its all about the money

Crypto is the future, power to the people !

Bitcoin is hardly in a bubble. Bubbles occur when assets are OVER-valued. Bitcoin continues increasing in price because as it's true value is being determined.

On the other hand, stocks, bonds, fiat money, and numerous other assets are in massive, dangerous bubbles. Whenever I advise anyone to get out of the US$ or real estate or stocks, they reply something to the effect of, "But it keeps rising in price." A classic feature of a late-stage bubble.

As those assets keep rising in price, more and more people jump because it seems like a sure thing. But there's only one thing that they can be entirely sure of, and that's that the insane increases will not continue.

Of course, bitcoin may be in a bit of a bubble, and it will go through corrections every now and then. But anyone who simply ignores bitcoin or any crypto simply because they believe it's in a bubble should take a longer, harder, and closer look.

AnarchoCapitalist now I know how to explain my point of view

👍

The conclusion is one, more and more influential and large companies recognize Bitcoin as something more serious than a soap bubble.

You have to go easy on old guys like Buffet. They are anti cryptocurrency because they just don't understand it. If you talk to them and explain that the same way that old style Telecom's have lost out as Voice Over IP eroded their business model and the same will happen to the Banks as the Blockchain makes Money Over IP the defacto standard.

Agreed. I don’t think Buffet has an agenda, rather just doesn’t understand. If you explain how most pre internet business models have been disrupted by the internet(Amazon, right move, airBnB etc) then this may help him understand. Uber is another good example of traditional business models being disrupted. Bitcoin is not worth something because it has intrinsic value etc but because of its network effect and it’s ability to disrupt existing business models.

Buffet has always invested in businesses he can understand like industrials, insuarance, etc. He has stated as much, he has stayed away from a majority of internet companies because it is something he does not understand. During the dot com bubble he was down 44% while the Nasdaq was up 150%. It is the same way he looks at cryptocurrencies

This is the best response to the "bitcoin bubble" argument I've ever read.. very well said!

Did you hit send twice @dollarvigilante??? This is a double post Just fyi. I assume it was one of those "Transmission errors" steemit has been having lately...

Bitcoin and others require a catchy popular theme song. Jeff I'm looking at you 🤓

Amozonda bitcoin ödemesi kabul edildi peki Ali baba ..AliEkspres de durum ne olucak? Nereye gider bunun ucu?

Definitely worth an upvote and a resteem :]

Nice post, dollar vigilante! Long time follower of your YouTube channel.

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Yeah, by the time he wakes up, Bitcoin will be worth 1 Mil, so wtv. Jokes on him. We know what to do, and hopefully, people close to us don't bash us too much for choosing Crypto rather than Mutual Funds or something like that.

I respect the guy but I wish these old school investors & wall street dudes would just stop already. All they're doing is messing with their legacy. "Yeah, he was a genius billionaire but somehow he didn't see the new currency coming". There will always be an * next to his name in history.

High on the agenda is ICOs, the enfant terrible of the cryptocurrency business. Hundreds of ICOs appear each day. The ICO concept straddles the border between innovative crowdsourcing of new startups on one side, and rife for fraud, theft and general mismanagement on the other.

'I don't have it so it has to be a bubble'.

Buffett is the modern day J.P. Morgan or Mayer Amschel Rothschild, shit we can even throw Prescott Bush in the mix of people who became successful in the money game because they didn't play by the rules.
Buffett formally disowned his niece or granddaughter probably the latter it's been a while, because of her role in the "controversial" documentary The 1% by Jamie Johnson of Johnson and Johnson, which focuses on the stratification that has put the few above the many and has bound us by economic slavery, at least those who still believe in paper rather than crypto.
Of course, this was back in my conspiracy theory days so I'll have to post it so others can watch it and share their opinions.

As always, thank you for an extremely insightful post. I look forward to more of your brilliance.

Very good news post :)

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