Warren Buffett: Avoid Bitcoin Like Rat Poison

Warren Buffett isn’t a fan of Bitcoin. Nevertheless, Bitcoin stocks like HIVE Blockchain Technologies (TSXV:HIVE) are soaring in the market.

| More on:
A depiction of the cryptocurrency Bitcoin

Image source: Getty Images.

Warren Buffett recently came out swinging against Bitcoin, calling the asset “rat poison” and saying that he’d never invest in it. It wasn’t his first time criticizing crypto but probably his sharpest comment against it. Warren Buffett and his partner Charlie Munger have been railing against crypto for years. Munger in particular has been fiercely critical, essentially viewing the entire thing as a fraud.

Yet you can’t argue with Bitcoin’s returns. Since 2011, the world’s largest cryptocurrency has grown at 293% annualized — a greater-than-4,000,000% return! According to a December 2020 Cointelegraph article, Bitcoin had an 8,900,000% return from its inception until that date. That’s one of the best returns of any asset in the history of civilization, and it seems to be continuing this year.

In this article, I’ll explore Bitcoin’s history to help evaluate whether it’s really a bubble like Buffett thinks, or something more significant. We can start by comparing it to two of history’s most famous “bubble” assets.

Bitcoin vs. history’s famous bubbles

When Buffett calls Bitcoin “rat poison,” what he means is that it’s a “bubble” asset with no intrinsic value. In a 2018 CNBC interview, he said he’d put a five-year put on every single cryptocurrency if he could. So, he thinks most of these assets will collapse massively in value.

To evaluate this claim, we can compare Bitcoin to past bubbles that came crashing down: Tulipmania and the South Sea Bubble. Both of these are classic examples in the history of financial mania and are often compared to Bitcoin itself.

The timelines for these bubbles were as follows:

  • Tulipmania: 1636 to 1637 (one year).
  • South Sea Bubble: 1711 to 1720 (nine years), with the most pronounced price swing occurring in 1720.

So, the two bubbles Bitcoin is most often compared to were much shorter than Bitcoin’s 11-year rise. This is particularly true if you view the 1720 price surge and collapse in the South Sea Bubble as the “true” bubble. While South Sea Company stock had been rising from 1711 on, 1720 alone saw the majority of the increase, with prices up 900% that year. The 1711-1720 price gains were much more modest.

What about Blockchain stocks?

Based on the above comparisons, it doesn’t look like Bitcoin is the speculative “bubble” asset that Warren Buffett thinks it is. A bubble is often defined as a “rapid, short-term rise in prices driven by speculative mania.” Bitcoin’s long-term rise does not meet at least one of the criteria — namely “short term.” This has been going on for far too long to be just another bubble.

It’s the same story with blockchain stocks like HIVE Blockchain Technologies (TSXV:HIVE). Over the past year, HIVE stock has risen more than 2,000%. That rise has in large part been driven by genuinely good results from the company. In the first quarter, HIVE had net income of $2.6 million; by the second, it was up to $9.2 million. On a year-over-year basis, that $9.2 million profit was up from a $11 million loss. These are real cash profits that HIVE is generating for its investors, by mining cryptocurrency. Yes, Bitcoin, and stocks like HIVE, are volatile. But they are real economically productive assets that are producing for their investors over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Tech Stocks

online shopping
Tech Stocks

Is Shopify Stock a Good Buy in 2024?

Down 52% from all-time highs, is Shopify stock a good long-term buy for shareholders at its current valuation?

Read more »

grow dividends
Tech Stocks

1 Tech Stock That Could Double (Again) in 2024

Here's why I remain bullish on Coinbase stock and expect it to beat the broader markets in 2024.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

If You Invested $1,000 in Constellation Software Stock 5 Years Ago, This Is How Much You’d Have Now

Constellation Software (TSX:CSU) stock has tripled investors' money over a five-year period. Is it still a buy?

Read more »

cryptocurrency, crypto, blockchain
Tech Stocks

Everyone Is Talking About Chip Stocks: Are They a Good Long-Term Option?

Chip stocks have been all the rage, but what are long-term investors really in for by buying them on the…

Read more »

Wireless technology
Tech Stocks

3 Tech Stocks You Can Buy and Hold for the Next Decade

Are you looking for Canadian tech stocks that could be multi-baggers in the decade ahead. Here are three small-cap stocks…

Read more »

Businessman holding AI cloud
Tech Stocks

3 Top Artificial Intelligence Stocks to Buy in March

AI stocks are the future, but what about the companies already using it for their own advantage? Here are three…

Read more »

retirees and finances
Tech Stocks

Should You Wait Till 70 To Claim CPP Benefits?

You can earn the maximum CPP payout if you wait till 70 to claim the benefit. But is the wait…

Read more »

financial freedom sign
Tech Stocks

1 Tech Stock Has Created Millionaires and Will Continue to Make More

Are you interested in a tech stock that has created millionaires? Find out which stock that is!

Read more »