Warren Buffet, one of the most successful investors ever and the fourth-richest person on the planet, proclaimed earlier this week that cryptocurrencies like Bitcoin have “no value.”
Chamath Palihapitiya, a former Facebook executive and the current Chairman of Virgin Galactic, shot back, “[Buffet] is completely wrong and outdated on this point of view.”
Here’s what you need to know.
Warren Buffet and Cryptocurrency
From the beginning, Warren Buffet has been skeptical of cryptocurrency. Value investing, the strategy he made famous, is about investing in companies whose business you understand, that have solid earnings, and offer long-term upside.
It’s about finding long-term value rather than short-term gains. He’s poured his money into consumer products companies like the Coca-Cola Company and avoided riskier industries like biotech despite their higher implied upside.
So his take on cryptocurrency isn’t much of a surprise. In 2018, he compared the digital currency to rat poison squared. In an interview with CNBC’s Becky Quick on February 24, he doubled down, stating “I don’t own any cryptocurrency and I never will.”
Why Buffet May Be Wrong
Chamath Palihapitiya, a billionaire investor and long-time supporter of digital currency, sat down with Becky Quick on the same program two days later and laid out a convincing argument for why Buffet might be wrong.
Basically, cryptocurrency may not fit into Buffet’s worldview because it’s a new asset class. It’s not correlated with other asset classes, like traditional commodities and stocks, and therein lies its value, according to Palihapitiya.
Fundamentally, Palihapitiya sees cryptocurrency as a hedge against volatility in traditional markets, an insurance policy that could serve as a life preserver if the economic system collapses.
Since 2013, Palihapitiya has said that every investor should invest 1% of their assets in Bitcoin or whatever is the most valuable cryptocurrency. It’s something you hopefully never have to use, but when “the big one” hits, the value of a single coin could skyrocket to millions of dollars.
It’s also worth noting that Buffet, who has earned the nickname the Oracle of Omaha for his prescient investments, is not always correct. He famously missed out on both Google and Amazon, largely because he followed his own rule of not investing in companies you don’t understand.
After a 50 percent gain between January 1 and February 11, Bitcoin value has slid roughly 15 percent to below $9,000 per coin at the time of this writing.
