Why Warren Buffett Doesn't Like Cryptocurrencies

Should you heed the Oracle of Omaha's advice and steer clear of crypto investing?

Warren Buffett is one of the best known, and most successful, investors of all time. Buffett has spread his money around a diverse array of different assets, but there's one type of investment he's made clear he wouldn't touch: cryptocurrency.

As a growing number of Americans buy virtual currencies, it's worth taking a look at exactly what the Oracle of Omaha objects to about this asset class.

What has Buffett said about cryptocurrency?

Buffett has pulled no punches when it comes to sharing his distaste for crypto. In fact, when asked about one of the more popular virtual currencies -- Bitcoin -- Buffett's comment was that it was "probably rat poison squared."

Buffett declined to comment on cryptocurrency recently during his company, Berkshire Hathaway's annual shareholders meeting. However, the vice-chairman of Buffett's company, Charlie Munger, made clear he is no fan either. Munger said he doesn't "welcome a currency that’s so useful to kidnappers and extortionists," and went on to describe the development of cryptocurrency as "disgusting and contrary to the interests of civilization."

These comments are a markedly different take on virtual coin compared with other celebrity investors and entrepreneurs, including billionaires Mark Cuban and Elon Musk, both of whom have embraced crypto publicly many times.

Why does Buffett not like crypto?

Why is Buffett so anti-crypto? There are two big reasons why the billionaire investor won't put virtual currencies in his portfolio.

1. Bitcoin and other virtual currencies don't have intrinsic value

Buffett tends to focus his investments on businesses that produce things, and he doesn't believe cryptocurrencies fit the bill. In fact, he's stated clearly that virtual coins "can't do anything," and aren't currently viable as a payment method.

Because the coins don't have any underlying real value of their own, the only way investors can profit is if people in the future decide to pay more for the virtual currency than those currently holding it.

2. Bitcoin is as a mirage that doesn't have the basic qualifications to be considered a currency

Buffett believes a viable currency must be a store of value and a durable means of exchange. Cryptocurrencies are lacking these fundamental traits, which is why he believes Bitcoin is nothing more than a mirage.

While Buffett acknowledges that Bitcoin can be used as a means of transmitting money, he also points out that a simple check can do the same. "Are checks worth a whole lot of money just because they can transmit money?” That was the question he raised when pointing out why Bitcoin's value as a currency is limited.

Buffett has also commented that he personally prefers to steer clear of cryptocurrency because he doesn't know much about it or understand it -- and he's made his fortune by investing in companies and industries he understands deeply.

Buffett's warnings about not investing in assets you don't understand, and his cautions about whether cryptocurrencies have underlying value and will serve a long-term purpose, are important for every would-be crypto investor to consider.

If you don't know how or why a coin is likely to see an increase in value over time and you're just hoping someone comes along and pays you more for it, you may want to follow the Oracle of Omaha's lead and steer clear of buying cryptocurrencies.