Warren Buffett’s Berkshire Hathaway has outperformed Bitcoin over the last five years despite a surge in crypto prices in 2020.
Buffett is a fierce critic of Bitcoin, saying the cryptocurrency has no value and “you can’t do anything with it except sell it to somebody else.”
He recently gave a more in-depth explanation of why he is not optimistic about the future of Bitcoin.
“If you offered a 1% interest in all the farmland in the United States to me for $25 billion, I’d write you a check this afternoon,” Buffett said.
“If you offered 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.”
“However, if you offered me all of the bitcoin in the world for $25, I wouldn’t take it, because what would I do with it?” he asked.
“I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rent, and the farms are going to produce food.”
“Whether it goes up or down in the next year, or five or ten years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,”
“In terms of cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending,” Buffett predicted.
His Berkshire Hathaway business partner, Charlie Munger, is even more scathing towards Bitcoin, equating it to “rat poison” and “trading turds.”
Many of South Africa’s top fund managers are equally sceptical about the value of Bitcoin, including Protea Capital Management CEO Jean Pierre Verster.
Verster explained that he is not a crypto bull and that cryptocurrencies have elements of a Ponzi scheme.
He said blockchain is a wonderful technology and will find applications when it comes to having open ledgers.
“However, the application of blockchain into cryptocurrency is where it gets a bit carried away,” said Verster. “I don’t believe these cryptocurrencies have an intrinsic value.”
At some point, when all the people who want to get involved in cryptocurrencies are involved, it can cause problems.
“So, it has got these elements of a Ponzi scheme, which means that prices go up for a long period, and it looks like value increases — and then it all comes crashing down.”
Verster said the only way you can make money from cryptocurrencies is to sell them to another person at a higher price.
“I don’t like those types of investments because it makes me dependant on what the other person thinks the asset is worth,” Verster said.
It is also not possible to accurately calculate how much a certain cryptocurrency is worth because it is not possible to apply fundamental investment principles to calculate this value.
It means cryptocurrencies are, per definition, a speculative investment where the yield depends on selling it at a higher price in future.
The Bitcoin price came under pressure in recent weeks following the collapse of FTX and other crypto platforms, including BlockFi and Bitfront.
Over the last two weeks, since the FTX debacle, Bitcoin traded at between $16,000 and $17,000.
It means that, over five years, Buffett’s Berkshire Hathaway has outperformed Bitcoin.
The chart below shows the price of Bitcoin (red) versusBerkshire Hathaway (blue), courtesy of Gurgavin.