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Warren Buffett ripped into it last month Bitcoin (CRYPTO:BTC) at the Berkshire Hathaway annual meeting. His longest-running tirade on crypto to date included a series of provocative claims:
- Bitcoin produces nothing.
- “Nobody” is Bitcoin for short.
- “I wouldn’t pay $25 for all the bitcoin in the world.”
It was a bold claim that did not go unnoticed. Crypto fans began to surge shortly after Berkshire’s annual meeting Twitter to talk about how wrong Buffett was. For the most part they used their usual arguments about supply caps, mining, fiat and so on. But thanks to this year’s weak economy, they had another issue to address: inflation.
US inflation is around 8% this year and not slowing down. This point was made to highlight the value of bitcoin as an inflation hedge, which could rise again, in contrast to the USD, which falls in value almost every year.
Is Bitcoin an inflation hedge?
The idea that Bitcoin is an inflation hedge is pretty simple.
Fiat currency has unlimited supply while bitcoin has limited supply, so bitcoin should start to be worth more than fiat if demand for both is equal. In the long run, that has proven to be the case. However, Bitcoin hasn’t saved investors from inflation this year. It is down 39% against the dollar and is being ‘inflated’ far more than the greenback. That doesn’t necessarily mean Bitcoin isn’t an inflation hedge. Indeed, over the extremely long term, it has increased faster than the CPI. But it’s not directly positively correlated to inflation like gold is, for example.
intrinsic value
One of Warren Buffett’s biggest problems with Bitcoin, and with crypto in general, is the fact that it has no intrinsic value. Unlike a company, Bitcoin does not produce cash flows. It doesn’t really produce any kind of output. Because of this, the asset lacks fundamentals and has no intrinsic value. That doesn’t mean the price won’t go up. But it means an investor lacks the intellectual tools to determine its value. Investing in it is basically a roll of the dice.
Stupid take away
After several years of public statements, Warren Buffett has made it clear that he doesn’t like Bitcoin. He tosses the lack of output and intrinsic value and doesn’t consider it an investment-grade asset.
Does that mean you should avoid it too?
It really depends on how you think about investing.
If you like investing in assets with a safety margin, then you should definitely avoid Bitcoin. BTC has no intrinsic value and there is no real reason why it shouldn’t go to $0.
However, if you take a big risk, you can do well with Bitcoin. Its price movements are essentially random from the perspective of smaller investors who cannot influence the price. So it appears that BTC is superior to lottery tickets, which are mathematically weighted against those who buy them. With Bitcoin, there is no built-in “disadvantage” for the buyer, nor is there an advantage. Its price movements are random in every way, and there are worse bets than pure randomness.
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