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What Warren Buffett Is Getting Wrong About Crypto

The Motley Fool logo The Motley Fool 1/27/2022 Lyle Daly
A cryptocurrency trader wearing a headset is on a video call from a home office. © Getty Images A cryptocurrency trader wearing a headset is on a video call from a home office.

Warren Buffett has made his opinion on crypto crystal clear over the years. The billionaire investor says he doesn't own any and he never will. He claims Bitcoin (BTC) and other cryptocurrencies have basically no value, and all you can do with them is sell them to somebody else.

There's no arguing that Buffett is one of the most successful and respected investors of all time. He certainly knows a thing or two about investing, but that doesn't mean he's always on the mark. Technology, in particular, has never been his specialty, and he has admitted as much. It's strange then that Buffett is so staunchly anti-crypto when it's not his area of expertise.

Warren Buffett doesn't understand the value of cryptocurrencies

Buffett's biggest criticism of cryptocurrencies is they have no value. That's simply not true. Cryptocurrencies may be volatile, but they all have a value that's set by the market when they're bought and sold on crypto exchanges. Just because they're digital assets doesn't mean they're worthless. It'd be silly to believe that after a year when Bitcoin beat all equities.

To go into more detail, Buffett's claim is that cryptocurrencies don't have value because they can't do anything. Again, that's far from the truth. Most successful cryptocurrencies have a problem they're trying to solve. Here are a few prominent examples of major cryptocurrencies and what they have to offer:

  1. Bitcoin was the first decentralized, digital currency. Unlike traditional currencies, it can operate without a central bank or governing body. People can use it to transfer funds without going through financial institutions.

Newer cryptocurrencies have since surpassed Bitcoin in terms of technical performance. It's now seen used as a store of value and a hedge against inflation. You'd think Buffett would see the value in that, as he himself has pointed out how cash is a terrible long-term asset.

  1. Ethereum (ETH) introduced smart contract capabilities for cryptocurrencies. Smart contracts are essentially programs written on a blockchain (a public ledger that records a cryptocurrency's transactions). They've been used to create all kinds of decentralized finance (DeFi) platforms that replace traditional financial services.

Decentralized crypto exchanges are a popular example of DeFi in action. These exchanges let users trade crypto, earn interest on their holdings, and get loans, all without any financial institutions.

  1. Cardano (ADA) aims to build a platform where developers can solve real-world problems. These problems include lack of access to financial services and identity records, among many others.

One way Cardano aims to use blockchain technology for good is identity records in areas that don't have national ID systems yet. In 2021, Cardano partnered with the Ethiopian Ministry of Education to store student records on its blockchain. It's also working on partnering with the Ethiopian government to build a national, blockchain-based ID system.

  1. Solana (SOL) could become one of the most efficient ways to transfer funds. It calls itself the fastest blockchain in the world. It's also reportedly capable of processing 65,000 transactions per second with transaction fees of less than a penny.

To play devil's advocate, Buffett isn't entirely wrong. There are plenty of cryptocurrencies that are blatant cash grabs with no real utility. Spend a little time looking at the plethora of tokens with "Elon," "Doge," or "Moon" somewhere in the name for evidence of that.


Video: Crypto without decentralization is just ‘reinventing the same wheel’: Jim Bianco (Yahoo! Finance)

Replay Video

Still, it's incorrect to say cryptocurrencies don't do anything. The quality projects all have their uses, and those are the ones that can be worth investing in.

Buffett and Berkshire have taken some extreme stances on crypto

Buffett and his vice chairman at Berkshire Hathaway, Charlie Munger, don't give the impression of being fair and unbiased about crypto. In 2018, Munger compared crypto trading to dementia, and Buffett called Bitcoin "rat poison squared."

You'd think those words would be hard to top, but Munger managed it last year. At Berkshire's annual shareholder meeting, he said he hates Bitcoin's success. He claimed it's a currency that's useful for kidnappers and extortionists. He even said it's contrary to the interests of civilization, all to the agreement of Buffett.

This isn't the first time Bitcoin has been criticized because of how it's supposedly useful for criminals, and it's a tired, baseless claim.

It's not like kidnappers, extortionists, and other criminals were befuddled before Bitcoin came along. They already had the perfect financial option -- cash, which is completely anonymous. That's not the case with Bitcoin, where all transactions are publicly recorded on its blockchain.

The numbers have also shown crypto isn't nearly the criminal haven that people think. Chainalysis reported criminal activity accounted for only 0.15% of crypto transactions in 2021. That's far less than it is with fiat money, where the UN reports money laundering accounts for 2% to 5% of the global GDP.

Don't look to Buffett for crypto advice

If you're gauging whether cryptocurrency is a good investment, there are better sources of information out there than Buffett. Based on his comments, he doesn't seem to know much about cryptocurrency, but he still fervently dislikes it.

For beginners who really want to see whether they should invest, it's best to start with a guide to cryptocurrency. After that, you can learn about different cryptocurrencies, like the ones mentioned earlier, to see which ones you like.

Lyle Daly owns Bitcoin, Ethereum, Cardano, and Solana. The Motley Fool owns shares of and recommends Bitcoin.

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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly owns Bitcoin and Ethereum. The Motley Fool owns and recommends Berkshire Hathaway (B shares), Bitcoin, and Ethereum. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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