FORBES Bitcoin Debate: Warren Buffett Bear Vs. Winklevoss Twins Bull
There are two distinct views on Bitcoin and cryptocurrencies. One view is that they will flame out and most, if not all, will become worthless . The other side is that at least some are destined to become much more valuable and become engrained in not just the world’s financial markets but potentially everyday life. Investors and executives who believe cryptocurrencies “won’t end well” or are a fraud include Warren Buffett and Jamie Dimon, respectively. The Winklevoss twins and Fundstrat’s Head of Research Tom Lee believe that Bitcoin can reach $300,000 and $125,000, respectively.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
There are multiple reasons that Bitcoin could fall to $1,000 or less or rise to $100,000 or more. It is worthwhile to know what experienced investors believe could happen along with those that are deeply involved. However, one must keep in mind that any of them could be “talking their book”, meaning they own the asset and are only presenting their bullish view or could be short and touting the negatives.
It may turn out that Bitcoin and other cryptocurrencies will be “productive”. There could be killer applications, besides illegal activities, that will drive their eventual adoption. This probably won’t be known for a couple of years. However, there are over 1,500 CCs so at some point in time there will be a shakeout, which will be very ugly.
Warren Buffett doesn’t believe in assets that are unproductive
Warren Buffett doesn’t invest in gold because it has two significant shortcomings. From Berkshire Hathaway’s 2011 investor letter he wrote, “gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”
He went on to add that gold is an “asset that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century. This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.” This is the greater fools theory of investing.
Many investors believe that Bitcoin and other cryptocurrencies are a store of value, similar to gold. Buffett has said, ‘I can say almost with certainty that they will come to a bad ending.”
Buffett’s partner, Charles Munger, described the digital currency as “noxious poison”. He added that “the Bitcoin craze to be “totally asinine”.” You can really tell how he feels about it by these comments, “I detested it the moment it was raised. It’s just disgusting’ and “Our government’s more lax approach (vs. China) to it is wrong. The right answer to something like that is to step on it hard.”
Jamie Dimon backed off his negative comment about Blockchain, not Bitcoin
Jamie Dimon, JPMorgan’s CEO, raised some eyebrows in September last year when he talked about the hype around Bitcoin. He said, “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.” Dimon added that, “Currencies have legal support. Bitcoin will blow up.”
You can tell he was on a roll as he went on to say, “It’s just not a real thing, eventually it will be closed,” and called it a “fraud.” He also said that he would “fire in a second” any JP Morgan trader who was trading it since “It’s against our rules and they are stupid.”
Dimon spoke in January this year saying that he regretted saying Bitcoin is a fraud, but in reality his positive comments were reserved for Blockchain. He said Blockchain “is real”, especially since JPMorgan is implementing a Blockchain based system with two other banks to reduce payment transaction speeds from weeks to hours.