Recently, Buffet and Munger come out bashing bitcoin- again. The article reflects on what they expose by their statements against crypto and asks if the arguments are sound. These two men have tremendous influence. Are they using it to shape markets they are in…. and the ones they are not in?
The news was buzzing over the week-end that Warren Buffet and Charlie Munger bashed Bitcoin again during their latest annual Berkshire Hathaway shareholder meeting. This wasn’t the first time the duo expressed their disdain for Bitcoin, when they called it “rat poison” and “dementia” in 2018.
On one hand, one could ignore their comments under the pretext that the duo isn’t really in touch with the technology sector in general, let alone Bitcoin and cryptocurrency. Warren Buffett is definitely the oracle of Omaha. However, by no means has he been close to being an oracle on technology phases.
On the other hand, we should take the challenge of rebutting their issues and debunking their soundbites…which is what I’m doing here. They do influence a large segment of followers, so we shouldn’t just ignore ignorance.
Education is necessary.
Buffet and Munger Highly Respected
First, there is no doubting the tremendous business industry respect that Buffett and Munger command. Their financial performance track record speaks for itself. That said, let’s put things in perspective: Berkshire Hathaway’s experience hasn’t been focused on emerging technology. Aside from Microsoft and Apple (current holdings), the bulk of their investments is in traditional large industries segments: insurance, financial services, pharmaceuticals, food, railroad, utilities, energy, and manufacturing. Mature industries are their comfort zone. Bitcoin and cryptocurrencies are anything but mature. Understandably, you need a different set of optics when looking at emerging industries. So, the first strike against their comments is: wrong lens.
The quote that made the headlines from Buffett
“Now if you told me you own all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything.” Buffett was contrasting an offer he would accept – to buy 1% of all the apartment houses in the country for $25 billion. That’s telling about his mentality of seeing everything as something that can be either bought or sold.
“What would I do with it” is an over-simplified answer which shows he probably doesn’t know (or selectively ignores) what Bitcoin can be used for. If we were to dumb down that statement via an Apple analogy, the same can be said about an Apple stock he owns. What can he do with the piece of paper that represents an Apple stock? Nothing. But he can re-sell the Apple stock, in the same way that he can re-sell the Bitcoin he figuratively might own. In fact, had Buffett bought Bitcoin in 2018 when he first started to bash it, he would have been able to realize a 4.5x gain, which is actually a better return than Apple’s stock (x3) during the same period. So, even if he didn’t know anything about Bitcoin use cases, he could have just bought it and sold it, as he does routinely with his other holdings. Let’s roll this argument one more layer. Granted, the good employees at Apple are creating products and services, whereas, if you asked Warren Buffett, Bitcoin doesn’t create anything. Well, it does. Bitcoin’s underlying creation, the Blockchain, has already created a few million jobs, hundreds of thousands of products and companies, while inspiring millions of people worldwide about its unlimited potential.
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Then this one came from Munger
“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and Bitcoin does all three. In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System … and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China.”
One can easily rebut this trio of claims. Stupid is a very subjective term, and frankly an insult to the millions of worldwide entrepreneurs who are innovating on cryptocurrency projects and companies who are inventing the next Internet, one that will create the next series of multi-billion dollar companies. Apple was once a small fledgling company…until it wasn’t. Saying that it undermines the Federal Reserve System is a bit of an alarmist over-statement. Will it compete with it? Possibly. There is nothing wrong with an alternative system, given the Federal Reserve is doing a fine job undermining themselves with diminished credibility. Finally, a reminder that China has also previously banned Facebook, Google and Twitter, but for different reasons. The Chinese government wants to control everything and routinely bans US-based inventions in order to replace them by their own home-grown versions. In fact, China is pushing another version of its own Bitcoin-like cryptocurrency. Sorry, the China analogy really backfires in Charlie Munger’s face.
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Truth is that crypto enables new types of businesses just as that silly clunky technology initially called the “Internet Protocol” morphed into the Web and started transforming one industry after another, while creating behemoth new companies like Google, Facebook, eBay, Amazon and many others. Take Coinbase. Coinbase could be on Berkshire Hathaway’s potential list of investments. It does have a good core product (trading cryptocurrency), is growing fast, and generates profits. Coinbase wouldn’t be where it is today had it not been for Bitcoin’s crazy start. And there will be dozens of Coinbase-scale companies emerging from the cryptocurrency phenomenon.
Buffet and Munger investments’ exposure to cryptos
The irony of Buffett/Munger’s statements is that many Berkshire Hathaway’s underlying businesses are flirting with Bitcoin and cryptocurrencies in general, or will eventually become affected by them. Nu Holdings operates digital bank holdings that are friendly to crypto. Microsoft’s Azure cloud business runs several blockchain related projects including several high profile ones like Ethereum. Apple’s App Store is filled with crypto wallets and apps that comprise Bitcoin and other cryptocurrency related apps. BNY Mellon bank will be offering cryptocurrency custody services, including Bitcoin specifically. I am sure that executives in those companies were cringing when they heard the duo’s comments.
Eventually, crypto will infiltrate all industries, just as the Internet did. Wait til all loyalty cards become NFTs. Or when insurance companies start insuring crypto-based businesses or metaverse properties. Or when banks start accepting crypto and stablecoins deposits routinely, and offer related services.
What Buffett and Munger need to understand, along with all of the naysayers that believe them is that – what really matters is everything that Bitcoin, the Blockchain and crypto enable. Don’t be shortsighted with a limited judgment based on your limited understanding.
Due to their influential voices, their comments will be amplified by many people who don’t get Bitcoin. So, we must rebut them and pick these arguments apart.
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The problem is that Buffett and Munger had an advantage this past week-end. They had the microphone, were on “their” stage emanating soundbite after another, and no one dared to challenge them. Someone should be asking them the “3 Why” questions. Why do you hate Bitcoin? Let them answer, and they can’t answer via trivial nonsensical answers, like rat poison, dementia, or saying it’s a stupid idea. Then ask them Why again? And Why on that second answer? Maybe we could have gotten to the bottom (or shallowness) of their thinking. The closest answer that merited a debate was Charlie Munger saying Bitcoin undermines the Fed, although it wasn’t technically correct because the Feds has already discounted Bitcoin proper and is now more concerned about the impact of stablecoins.
Source of Education on Cryptos
Sadly, there is laziness in understanding Bitcoin and cryptocurrency everywhere. Warren Buffett and Charlie Munger aren’t the only one exhibit it. I’m not sure where they were getting their education about Bitcoin or cryptocurrency, because everything they are saying points to a superficial understanding. I doubt they have made serious readings on that topic using the method Warren Buffett often describes as his forté: pouring over documents for hours and days before committing to investments. Actually, I am going to send a copy of my book, The Business Blockchain to both of them, at the Berkshire Hathaway 3555 Farnam Street Omaha address.
Obviously, it seems that the duo is happy with the status quo. They don’t want to change their lens to better see the new things. Truth is that Charlie and Warren are pure traditionalists.
They are good at assessing large organizations when all the parts are visibly known, revenues are steady, new products can almost be predicted, and the uncertainties of growth are clear and manageable.
In contrast, crypto and Bitcoin are anything but that. They relatively embryonic, and with many imperfect parts. A naysayer will immediately focus on these weaknesses and ignore the good parts.
Questioning the Quality of Current Financial Industry
Do Buffett and Munger realize the magnitude of the vast inefficiencies that currently linger within the current financial services industry? Do they realize the potential cost savings that exist, just by streamlining old databases and slow processes along with the back-end proprietary integrations that wire the world financial markets? Do they realize how outdated SWIFT is? Have they recently sent a bank wire transfer or dealt with the latencies and administrative costs resulting from the processing of money? Have they experienced delays in trade settlements, or examined the inefficiencies in small or large money transfers?
Everything about the blockchain touches the core of banking and will transform it or replace it over time.
Old habits die hard. New habits take a while to get formed. New markets emerge out of the ashes or stumblings or end-of-life of previous ones. We are gradually leaving the glamours of Web2 and entering the glories of Web3, but the handover will not be smooth. Bumps will be exploited along the way.
Obviously, crypto wasn’t getting respect from the grandpas of the business world.
The best parents and grandparents are able to let go of their children’s aspirations and dreams, and never hold them back or dictate to them what they should be doing. Buffett and Munger sounded like angry parents dictating to their children what and how they should be thinking about something, while stifling them from forming their own opinions on the most important technology of their lifetime.
I wished they would have just said instead:
“We don’t understand Bitcoin or the blockchain, and aren’t focused on it or cryptocurrencies. It could be part of the future, just as the Web is today, and wasn’t 30 years ago. By the time we’re gone, we hope you will embrace it responsibly and create thousands more new companies and wealth to benefit humankind.”
Crypto is going to thrive for the new generation. It would be cruel to rob them from that future by spreading fear, uncertainty and doubt along that journey’s path.
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