Warren Buffett is the undisputed greatest investor of all time.
The Berkshire Hathaway chief has trounced the market throughout his career. From 1964 to 2021, Berkshire Hathaway's return is more than 100 times that of the S&P 500.
Along the way, Buffett has become one of the richest people in the world, but he's just as famous for his aphorisms and investing approach as he is for his success. Buffett has strong opinions on investing, and he's made his feelings on Bitcoin (BTC 1.03%) well-known.
The Oracle of Omaha has a long history of trashing the world's most valuable cryptocurrency. In 2014, he called it a "mirage" and said, "The idea that it [Bitcoin] has some huge intrinsic value is just a joke in my view." Then, in 2018, he called it "rat poison squared" after warning that Bitcoin was a bubble. Just this year, Buffett insisted he wouldn't buy all the Bitcoin in the world for $25, explaining that it's not a productive asset.
Though Buffett has bent his rule against buying tech stocks in recent years, it's almost certain he'll never buy Bitcoin. Here's why.
There's no way to value Bitcoin
Buffett is a classic value investor. His approach to investing is to buy $1 for $0.80, essentially. Buffett attempts to find an asset's intrinsic value and buy it if it's priced for less than that value. Since Bitcoin is not a productive asset, there's no way to value it properly. Its price is generally determined by what a speculator is willing to pay for it at a given time. Bitcoin itself doesn't generate cash flows or profits for its owner through direct value-building tools such as rental fees or business operations. Buying and selling in Bitcoin are often based on the Greater Fool Theory, meaning people buy it on the assumption that someone will pay even more for it later.
Buffett tends to favor businesses that have proven themselves over a long period. He likes insurance companies and banks, energy and utilities, and big-brand consumer companies like Coca-Cola and Apple.
Bitcoin is the opposite of these assets as it has no real utility at the moment, and its value appears based mostly on hype. Buffett explained, "It's got a magic to it and people have attached magic to lots of things."
Buffett also summarized the issue with Bitcoin's lack of productivity, saying, "Now if you told me you own all of the bitcoin in the world and you offered it to me for $25 I wouldn't take it because what would I do with it? I'd have to sell it back to you one way or another. It isn't going to do anything."
A bet on Bitcoin is a bet against the U.S. dollar
There's another, less conspicuous reason Buffett will never buy Bitcoin. A bet on Bitcoin is, fundamentally, a bet on the upheaval of the global financial system. For Bitcoin to thrive, fiat currencies need to fail or at least weaken. In fact, Bitcoin has gained the most traction in parts of the world where local currencies have been unreliable. For example, some Venezuelans turned to Bitcoin when the bolivar was experiencing hyperinflation; and El Salvador, a country without its own currency, has made Bitcoin legal tender, with mostly disappointing results.
Bitcoin bulls also argue that the cryptocurrency is superior to fiat money because its supply will be capped at 21 million. In contrast, central banks can print fiat currency as they see fit, potentially printing away its value. Since Bitcoin's supply is mathematically restricted, Bitcoiners believe it's a more secure form of currency. It won't lose its value the way the dollar does with inflation over time.
The U.S. dollar is the world's reserve currency, and captains of industry, like Buffett, have huge stakes in its stability. If the dollar were to collapse, it would crush Buffett's fortune and much of his business empire.
Though investing in Bitcoin might seem like a worthwhile hedge to someone in Buffett's position, he doesn't seem to accept a world in which the dollar isn't the U.S.'s de facto currency. Theorizing a Berkshire coin at this year's Berkshire shareholder meeting, he said, "And there's no reason in the world why the United States government ... is going to let Berkshire money replace theirs."
Is Buffett right about Bitcoin?
Buffett's analysis of Bitcoin is mostly correct. Bitcoin is not a productive asset, and there's no good explanation for its price on any given day. However, it seems too early to dismiss Bitcoin as irrelevant. Though Bitcoin hasn't achieved the core functions of currency as a store of value, a medium of exchange, or a unit of account, that could change in the future.
Ultimately, people, not governments, choose what becomes currency -- if enough of the global population adopts Bitcoin as currency, it could gain real value rather than speculative. For now, though, it's clear that a value investor like Buffett would want nothing to do with Bitcoin.
