Buffet on Bitcoin

Very interesting views from Warren Buffet at the yearly Berkshire Hathaway annual meeting in Omaha

He starts with “I shouldn’t answer any questions on this subject, but I will ” !

• Buffet’s thoughts on bitcoin:
• If you said… for a 1% interest in all the farmland in the United States, pay our group $25 billion, I’ll write you a check this afternoon — Buffet
• [If] you offer me 1% of all the apartment houses in the country and you want another $25 billion, I’ll write you a check, it’s very simple — Buffet

Only time will tell if Buffet and Munger are right, but one thing is clear — they don’t understand digital assets — “It’s got a magic to it and people have attached magics to lots of things” — Buffet

• His position is that bitcoin has only frictional costs and no tangible value; “And there’s no reason in the world why the United States government… is going to let Berkshire money replace theirs”

Munger had more harsher words :

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

Counterpoint:

As Markets insider points out[Here],

• Buffet also had some observations on the current market “Sometimes the stock market is quite investment-oriented, and other times it’s almost totally a casino, a gambling parlor — and that existed to an extraordinary degree in the last couple of years, encouraged by Wall Street.”
• Buffett added that Wall Street makes money by “catching the crumbs that fall off the table of capitalism.”

May be it is that “He should just say what he really means: unless you look, think, and act like him, you cannot and should not be an investor” as Robinhood’s Jacqueline Ortiz Ramsay, points out…

There are (at least) couple of dimensions in play here -

1.Tangible value vs Intrinsic value

• The point is that digital assets do not have a physical tangible value and so old school might not understand them well.

In fact, conceptually [Here] “Money is a mass delusion, and so people’s confidence in it matters. Economists have stuff like “consumer confidence indices,” which are not necessary for the study of real things. A tree’s existence, for example, does not depend on confidence”.

• As pointed out in the Mad Money/Cramer [Here], “They (Buffet and Munger) are out of touch … ”, “… the underlying architecture is here to stay and is more important than whether the currencies are valid or not”
• “Blockchain technology overall provides a lot of fundamental infrastructure to build things on. It’s not just any type of investable assets but it’s also known with a lot of amazing utilities,” Eric Chen [Here]

Obviously there is a pony in there somewhere and it is worth a lot more than $25 Mr.Buffet is willing to pay — eventually !

• OTOH, may be it is a bubble or may be it is a precursor of things to come … this weekend was an indication of the challenges … a coin named Apecoin …
• The weekend, the Yuga Labs crashed the Ethereum blockchain when they launched a new NFT collection which consists of 100,000 land deeds for the virtual world [Here]!
• Millions of dollars were spent in a couple of hours (the last I heard $317 Million in 3 hrs) [Here] !
• The mint caused Ethereum’s gas fees to soar, and the 27,000 buyers each had to pay between $4,000 and $10,000 in transaction fees.
• As one pointed out in Linkedin discussions “Why in the world would anyone spend money for virtual land on a platform that doesn’t exist from a company with zero experience in building anything more complicated than monkeys jpgs?” — The answer is not clear at all
• In short, not a confidence booster …

Interestingly I just ordered 2 boxes — one to run a bitcoin full node and another for Ethereum solo staking; all from my home. The 32 ETH is a steep barrier to entry, though. Let us see.

I think the opportunities are in the “pickaxe and hovel” business — making the network more robust in many ways e.g., scale, security et al.

On that end, am working on Graph based forensics [some thoughts on payment networks Here]

2.bitcoin (the actual currency) vs Bitcoin (the network & the protocol)

• A new global, friction free payment network is an interesting concept — we need not lug suitcase full of currency or gold blocks nor we need bank accounts. May be the platform has value and bitcoin/ETH are all side effects.

3.Tokenomics !

• The whole Web 3.0 is an emerging space, where the above mentioned intrinsic value of the DLT/Blockchain might come to play
• The underlying architecture is here to stay and it is more important than whether the currency is valid or not (Mad Money/Cramer)
• I had a few quick quick points on Web3 [Here]. I plan to write more …
• The MIT Technology blog [Here] is a good read

I am working on a set of 5–7 minute short videos on bitcoin from 1st principles … soon. So, you will hear from me more about these and other interesting Bitcoin ”stuff”

As a parting thought, for a currency to have value it needs 7 characteristics. Does the Blockchain eco system (BTC/ETH/…) fit this bill ? For now, you be the judge …

1. Transaction enabler & value store
2. Non repudiation
3. Finality & non-contestability
4. Ordering & non-double spending
5. Fungibility & non-traceability
6. Anonymity
7. Privacy

More to come …

In the meantime Fidelity is opening up 401K for bitcoin investments …

… prudent decisions are expected, irrational exuberance won’t save the day …

Links:

1. Warren Buffett gives his most expansive explanation for why he doesn’t believe in bitcoin [Here]
2. Notes from Day 1 Berkshire Hathaway annual meeting in Omaha [Here]
3. What it was like at the first in-person Berkshire shareholders meeting in 3 years [Here]
4. And, Berkshire Hathaway Inc. Shareholder 2021 yearly letter [Here]