Warren Buffett has labelled Bitcoin as no more than a “gambling device“, lamenting the fact that it just sits there doing nothing. In his words, “Bitcoin hasn’t produced anything.”
He’s impressed by the underlying blockchain technology, and as an ex-computer nerd I think it has enormous potential too — just not for implementing currencies or investing instruments.
At last week’s annual Berkshire Hathaway shareholders’ meeting, Mr Buffett’s long-term colleague Charlie Munger was even more scathing. Saying that he’d been invited out for a drink by Bitcoin fans, he quipped, “I tried to figure out what the bitcoin people do in their happy hour and I finally figured it out: They celebrate the life and work of Judas Iscariot.”
Traitors to the cause of investment? Well, I reckon they’re not to be listened to if you want to base your investment decisions on rationality and common sense.
Mr Buffett reinforced his belief that investing in Bitcoin is nothing more than gambling, calling it mathematically dumb and saying: “On my honeymoon in 1952, my bride, 19, and I, 21, stopped in Las Vegas. … I looked around and saw all of these well-dressed people… they came to to do something that every damn one of them knew was mathematically dumb…“
He’s also pointed out that there have been a lot of frauds connected with Bitcoin, and that adds to the risk of converting proper money into it.
Another in a long line of frauds emerged this week, after hackers managed to break in to the Binance exchange and make off with $41m (£31m) of the ethereal currency. The sum, held in a so-called ‘hot wallet’ which was online and available for transactions, amounted to around 2% of Binance’s assets, and the company says it can cover the loss from its emergency insurance fund.
But Binance’s operations were knocked offline with all withdrawals being disabled, and it could take a week to get things operational again.
Can you imagine a real bank with real money being hacked and having 2% of its assets stolen, and having to close for business for a week? No, I can’t either.
Cyber-security experts have suggested that Bitcoin exchanges need to beef up their security to the kind of levels employed by the banks if they want to attract and protect customers. But here’s an idea: if you want a facility for financial transactions, which is accepted by just about everyone and is as safe as a bank, why not use… a bank?
And if you want to invest your cash for your future, by far the most successful form of investment over the past century and more has been buying shares in companies on the world’s stock markets. The big difference between companies and Bitcoin is that companies actually generate new wealth by conducting business, while Bitcoin, as Mr Buffett points out, just sits there waiting for a greater fool to stump up more than you paid.
What do Bitcoin followers think of Warren Buffett’s and Charlie Munger’s latest comments? Well, some of them seem to think our sages are in denial, afraid of the new blockchain world that’s going to bring the current financial world crashing down. Well, they are followers of the new religion.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.