

Warren Buffett: ‘Stay Away’ From Bitcoin - ankitoberoi
http://blogs.wsj.com/moneybeat/2014/03/14/buffett-stay-away-from-bitcoin/

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josephagoss
I believe he is right and wrong. I see potential huge collapses in the future
due to [1] and many people who don't believe in CryptoCurrencies and only
invest for their portfolios will see huge loses. I can imagine some crashes
taking years to recover.

However in the long term I see CryptoCurrency as the future and a viable store
of value. I think Buffett is right to warn investors not to invest. Only
invest if you understand and believe in these technologies.

I sort of cringe with family and friends getting too deep into it because of
the historic rate of return.

I'm the sort of person that will hold their coins even if we go to $0.

[1] - A major Government feeling threatened in several years due to a handful
of CryptoCurrencies really screwing them over. (See Zerocoin for tax haven,
Bitcoin for smashing into value of USD, Ethereum for immortal web servers)
declaring that all these currencies and the systems running on top of them
(file sharing servers, child porn, unbreakable messaging, etc..) are now
illegal.

I think the only reason they will prevail is that the countries that continue
to embrace these technologies will benefit from them and become stronger.
Eventually the countries that banned them may have to unban them to remain
relevant.

~~~
sillysaurus3
I invested a lot of money into bitcoin. Then I lost it.

Just one datapoint. But there's no question that bitcoin is extremely
dangerous to anyone who buys it. You can lose your private keys. You can have
your coins stolen. You can put your trust into the wrong web service.

One thing I've realized is that bitcoin is mostly about greed right now.
There's no reason to buy it unless you want something that can only be
procured via bitcoin, or unless you want to make a lot of money. But unless
you're very lucky, you won't make a lot of money. You'll probably lose money.

I would agree with Buffet. Unless someone comes up with a compelling reason to
buy bitcoin, then don't.

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Aqueous
I think Buffett is attacking a straw man here. I don't think anybody is really
arguing that BTC itself, as it exists as the balances of addresses on the
blockchain, has intrinsic value. Just like fiat currency it has none. The
_payment_ technology, and the applications it enables, _do_ have intrinsic
value, however. He admits as much in this interview. He seems to recognize the
distinction between a payment network and the currency itself.

That means as a first mover in this space, however, that BTC is likely to go
up in value with adoption, and probably reach a peak and will either remain a
widely used currency or be supplanted by a currency with more attractive
monetary policy. That's what a lot of early adopters of BTC are speculating.

If there was a way for a casual investor to invest in the cryptocurrency space
without investing in specifically BTC, I absolutely would sell my BTC and buy
into it But to date there aren't any publically traded BTC companies, AFAIK
(Please correct me if I'm wrong.)

~~~
thatthatis
First mover advantage is only relevant when there is substantial switching
cost or other barriers. If bitcoin is successful as a payment technology, it
will be added parallel to cards, and thus part of a payments "suite." What
will the extra cost be of adding dogecoin or litecoin?

In the best case it's going to be like Amex vs Visa vs MasterCard. Except
those networks have enormous real world costs creating barriers that crypto
currency doesn't have.

Bitcoin first mover advantage is bunk.

~~~
Aqueous
With BitCoin first mover advantage is expressed in how many vendors accept it
over other currencies, and how much infrastructure there is in terms of
exchanges, payment processors, and financial proudcts. Yes it is true that it
would be trivial to exchange all my BTC for another cryptocurrency, but the
reason I don't is because there is already so much infrastructure in the
mainstream for BitCoin, and more every day. The cost of switching to another
currency would be losing access to all this available, mainstream
infrastructure and seriously limit my buying power.

For another currency to supplant BitCoin it would have to fundamentally offer
something that BitCoin does not, in a way that convinces mainstream operators
like BitPay and CoinBase to start offering solutions for those currencies. So
far 99% of the cryptocurrencies are just slight adjustments of the parameters
of BTC. The only two technologies so far that may offer something that BitCoin
does not are Ripple and Ethereum. It will probably take a few years, if not
more, for those technologies to gain widespread adoption because people are
just barely wrapping their heads around BitCoin - let alone smart contracts
and autonomous corporations.

A lot of is also brand strength. You see the exchanges and other mainstream
enterprises latching onto the BitCoin brand because they do not want to dilute
the brand and confuse their potential customers.

~~~
thatthatis
You talk about bitcoin as if it is established. Were it already mature your
arguments would be valid, but it is still nascent. What % of the OECD has
bought something with bitcoin?

In the long view, Bitcoin only has brand strength.

Time will tell, and I believe ultimately vindicate my arguments.

------
nawitus
This is a case of a famous, high status person making a statement without
credible arguments. In other words, if a non-famous person said this, nobody
would take him seriously (or noteworthy), because he doesn't really contribute
anything to the discussion about bitcoin. The internet is full of good
comments about bitcoin (for and against), but more visibility is given to
Buffet's comments because of his status.

I guess media is to be blamed here to some degree. If someone is famous, then
the media will make a story about anything that increases ad revenue. And also
users of social media like Hacker News.

~~~
atestu
People don't just listen to him because he's famous – do you think they'd
listen to Kanye about Bitcoin? – they listen to him because he's the greatest
investor alive.

~~~
nawitus
If he can't provide good arguments then his opinion is all but irrelevant.

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jpmattia
> _“the idea that it [bitcoin] has intrinsic value is a joke.”_

I would love to hear Warren Buffet on the "intrinsic value" of gold.

Edit: With the comment of thatthatis in mind, WB uses "intrinsic value" as
future income potential. That use then makes me wonder about his "intrinsic
value" of dollars, euros and yen.

~~~
thatthatis
His take, "gold has no intrinsic value," is pretty well known and easy to
google.

[http://m.seekingalpha.com/article/424581](http://m.seekingalpha.com/article/424581)

~~~
jpmattia
> easy to google

Not so easy for the primary source anyway (seeking alpha has a lot of link
rot). Best I can find is his letter to the 2011 annual letter, quoted here
[http://www.investopedia.com/stock-
analysis/streetauthority/0...](http://www.investopedia.com/stock-
analysis/streetauthority/081513/why-warren-buffett-hates-gold-ibm-axp-ko-brka-
xom.aspx)

It seems that "intrinsic value" is a measure of the ability to produce future
wealth. With that definition, I put the edit above to include dollars, euro
and yen.

~~~
dmabram
You're right, Buffett does include dollars, euros, yen and gold as not having
intrinsic value. In addition to the link above where Buffett warns against
gold as an investment, he also frequently warns against the hidden danger
(compounded inflation) when holding cash.
[http://finance.fortune.cnn.com/2012/02/09/warren-buffett-
ber...](http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-
shareholder-letter/)

------
heydenberk
The problem with it being an effective way to exchange money but not a
meaningful store of value is that the former depends upon the latter. I'm
curious as to whether there are any altcoins that solve this problem by, say,
pinning the value to USD (or a basket of currencies) and allowing for a
continually increasing monetary supply.

~~~
cynusx
it's funny you mention because I believe I have cracked the problem of pinning
an altcoin to the usd but I fail to see how it would get adoption in the first
place. There is no deflationary or early-adopter reward in it, the only value
would be that the coins in the system would be transferrable with no
transaction fee and that they won't lose value relative to the USD so it is
safe to keep them in their digital form.

~~~
heydenberk
I reckon these are the same problems Paypal faced early on. Why take good old
USD out of your bank account and put them into an account you can only use for
certain payment processing? They figured it out, but maybe it's too late now?
I'd like to think it isn't

------
Mikeb85
He's right. It has no intrinsic value, is controlled by too few people, and
has no guarantors to assure its value.

Not to mention hacking, the Mt Gox debacle, etc...

Real currency is more convenient, and real commodities have intrinsic value.

~~~
ericb
I see a parallel. At one point, somewhere, I suspect we had the same argument
when we moved to paper currency.

"It's just a piece of paper. You don't actually have the goods. It has no
intrinsic value!

But it's a promise to provide goods!

What if people decide the promise is no good? The only reason you can spend it
is if other people believe the promise and are willing to give you something
for it! It's not a currency, though. There's no physical thing--it is just
paper! Would you want to work all day and just get clumps of paper at the end
of the day? What if the number of peieces of paper people want for a loaf of
bread changes? If you work for pigs, you can at least eat the pig.

Anyone could just print on paper and "make money." People can steal it easily
since it is so small!

~~~
Mikeb85
Fiat currency works because the issuing government guarantees its value...
When a government can no longer guarantee its value, it's worthless (see
Zimbabwe).

~~~
ericb
How is it guaranteed, exactly? At what government office can I turn it in
for...something that isn't more paper?

Essentially, the argument usually reduces to "because you can pay your taxes
with it and not go to jail" which is a neat trick, because the amount due for
those taxes is at the government's discretion, as well as the amount of
dollars in existence.

Dont-throwme-in-jail-coin (USD) has a value, but lets not pretend it is more
reified than an additional direct payment use case for governmental extortion.
What's the difference if you can trade a given currency for USD with one more
step and achieve your tax-paying ends?

------
cynusx
I wonder if ordinary people would even consider holding any digital currency
even if the value of it is superstable.

Even if there would be an altcoin that achieves stability there would be huge
adoption hurdles.

------
final_approach
Buffet is most definitely not a person who could simply miss the point of
Bitcoin. I'm sure he understands it. Therefore, his statement must have an
agenda. Maybe it's a non-obvious agenda, because he's not known to be involved
in anything that Bitcoin may directly influence and hurt. But there must be a
reason why he says something he most likely doesn't believe himself.

~~~
Nursie
Because of course nobody could ever understand it entirely yet still think
it's a bad idea to get involved. That's unpossible!

~~~
final_approach
I find it hard to believe people that rich can make judgements this wrong
about anything. I think Buffet had a history of saying "I don't understand it,
therefore I don't invest", but not discouraging others to invest. It is
possible he doesn't understand Bitcoin, but it is a lot less likely he makes a
fool of himself instead of saying "you know, I just don't get it, so don't ask
me about it".

