If there's one thing Warren Buffett will never ever invest in, it's bitcoin -- or any other cryptocurrency. He's called it "rat poison squared," a "mirage," and a "gambling device."
But if there's anyone who hates it more, it's his Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) second in command, Charlie Munger. He's called bitcoin "just dementia" and compared it to "trading turds."
Earlier this year, Buffett received a gifted Samsung phone containing bitcoin from cryptocurrency entrepreneur Justin Sun. Keeping with his vow that neither he nor Berkshire would ever own cryptocurrency, he donated the bitcoin to San Francisco's GLIDE Foundation.
The Oracle of Omaha's longtime distaste for all things cryptocurrency tells us a lot about the Warren Buffett investment philosophy. Here's why Buffett hates bitcoin so much.
1. He doesn't invest in unproductive assets.
Buffett likes his assets productive. He invests in stocks issued by corporations that produce something of value. In the process, they produce earnings and dividends for shareholders. Or he invests in real estate. A piece of vacant land won't produce anything, of course, but you can build an apartment complex and produce income by charging rent.
While bitcoin is intended to be a digital currency, its actual use as a payment system remains extremely limited. Buffett believes bitcoin is valuable only because the person buying it thinks they'll be able to sell it for even more than what they paid at some point.
2. He considers it speculation, not an investment.
Buffett has said Berkshire's favorite holding period is "forever." He tells investors not to buy Berkshire stock unless they can hold it for at least five years.
Berkshire Hathaway has built much of its fortune by holding huge stakes in stalwarts like Coca-Cola and American Express for many decades.
Bitcoin isn't exactly a buy-and-hold investment. In 2017, its price skyrocketed 1,950% to nearly $20,000. By early 2019, it had lost nearly 85% of its value -- then it finished out the 2019 year 80% higher.
Ultimately, Buffett is fine with it if you want to buy yourself some bitcoin. Just don't call it investing.
"If you wanna gamble somebody else will come along and pay more money tomorrow, that's one kind of game," Buffett told Yahoo Finance in 2018. "That is not investing."
3. He's a stickler for reputation.
Just how much illegal activity does bitcoin facilitate? That's a matter of widespread dispute. But its role in darknet drug marketplace Silk Road, its use for money laundering and trafficking stolen goods, and recent reports that it's been used to finance terror plots haven't exactly been great for bitcoin's image.
Buffett has made it clear that he'll never tolerate anything that would jeopardize Berkshire Hathaway's reputation. A frequently quoted Buffett-ism: "Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless."
Buffett has taken past jabs at bitcoin's reputation for financing criminal activities. He told CNBC in 2019 that its only economic contribution may be to cut the demand for suitcases — because rather than lugging around money-stuffed suitcases, criminals can just use bitcoin.
4. He only invests in what he knows.
One of Buffett's best investment lessons: Never invest in something you don't understand.
The mechanics of bitcoin, how you mine it, and how its deregulated network functions are extraordinarily confusing, even for the tech-savvy. So it isn't surprising that Buffett takes a hard pass here.
Buffett has said repeatedly that he believes cryptocurrencies will end badly. The problem is, he has no clue when. Keeping with his rule of investing in what he knows, Buffett will never bet money by shorting cryptocurrencies, either.
"I get into enough trouble with things I think I know something about," he told CNBC in 2018. "Why in the world would I take a long or short position in something I don't know anything about?"