Warren Buffett doesn’t like Bitcoin. In fact, he doesn’t like any cryptocurrencies. He’s described them “rat poison squared,” a “mirage,” and a “gambling device.”
He’s not alone. His close partner Charlie Munger labeled Bitcoin “dementia,” comparing it to “trading turds.”
If you’re into crypto like Bitcoin, you may be rolling your eyes. Old-school investors like Buffett simply don’t understand what’s going on. But here’s the thing: might you be wrong?
The case against Bitcoin
Don’t be mad that Buffett hates crypto. From his point of view, he has some solid points. Fool contributor Robin Hartill summarized them in a recent post, highlighting that he rarely invests in unproductive assets, considers Bitcoin speculation, not investment, cares a lot about his reputation, and only invests in what he knows.
For most investors, following the rules above will lead to success. But if you want to buy Bitcoin, those same rules become overly claustrophobic.
To be fair, Buffett does have some credible points. Bitcoin is still wildly speculative, even if it’s also wildly promising. It doesn’t produce anything tangible of value, apart from more Bitcoin. It’s riddled with criminal and nefarious activity, although it’s increasingly used for legitimate transactions. And despite its popularity, few people can describe how it works.
Even considering all that, he’s still wrong to doubt the cryptocurrency.
Buffett is completely wrong
Buffett will be the first to admit that he’s whiffed on some calls in the past. After calling airlines like Air Canada “the worst sort of business,” he ploughed billions into the industry to become a top shareholder across four different carriers. Then, after saying gold “has no utility,” he became a major investor in one of the world’s top gold miners.
The lesson is simple: sometimes people change their mind. This lesson should hold true for Bitcoin.
“Because there aren’t many of these gold-like storehold of wealth assets that can be held in privacy and because the sizes of their markets are relatively small, there exists the possibility that Bitcoin and its competitors can fill that growing need,” remarked legendary investor Ray Dalio, head of the world’s largest hedge fund.
“It seems to me that Bitcoin has succeeded in crossing the line from being a highly speculative idea that could well not be around in short order to probably being around and probably having some value in the future,” he concluded.
What to do right now
Institutional ownership of Bitcoin recently hit 10% of total supply. It’s clear that experts and analysts are finally appreciating the value of cryptocurrencies, even if they came out strong against them at the start. Similar to airlines and gold, I suspect Buffett will have a change of heart.
Does this mean you should pile everything you have into Bitcoin? Of course not. Just understand that cryptocurrencies are quickly becoming a legitimate asset class worthy of exposure, even a token amount. Chamath Palihapitiya, CEO of Social Capital, recommends that every investor put 1% of their portfolio into crypto, calling it a “fantastic hedge.”
Don’t wait for experts like Buffett to change their minds. They’ll come around soon enough.
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Fool contributor Ryan Vanzo has no position in any stocks mentioned.