Why Warren Buffett Is Right For Bashing Bitcoin

One man recently went on a tirade for Warren Buffett's comments on bitcoin, but it turns out just one of them is remarkably wrong.

Mar 29, 2014 at 12:13PM

Bitcoin By Btckeychain

Source: Flickr / BTC Keychain.

The questions surrounding the true value of Bitcoin swirled even more this week as an Internet and technology pioneer didn't take kindly to Warren Buffett's recent remarks surrounding the crypto-currency.

The story
It's been widely reported Warren Buffett, with a net worth of nearly $64 billion, suggested the popular crypto-currency bitcoin was a "mirage," during an interview with CNBC earlier this month.

At a conference Marc Andreessen, who co-founded Netscape, an ardent Bitcoin enthusiast -- and investor -- didn't appreciate the comment and suggested Buffett overstepped his expertise by commenting on the technology. He then took to Twitter and clarified his remarks by saying:

Just six hours later Andreessen returned to Twitter and fired off a series of nine tweets, where he highlighted his own personal admiration of Buffett, saying, "Warren Buffett is a personal hero of mine -- clearly brilliant investor and businessperson but also philanthropist and humanitarian!"

Marc Andreessen By Fortune Live Media

Source: Flickr / Fortune Live Media.

However, two short minutes later Andreessen continued by noting, "But Warren has maintained for decades that he knows nothing about technology and does not seek to know anything about technology." And proceeded to suggest the negative opinion on Bitcoin from Buffett and others like him was unwarranted.

Although he said he was happy to meet with Buffett and further discuss the topic, he also provided the reason for his somewhat disparaging remarks about Buffett by saying, "when people who don't understand tech attack new tech, it's fair game to call them on it. People should know what they're talking about." 

The theme
Buffett once remarked a key to investing was to "never invest in a business you can't understand," so it's easy to believe his own opinion on Bitcoin was one of sheer misunderstanding. This could help explain why Andreessen so distinctly disdained Buffett's comments.

But a further glance at Buffett's actual stance on Bitcoin reveals he knows exactly what it is and its value: 

It's a method of transmitting money. It's a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money? ... I hope Bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways and it will be. The idea that it has some huge intrinsic value is just a joke in my view.

In an earlier interview when asked about Bitcoin, Buffett noted Bitcoin doesn't meet the definition of a currency as a result of the reality people exclusively consider its value relative to the dollar.

He highlighted the entire theme of Bitcoin has been "very speculative," and drew comparisons to tulip madness -- the financial crisis in the Netherlands in 1637 which was one of the first economic booms and busts -- and people were simply buying a selling with the hopes bitcoin would go up or down. 

The truth
On Tuesday, the IRS took the same stance as Buffett and said virtual currencies -- like Bitcoin -- would be viewed as pieces of property for tax purposes instead of legal tender. But beyond that, it's important to see Andreessen was simply incorrect when he asserted Buffett didn't understand bitcoin.

Buffett notes the underlying technology and process which allow Bitcoin to function is valuable, but the belief a single Bitcoin is worth anything is simply speculative. That's not to suggest the price will plummet this day, this week, or this year, but simply at its core, it isn't an investment.

There are likely to be sizable changes in the payments and broader banking industries, but whether those come from Bitcoin or somewhere else is still to be determined. When there are firms like MasterCard, and Visa, -- firms Berkshire Hathaway has total investment of nearly $700 million in -- as well as eBay and Google all angling for position, it's tough to believe a fledgling currency will be the ultimate winner.

The takeaway
Before Buffett began his remarks on Bitcoin he said, "you're going to be a lot better off owning productive assets over the next 50 years than you will be owning pieces of paper," which is something to always remember when considering any investment. 

More wisdom from Warren
While Buffett may not think Bitcoin is a good investment, there are plenty of companies he believes are. You see, Warren Buffett has made billions through his investing, but he's not afraid to share the knowledge he's picked up along the way. In fact, he wants you to be able to invest like him. Through the years, Buffett has offered up countless tips, and now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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