omaha, nebraska – may 5: (file photo) warren buffett (left) and berkshire-hathaway partner charlie… [+] munger addresses members of the press on may 5, 2002 in Omaha, Nebraska. schwarzenegger’s campaign for governor announced that buffett will serve as economic adviser to arnold schwarzenegger in his bid for governor of california. Buffett is Chairman of Berkshire Hathaway, an insurance and investment holding company. (photo by eric francis/getty images)
About 11 years ago, I made the very costly decision not to buy bitcoin. I estimate it cost me three-quarters of a billion dollars. however, i stubbornly stick to logic, that beautifully articulated warren buffett on april 30th, to avoid bitcoin.
Reading: Buffett still bitcoin
Bitcoin has come a long way since 2011, when I first wrote about it. but the question I posed in December 2017: is bitcoin worth $0, $20,000, $200,000 or $∞? — still unanswered for me.
In the debate between bitcoin bulls like elon musk and peter thiel and bears, I side with warren buffett and the wikimedia foundation, who are not fans.
I wish I had invested in bitcoin in June 2011. As I wrote back then, the hack of mt.gox, a bitcoin exchange, sent its price from $17.50 to “cents”.
Just for fun, I thought what if it was worth five cents a bitcoin back then and I had bought $1,000 worth? today, those 20,000 bitcoins would be worth a whopping $770 million, a pretty good return (though down 40% from its November 2021 high of nearly $1.29 billion).
Back then, I argued that bitcoin, then an online currency used to buy alpaca wool socks and illegal drugs, could survive, as paypal did, if there was a compelling reason for consumers, merchants, and payment platforms will adopt it. otherwise it would go extinct just like digicash, flooz and beenz.
As we now know, bitcoin survived.
is bitcoin worth $0 or $∞?
In 2017, I wrote that the value of bitcoin was imprecise and that it could be argued that it has no value or potentially infinite value, which I called theory 1 and theory 2.
theory 1. btc is pure emotion punctuated by periodic thefts
According to this theory, people buy or sell bitcoins in a wave of fear. specifically, they are afraid of missing out on further appreciation in the price of bitcoin. For those who suffer from such fear, there is plenty of evidence to support their belief.
For example, bitcoin’s compound annual growth between $17.50 in early June 2011 and May 3, 2022 was 101%. At the same time, I was not surprised: according to what I wrote on mt.gox, on December 6, 2017, $70 million worth of bitcoins were stolen.
of course, cryptocurrency hacking is not over: last month, us. uu. The Treasury Department alleged that North Korean hacker group Lazarus “is linked to a cryptocurrency heist of over $600 million from Axie’s infinity-linked Ronin Bridge,” according to Coindesk.
On the other hand, bitcoin exchanges have become better established since then. coinbase and binance are two well known united states. cryptocurrency exchanges: time gives coinbase an edge as it is publicly traded and is the “easiest exchange to use, with an intuitive interface, as well as a variety of options for using fiat currency to make purchases.”
However, the 40% drop in the price of bitcoin since last November keeps the question on my mind of what could prevent it from going to 0.
theory 2. btc will make the world run more efficiently
Another way to think of bitcoin is that it’s like a publicly traded biotech company with no revenue. However, instead of having to overcome scientific and regulatory hurdles to become valuable, BTC Bitcoin overcomes the resistance of individuals and businesses to using the cryptocurrency to transact business.
aaron brown, a columnist for bloomberg who owned bitcoin in 2017, argued that each bitcoin was worth $20,000 (about $2,500 more than it was trading at the time). his logic was that the cryptocurrency codebase had “the potential to significantly expand the value of internet activity and add valuable new activity.”
To arrive at his $20,000 figure, he estimated that the internet represents 6% of the $75 trillion global economy and that cryptocurrencies may add 2% to that fraction, half of which will go to investors. “if I take 2% of the $75 trillion global gdp, halve that by the fraction that goes to investors, multiply that by 70% to get the value of bitcoin needed to support that activity, and divide by 21 million bitcoins, I get $20,000 per coin,” brown wrote.
In 2017, my concern was that bitcoin, which was unregulated, could seriously destabilize the global financial system if traditional financial institutions decided to get involved.
but now, fidelity investments, the largest provider of 401(k) plans in the us. The US, which acts as custodian for 23,000 plans, which have 20.4 million participants, representing $2.7 trillion in assets under management, is doing just that.
In late April, Fidelity announced that it will offer bitcoin as an investment option in its 401(k) plans in mid-2022, according to CNN. the labor department expressed deep concern “about the possibility that 401(k) participants are exposed to the extreme volatility of cryptocurrency trading.”
enemies of bitcoin: buffett and the wikimedia foundation
bitcoin is not universally loved as an investment: buffett and the wikimedia foundation object.
buffet: bitcoin is “probably rat poison squared”
See also: Running A Full Node – Bitcoin
at the annual meeting of shareholders of berkshire hathaway’s brk.a on april 30, chief executive warren buffett prefaced his comments on bitcoin by saying he doesn’t like people “stepping on [his] windpipe”, however, you still don’t see the value in bitcoins.
buffet’s argument is like the one I made in 2011: bitcoin is not useful. according to cnbc, he said, “if you said… for a 1% interest in all farmland in the united states, pay our group $25 billion, i’ll write you a check this afternoon… now if you said I own all 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?”
Unlike apartments that generate rental income or farmland that produces food, the only way to get value from bitcoin is by selling it to someone else. “That explains the difference between productive assets and something that relies on the next guy paying you more than the last guy got,” Buffett said.
explain bitcoin price like magic. While Buffett doesn’t know if bitcoin will go up or down in the future, he concluded: “The only thing I’m pretty sure of is that it doesn’t multiply, it doesn’t produce anything. it has magic and people have given magic to many things.”
wikimedia foundation: bitcoin is extremely risky and inherently predatory
The organization that runs Wikipedia, the Wikimedia Foundation, decided this month to stop accepting donations in the form of cryptocurrencies.
the reason, according to wikipedia editor molly white, is that accepting cryptocurrency donations was “a tacit endorsement of ‘extremely risky investments’ and technology that are ‘inherently predatory,’ and certainly when it comes to major currencies virtual bitcoin and ether are ‘extremely harmful to the environment,’” according to Fortune.
The wikimedia foundation is not alone. In January, the Mozilla Foundation, which produces the Firefox web browser, “halted crypto donations because their environmental impact did not align with their climate goals.” Furthermore, Tesla used the same reason nearly a year ago to stop accepting bitcoin payments for its cars, Fortune noted.
bitcoin fans: musk and thiel
Speaking of tesla, like populist politicians, bitcoin advocates elon musk and peter thiel reacted to buffett’s comments about bitcoin with ad hominem attacks.
In response to his April 30 comments about bitcoin, Musk derided Buffett as a diabetes peddler. According to Forbes, Musk said, “haha, he says ‘bitcoin’ so many times” [calling him savage that Buffett can attack bitcoin] while brazenly mocking diabetes, [referring to Buffett surrounding himself with boxes of See’s candy on stage]. ”
in march, peter thiel, like paypal co-founder musk, called buffett “enemy number one”. 1,” describing him as a “sociopathic grandpa from Omaha,” according to lookingalpha.
the logic of investing in bitcoin still eludes me and I wish that musk and thiel, instead of insults, offer a rational counter to buffett’s opinion.