The Difference Between Buffet’s Button and Bitcoin
The recent publicized opinion of Warren Buffet in regards to Bitcoin initially had me shaking my head in disbelief, but then I remembered who Buffet was.
Last week Buffet was addressing Bitcoin in front of a group of reporters before Berkshire Hathaway’s annual meeting. Here he compared the cryptocurrency and the wider digital asset market to the button on his jacket and seashells:
“I’ll tear off a button here. What I’ll have here is a little token...I’ll offer it to you for $1000, and I’ll see if I can get the price up to $2000 by the end of the day... But the button has one use and it’s a very limited use,” Buffett said, adding:
“It doesn’t do anything. It just sits there. It’s like a seashell or something, and that is not an investment to me.”
The famed investor would also put down Bitcoin as a "gambling device" connected to a market filled with fraudulence.
“It’s a gambling device... there’s been a lot of frauds connected with it. There’s been disappearances, so there’s a lot lost on it. Bitcoin hasn’t produced anything,” he said.
To Buffet - who infamously praised and had benefited from the decision by the federal government and Federal Reserve bank to bail out the 'Too Big to Fail' institutions a decade ago - the value of bitcoin is invisible.
To the 88-year-old investor - born well before the internet in 1930 - a digital, decentralized monetary system which deflates over time is such a new idea he can't see it.
Buffet's comparison of bitcoin to a jacket button and seashell shows that the technical aspect of bitcoin's consensus and security model does not play a role in his value thesis. What Buffet sees is something that isn't tied directly with the low-interest rate policy of the federal reserve and isn't insured by the FDIC.
The idea that Bitcoin has produced nothing is ignorant.
Bitcoin's protocol, in its decentralized solution for double-spending and Byzantine Generals’ Problem, has produced a secure peer-to-peer monetary system that exists outside the realm of politics. The value in this alone cannot be stated enough.
In a world where central banks have printed trillions of dollar worth of paper money and have kept savers poor with low-interest rates, Bitcoin's protocol opens a back door out of this inflationary environment.
Bitcoin's phenomenal infiltration into popular culture has created an enormous amount of value as well. The currency's ties to a freedom-based economic view has educated those interested in the technology on the failures of centrally planned monetary systems and their economic effects.
“It’s very attractive to the libertarian viewpoint if we can explain it properly. I’m better with code than with words though.”
The millennials who have grown up in their mother's basement because they are too indebted by the overly available credit issued by banks and governments are the generation with the most interest in Cryptocurrency. These young adults are victims of the predatory lending that the federal reserve's policies facilitate.
In fact, findings from the New York Federal Reserve show Millenials are buried under a trillion dollars worth of debt. As a result, they are collectively owning fewer homes rate than the preceding generation.
It is no secret why they see value in Bitcoin's hard capped supply and deflationary monetary policy. Its purchasing power cannot be stripped from inflation happy bankers due to the hardcoded distribution policy.
All of the reasons why Bitcoin has become this "Demographic Mega-Trend," as Blockchain Capital's Spencer Bogart put it, goes way over Buffet's head. A man who has made billions on the back of the cheap, elastic money supply of the fed can't see where the victims of that exact system are coming from in their assessment of value.
And remember when bitcoin had yet to acquire USD value in 2008? Calculate the profit an early investor would have made if they held from that time till now. Yes, bitcoin has produced those gains.
Greater Fools and Sound Money Hopefuls
Yes, the greater fool theory would have a seller looking to give Buffet's worthless button away to someone at a more expensive price. But no one is banking on that button changing the way people exchange value across the globe like many are with bitcoin.
Nor does that button have billions of dollar worth of CPU power guaranteeing its scarcity and security. Bitcoin does.
The lack of understanding of bitcoin's underlying protocol is likely the reason such a world-renowned investor like Buffet is comparing it to rat poison. Try telling that to the Venezuelan's who say that using bitcoin as a store of value saved them from the hyper-inflating Bolivar.
Buffet's continuous downplaying of bitcoin's value will likely plague the headlines for years to come, but one thing is certain: Bitcoin is becoming more popular and because of this, more people are waking up to a rigged monetary system that has sent wealth inequality to absolute historic highs while protecting billionaires like Buffet.