Warren Buffett is considered to be one of the biggest investors of all time. Now, as excitement is starting to build around Bitcoin again, so why does Mr. Buffett continue to not consider investing in this interesting asset? He does not invest even in gold, so there must be some strong reason for that.
The investor is mainly focused on stocks and other productive assets which grow over time. Independently from many aspects of the economy, companies like Coca Cola will continue to yield profits for its shareholders.
Berkshire Hathaway, Buffett’s investment company, has followed this strategy, which turned it into the third largest public company in the world.
According to Warren Buffett, Bitcoin and gold are both unproductive assets. They will only increase in price if someone is willing to pay more for them than it was paid for before, as they never actually produce anything.
While Mr. Buffett may seem like a BTC hater from the first sight, the truth is that he is a hater of unproductive assets most of all. He said that people just buy gold because they fear paper money will lose its value. The more fearful people are, the more gold they buy and this is what drives the prices up.
The Greater Fool Theory
Buffett often cites the Greater Fool Theory in order to explain BTC and gold. The prices increase because people anticipate that other people will be willing to pay more for these assets later, they believe that a greater fool than they will come along later.
There is a certain bandwagon effect when too many people start to join the party and the prices rise, which attract more investors because the prices are increasing.
He cited all the recent bubbles and said that an army of originally skeptical investors entered the bandwagon after they got “proof” that the price will go up until the bubble bursts and they are left with nothing more than a huge loss of money.
The same can be said about 2017. Some early investors praised Bitcoin while most people remained skeptical. After some time, even some skeptics invested, the hype was bigger than the usability of BTC at the time and the market crashed. It was a pretty common bubble, after all, and it was driven by excessive hype.
He also talked about, that despite the claims of the community, Bitcoin is inflationary since it is slowly mining more tokens. This will eventually stop, but while it doesn’t, the supply only keeps moving upward.
While it is moving up, the demand for BTC always has to go up in order to simply keep maintaining the price equilibrium and this is an aspect that Warren Buffett dislikes about the crypto asset.
In the end, the medium of exchange simply does not matter too much to Buffett. In a world in which people use BTC instead of cash, they will still buy Coca Cola and candy, so it is better to actually invest in these companies instead.
On any future, people will still consume, while in a future in which Bitcoin loses against fiat, BTC is worthless. Some may say that Warren Buffett is a conservative investor and, well, this is the truth. He is already rich. He can be. One of the points is that he does not need a revolution at all since he is at the top of the pyramid.
Because of this, investing in safer or emergent stocks is, at least to him, the better idea. What is the best option for you?