For years, Coca-Cola Co. (KO 0.15%) has been one of Warren Buffett's favorite stocks. He has talked often about why Coca-Cola is such a great investment. As a result, Coca-Cola has become emblematic of Buffett's long-term, value-driven investment philosophy. Coca-Cola is the type of stock that you buy and hold forever.
On the other hand, Buffett is not at all fond of Bitcoin (BTC 0.57%). He has called it "a mirage" and "rat poison squared," and even suggested that he wouldn't buy all the Bitcoin in the world for $25. It is clear that Buffett would never even entertain the thought of adding Bitcoin to his investment portfolio. But Coca-Cola and Bitcoin might be more similar than you think. Let's take a closer look at some of the arguments that Buffett has made in favor of Coca-Cola and see if they apply to Bitcoin.
An iconic brand
A key part of Coca-Cola's appeal is that it is an iconic brand, instantly recognizable all over the world. There are plenty of different beverages out there, but Coca-Cola has become a uniquely American brand that inspires devotion from its fans and admiration from its investors.
Image source: Getty Images.
Bitcoin, too, is an iconic brand, but in a different kind of way. Ask a random person on the street to name a cryptocurrency, and chances are, they will name Bitcoin. The orange Bitcoin logo -- just like the red Coca-Cola logo -- is instantly recognizable. Bitcoin was the first cryptocurrency and stands alone at the top of any ranking of cryptocurrencies. So much of the lingo that we use in the crypto world -- such as "buy and HODL" (HODL is crypto lingo for "hold") and "to the moon" -- are derived from Bitcoin. And many of the ways that people talk about Bitcoin -- such as "Bitcoin is digital gold" -- remind me of the great advertising slogans that Coca-Cola has generated for more than 100 years.
The top player in the industry
Coca-Cola did not become the largest beverage company in the world by accident. It did so by forming a nearly insurmountable moat to stymie competitors. It has a world-class distribution network and a world-class brand team. Moreover, it has a management team that is laser-focused on increasing profits and shareholder value. All of this has made Coca-Cola so attractive to Buffett.
Bitcoin is not a company, of course, so we have to adjust the way we think about being the top player in the industry. The top crypto would be one that has the largest market capitalization, of course. It would also be the one that is most widely used as a payment option and is most trusted by institutional investors to put in their portfolios. Bitcoin meets both of those conditions. Bitcoin might not have a management team, but it has an algorithm. And that algorithm carefully controls how many coins are in circulation and describes precisely how coins can be created in the future. Just as Coca-Cola regularly pays out dividends, Bitcoin regularly adjusts the rewards paid out to miners.
What is a fair valuation for Bitcoin?
Where things get dicey is when it comes to valuation. While everyone can agree that Coca-Cola is more or less fairly valued based on metrics such as price-to-earnings ratio, almost nobody can agree on Bitcoin's valuation because crypto is still so new. Some say the value of Bitcoin is headed to zero, while others say the value of Bitcoin is headed to $1 million each.
Every time Bitcoin sets an all-time high, skeptics immediately come out and say that it's not sustainable. But then it goes higher. Remember when Bitcoin broke through the $100 mark for the first time? Back in 2013, this seemed both remarkable and fantastic. By 2020, Bitcoin had already passed Coca-Cola in terms of market capitalization. Now we're talking about $20,000 -- roughly the current price -- for Bitcoin as potentially being a fair valuation.
Is Bitcoin a forever crypto?
This is not to suggest that Bitcoin would ever appear in Buffett's investment portfolio. Or that Bitcoin has the same risk-reward profile as Coca-Cola. Or that Bitcoin has any of the same fundamental metrics that Coca-Cola has. Of course not.
However, I don't think it's out of the realm of possibility that one day, we'll be talking about Bitcoin as being a "forever crypto." It will be the crypto that you buy and hold forever in much the same way that Coca-Cola is a stock that you buy and hold forever. Bitcoin will likely be the first crypto many investors ever own. If you're thinking of buying Bitcoin, just remember one piece of classic Coca-Cola advice: "You can't beat the real thing."
