Before I even get into this story, I just want to preface it by saying that I am not a cryptocurrency fanboy by any means.
I realize that there are substantial hurdles that remain still for Bitcoin and cryptocurrency in general before we can safely say that it’s here to stay forever. I’m sure some of the staunchest supporters will disagree vehemently with that statement — but I’m trying my best to see things from both sides of the aisle.
Also, when it comes to Warren Buffet — I have nothing but respect for him. As an investor, his prowess is undeniable. He’s widely considered to be one of the greatest investing geniuses of our time or perhaps ever, and a lot of his philosophies and tenets are things that I think the average crypto-trader would benefit from adhering to.
However, when it comes to the issue of cryptocurrencies or Bitcoin, Warren Buffett is no more qualified to offer an opinion than that of your next door neighbor.
How can you say such a thing CryptoMedication?
Introduction to Warren Buffet’s Brief, Yet Seemingly Long History of Commenting on Bitcoin
Well, before I explain that, I think it’s first to analyze what Warren Buffett has actually said about Bitcoin.
The first comments from Warren Buffett that I can find stem from an article in The Motley Fool, written on April 5th, 2014.
The article states that, “CEO Warren Buffett dismissed bitcoin as an investment, even going so far as to call it a ‘mirage’.”
The article also later states that, “Buffett said bitcoin is essentially an updated version of writing a check or sending someone a money order. In other words, it’s simply a new, more efficient way of transmitting money.”
Now, these comments that Warren Buffett issued are fair when considering the context. Remember, the date that I gave for those comments roughly around April of 2014. So, this was in the immediate aftermath of the Mt. Gox disaster, increasing regulations in different countries, and general chaos amidst investors of Bitcoin.
For many, it seemed like the end of Bitcoin was imminent. So, Warren’s words, in context, reflected a somewhat tempered outlook on Bitcoin. When considering the volatility of the currency and the fact that an astronomical event like Mt. Gox, which was out of everyone’s control and couldn’t have been foreseen until shit had already hit the fan, could plummet the price of the currency and send the entire community into chaos — it was a fair statement to say that Bitcoin was a shaky investment.
Now, I’m not agreeing with Warren Buffett, but I am saying that his comments made sense at that point.
Fast-Forward to Today
However, Warren’s comments do not make nearly as much sense in today’s context. Far removed from the days of 2014, the infrastructure of Bitcoin and cryptocurrency in general has increased substantially. There are exponentially more exchanges available, alternative currencies, developers curating projects, research being performed, and institutional players looking to get a piece of crypto.
Yet, in the approximately four years (almost to the date — kind of weird), since Warren Buffett issued the above statements, it seems as though he as grown even more bearish.
Despite the fact that he had called it a ‘mirage’ before, his previous statements reflected that he wanted to at least ‘leave the door open’ for the possibility that Bitcoin could bloom into a used asset.
In the exclusive interview with Yahoo! Finance, Buffett is quoted as saying, “‘When you buy something like a farm, an apartment house, or an interest in a business…You can do that on a private basis…And it’s a perfectly satisfactory investment. You look at the investment itself to deliver the return to you. Now, if you buy something like bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.’”
Buffett then goes on to say in the interview that, “‘You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.’”
Essentially, Buffett politely called Bitcoin and cryptocurrency a ponzi scheme.
Is Crypto a Ponzi Scheme?
It seems that this question, which has been posed ad infinitum since the inception Bitcoin into the mainstream circa 2013 (I know it was created before then, I mean mainstream as in popular media started covering it).
For many, the answer is yes.
However, let’s be clear on what a Ponzi Scheme actually is:
“A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earelier backers. For both Ponzi schemes and pyramid schemes, eventually there isn’t enough money to go around, and the schemes unravel.”
To be clear, from this definition and general knowledge on the topic (per law enforcement), we know that:
- Ponzi schemes are typically ran by some sort of central company or organization that profits at the top of said pyramid. Although, this may not always be the case.
- A Ponzi scheme generally guarantees profits. So, take a MLM scheme (more than likely pyrmaid) for instance: Generally, they’ll offer you some sort of product that you must buy in order to participate. And you’ll be able to gain money too if you’re able to sign people up to the same program (they don’t have to buy your products). So, if they also sign up to buy this product, you’ll receive money for the referral. Then, every person that your recruit refers to the business will also give you inherently greater value.
It looks a bit like this:
Why Crypto/Bitcoin Does Not Fit This Definition
If you run into a friend of yours that has never heard of Bitcoin and you convince them that this is a product that they should invest into, there are no immediate returns for doing so.
In fact, it’s plausible that you could hold Bitcoin meetings all over your town and recruit dozens, if not hundreds of people to buy Bitcoin and it would have no discernible impact on your ‘returns’ from investing in Bitcoin.
In fact, if you started this campaign in January and continued until present-day — you’d be in the whole for almost 50%.
No one has guaranteed anyone profits for investing in Bitcoin other than people in the community that have no say on what happens with Bitcoin. Perhaps if Satoshi Nakamoto him/her/themselves had made such a promise, then the claim could be somewhat plausible.
However, this was never stated.
In fact, to refresh many people’s memories, Bitcoin was originally referred to as an ‘experiment’. As in, ‘This may or may not work. Idk, we’ll have just have to see’ type of deal.
If you read back through the earliest Bitcointalk forum posts with Satoshi and other developers/beta testers in the community, Bitcoin was seen as no more than a neat idea; a social experiment of sorts.
It wasn’t until the price began to rise in 2013 that folks began to see the legitimacy in Bitcoin potentially being adopted as a currency with genuine use.
Another Core Facet of Ponzi Schemes
The only purpose of a Ponzi must be to gain more money. That’s it.
However, we know for a fact that there are people, including myself, that have used cryptocurrency for a lot more than just investing.
In fact, due to the volatility of cryptocurrency, there are a lot of people in the community that would rather use it for its intended purpose (transferring and receiving money), versus simply holding it long-term with the hopes of getting an increase in their initial investment.
The sheer number of merchants that have integrated Bitcoin into their company’s infrastructure, then subsequently accepted payment for various products is massive.
Among those vendors are; PayPal, Coinbase (they paid their employees’ salaries in crypto), Governments (Arizona accepts taxes in Bitcoin payments now), the FBI (they had no problem auctioning off their ‘ponzi tokens’ they took from Ross Ulbricht), CashApp, and several more.
Many may hate this example, but Silk Road is another instance that showed that people will actually use Bitcoin for a purpose other than simply hoping for a return on their investment. As a college graduate, I can tell you of countless friends that made late night visits to a Bitcoin ATM to buy goodies over the internet (of course I was never involved!).
As a journalist and a blockchain consultant, I’ve received Bitcoin/alternative cryptocurrencies several times for my work. I prefer it. I don’t have to wait ‘3 to 5 business days’ to receive the money that I worked hard to earn. I can just have it at that very moment. No delays other than what’s occurring naturally on the network, but those issues are independent of the amount of money that I’m transferring.
These are just a few of the ways in which Bitcoin/crypto is much more than just a ‘Ponzi scheme’ as Warren Buffett essentially described it as.
Why Warren Buffett is Not Qualified to Give Advice on Bitcoin/Crypto
He just doesn’t have enough expertise in the field of technology. He’s even admitted it on several occasions. Technology just isn’t his thing.
In fact, a recent article on FT reveals that, “Mr. Buffett confessed that he had made a mistake not investing in Google and had underestiamted Mr Bezos.”
Buffett is quoted in the article as saying, “‘I was too dumb to realise what would happen…I did not think he could succeed on the scale that he has.’”
Take a minute to soak that in for a second. Buffett was on the front line of the internet revolution. There were few, if any, human beings that were in a better position to invest in technology companies in the 90’s than Warren Buffett. Yet, he refrained entirely.
Now, one could state that this was probably a solid move on his part because of the impending Dot Com bubble and subsequent crash that occurred in ’99 and 2000.
However, it’s worth noting that Google did not launch their IPO until 2004, which was well after the Dot Com bubble had popped and technology stocks had corrected.
Buffett even acknowledges that he knew about Google and knew what they were and alleged that they had the capability to do in the future, and he still declined the opportunity to invest in them.
The same goes for Amazon, Apple (up until 2016), and even Facebook (which has still yielded ridiculous returns even in spite of the privacy scandals that have plagued it this year).
Someone of Warren Buffett’s net worth has more than likely missed out on billions by purposefully avoiding tech.
What makes things worse is that one of Warren Buffett’s closest friends, business partners, and confidantes is Bill Gates.
Warren Buffet and Bill Gates Were BROS
And when I say friends, I mean friends.
For example, “They play ping pong, they chill out in China together, and they throw newspapers as part of a strange tradition at the Berkshire Hathaway annual meeting…[Warren Buffett] gave the Bill and Melinda Gates Foundation $2.1 billion.”
Also, “[Bill Gates] says that his dialogue with Buffett has been ‘invaluable’ to his career.”
So, we know that Buffett had all the opportunity in the world to learn about technology from the ground-up from one of the best sources in the world to learn it from — Bill Gates.
To throw even more logs in this fire, Buffett first met Gates in 1991! This was years before computers has really become super mainstream and took over our world (almost everything we use has a computer in it now). This was before the ‘internet’ was even a thing! I mean, Warren had a budding bromance with one of the Grand Pubas of modern computing.
Warren’s relationship with Bill is akin to you having a close relationship with a pyrotechnic expert before mankind really discovered fire.
Perhaps the craziest part is that Warren Buffett actually asked Bill Gates about technology.
Check out the excerpt below from Business Insider, cited above:
Gates said that he considered Warren to be like a mentor to him and that they had often discussed potential business ventures together.
So, Warren wasn’t just someone that happened to be cool with Bill Gates — he had front court seats to an infinite pool of resources to gain an understanding or an inside-track on technology before the rest of the world.
Warren Buffett is an OLD Guy — Keep That in Mind
And, for what it’s worth, at Buffett’s age at that time (which was roughly 30 years ago — so he was probably bordering on 60), he was alive long enough to see the advent of television, then its evolution to color television on to a slightly better version, which was available in 1991.
Buffett was also able to see the transformation of telephones, cars, airplanes, bicycles, and just about every other MAJOR facet of communication or transportation. Buffett was able to see the vast change in the social climate in the United States from the fear of World War II to the Civil Rights Movement to the Vietnam Era, Reagan’s presidency and the growing war on drugs to the end of Bush’s presidency and the incoming of Bill Clinton.
Buffett had more than enough real world knowledge, experience, understanding, and intelligence to make an educated guess on technology that this stuff would probably change the world.
I mean, he couldn’t have had any doubts about Bill Gates right? Otherwise, he wouldn’t have donated so much money to the Bill and Melinda Foundation (although he did so later in his life), or discussed business with Bill, or invited his family into his family’s inner circle.
So, if Warren was such a brilliant investor and also had a close relationship with one of the tech GIANTS of the time whom was essentially giving him private lessons on any and all technologically-based queries he had at the time — why didn’t he invest?
Perhaps This Answer From Investopedia Will Help Us
This reason isn’t entirely unfair. However, waiting until 2011 before he even began foraying into technology? That’s a bit crazy!
Warren Just Does Not Get Technology
Perhaps we should accept the limitations of Warren Buffett as a human being. By the time computers and the internet were really becoming a facet of mainstream society, he was pushing 70 years old.
And yes, while Donald Trump has shown that he is quite adept at using social media (Not sure many that use Twitter more so than he does) — The typical 70 year old doesn’t even touch this kind of stuff.
At this very moment, Warren Buffett is 87 years old!
Cryptocurrency and Bitcoin is something that a lot of 20–30 year olds have a hard time wrapping their mind around. Imagine being 87 and trying to understand Bitcoin or cryptocurrencies — especially if you’re coming from a background where technology isn’t really your thing to begin with.
Now, this isn’t to say that Buffett isn’t a genius at making smart investments and investment strategy — he is. He’s a legend, hall of famer, OG; whatever title you want to give.
But the man is not without flaw — even as an investor. And perhaps it’s time that we start really questioning whether Warren Buffet is someone that’s actually qualified to speak on the merits of what one should or should not be investing in.
Unfortunately, as time continues on — Warren Buffett is beginning to sound more and more like our grandparents that “Just don’t understand young people and all this Tweeter, Facegram, and Instabook stuff that has these whippersnappers banging their thumbs against a small box all day!”
I’m not advocating that Warren Buffett be ignored at all. Hell no. He’s still a potent investor with a sharp mind and the things he says have the power to move markets to this day.
The man isn’t senile and he certainly isn’t a dumbass by any means, and you can rest assured that he has a strong team of people in his corner who make it their job to stay abreast of potential investment opportunities for Berkshire Hathaway (Warren’s company), in order to improve value for their investors.
However, Warren does have the ultimate say and making a risky-ish investment (it is risky, we have to admit that) into Bitcoin/cryptocurrency goes entirely against the nature of his investing practices.
Yet in that same right — we must consider the expertise of someone before considering their advice. Michael Phelps is the greatest swimmer of all time — no debate (he has like 5 million gold medals, Google him if you haven’t heard of him somehow).
However, when it comes to scuba diving — Michael Phelps’ opinion should not be weighed too heavily unless he’s demonstrated that he’s also an expert at scuba diving.
Yes, they both involve water and swimming to some extent — but they’re different in many ways.
So, similarly, yes, Warren Buffett is a master of investing and very wise in the field of finance — but his lack of knowledge of technology and willful ignorance (I mean that in the nicest way possible) on the field in general means that his opinion on this specific topic is no better than that of your next-door neighbor.