Buffett bashes Bitcoin as nonproductive, thriving on mystique(reuters.com)
reuters.com
Buffett bashes Bitcoin as nonproductive, thriving on mystique
https://www.reuters.com/article/us-berkshire-buffett-cnbc/buffett-bashes-bitcoin-as-nonproductive-thriving-on-mystique-idUSKBN1I813F?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29
188 comments
Buffet's investing strategy is, and has always been, look for the intrinsic value in a company, buy them, and then hold on forever. As part of that intrinsic value is the management teams that are running the companies. A strong team is as valuable as any other asset. When Buffet does buy a company, he'll generally leave management in place and not interfere in the day to day running of the company.
Bitcoin has no management and it has no intrinsic value. It's worth is whatever somebody is willing to pay for it. That is 180 degrees out of phase with the Buffet strategy.
Further, when you buy a part of a company, you are buying a piece of a functioning economic unit. When you loan money, you are finding economic activity.
When you buy a Bitcoin, you are helping to convert electricity to heat.
When you buy a Bitcoin, you are helping to convert electricity to heat.
Electricity into security
In practice, it's not very secure because the difficulty mechanism ensures that hash power always centralizes. Any widespread commodity miner will automatically defeat itself -- that's why all of those early ASIC startups fizzled out. As soon as they shipped something, their value proposition was nullified.
Add to this that the payout mechanics strongly incentivize pooled mining, even for people with powerful miners, and the "guarantees" get that much flimsier. A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power, and they've all been in the same room on multiple occasions. It's no different than the small handful of men who control the Fed / other major financial institutions in our fiat systems.
Bitcoin was an excellent thought experiment, but it's no wonder that Satoshi wants nothing to do with what it has become.
Add to this that the payout mechanics strongly incentivize pooled mining, even for people with powerful miners, and the "guarantees" get that much flimsier. A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power, and they've all been in the same room on multiple occasions. It's no different than the small handful of men who control the Fed / other major financial institutions in our fiat systems.
Bitcoin was an excellent thought experiment, but it's no wonder that Satoshi wants nothing to do with what it has become.
What do you think of the way things like ZCash and Monero solve that problem? They use hashing algorithms that are more or less immune to ASICS. This is especially true in the case of Monero which just tweaked their PoW algo in order to set monero ASICS back. Stopping ASICs promotes the average person mining on their gaming rig or things like that.
Also "A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power"
I think that's a bit hyperbolic. A small handful of men control where the hashing power currently is. However, that can change very quickly. If you don't like what a pool is trying to use your hashing power for, leave that pool.
Also "A small handful of men ultimately control the Bitcoin network because they have authority over 50%+ of the hash power"
I think that's a bit hyperbolic. A small handful of men control where the hashing power currently is. However, that can change very quickly. If you don't like what a pool is trying to use your hashing power for, leave that pool.
energy into money. We always wanted a universal energy based currency -- it is bitcoin.
I think that would be more like SolarCoin: https://solarcoin.org/
I thought that was energy production.
Think of them as shares of entropy.
A thing doesn't have to be "a piece of a functioning economic unit" to be worth owning.
Examples: copper, gold, land, art, wireless spectrum, currency.
There's a perfectly valid rationale to hold each of these assets, and none of them are "productive" by themselves.
Each of these has scarcity and utility. That's what matters.
Examples: copper, gold, land, art, wireless spectrum, currency.
There's a perfectly valid rationale to hold each of these assets, and none of them are "productive" by themselves.
Each of these has scarcity and utility. That's what matters.
I think bitcoin would need to be valued based on it's replacement value. The transaction fees other networks charge to transfer assets.
intercontinentalexchange has a value. visa has a value. etc.
intercontinentalexchange has a value. visa has a value. etc.
No company has an intrinsic value either. If I fired all the employees, sold all the assets it would be worth nothing.
The transactions are the value. The network has value.
If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company.
Is it a good way to buy and hold...of course not.
The transactions are the value. The network has value.
If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company.
Is it a good way to buy and hold...of course not.
Intrinsic value in the Buffett sense is the discounted future cashflows produced by the business. Visa Inc has cashflows.
No, that's called the book value of the company. At the end of that process you would have an amount of money worth the book value.
And if you sold a book in bitcoin and bought something with it there must have be some value transfer.
I don't understand your point.
If you have a functioning company making something and sell it, your company is worth almost nothing. That's true.
But those people and assets are still useful to someone else. They have a value.
Bitcoin can't be consumed the way assets and labor can.
If you have a functioning company making something and sell it, your company is worth almost nothing. That's true.
But those people and assets are still useful to someone else. They have a value.
Bitcoin can't be consumed the way assets and labor can.
The transactions are the value. The network has value.
Bitcoin has tons of intrinsic value unique to crypto currencies that traditional currencies lack. Most importantly it can't be created/destroyed at will by a central government. Huge sums can be transferred globally at the speed of light with very low fees. Can't do that with gold or cash. With normal currency a wire transfer costs money and moving a lot of money from a bank account usually takes days. Also you can store a lot of it yourself, relatively securely compared to storing hundreds of thousands of dollars yourself. Oh and it's also backed up by a global ledger that is country or government agnostic. The electricity it takes to maintain it is nothing compared to the rest of the banking system. These properties are the very nature of crypto, that's why it's intrinsic.
"Most importantly it can't be created/destroyed at will by a central government."
This is not cut and dry as to whether it is a benefit or not. Many people, myself included, don't consider it a benefit. Not having control over your currency makes it that much harder to respond in times of recession. Greece was hit quite hard by the Great Recession, and one of the reasons why is because they didn't have control over their currency, and so they couldn't lower the value of it. The Euro was still valued high due to the use by Germany and France.
"Huge sums can be transferred globally at the speed of light with very low fees."
Currently that's not true of Bitcoin, either. Transactions are slow, and fees are not low.
"The electricity it takes to maintain it is nothing compared to the rest of the banking system."
Is it? It takes a crazy amount of power, for what seems to be something that only a small amount of people are using, with a very anemic transaction throughput.
This is not cut and dry as to whether it is a benefit or not. Many people, myself included, don't consider it a benefit. Not having control over your currency makes it that much harder to respond in times of recession. Greece was hit quite hard by the Great Recession, and one of the reasons why is because they didn't have control over their currency, and so they couldn't lower the value of it. The Euro was still valued high due to the use by Germany and France.
"Huge sums can be transferred globally at the speed of light with very low fees."
Currently that's not true of Bitcoin, either. Transactions are slow, and fees are not low.
"The electricity it takes to maintain it is nothing compared to the rest of the banking system."
Is it? It takes a crazy amount of power, for what seems to be something that only a small amount of people are using, with a very anemic transaction throughput.
You put your trust in governments to not mess with the currency. That's on you. When shit hits the fan people buy gold, it's no different with crypto. People don't trust the government to manage currency correctly in times of trouble. But even in good times, crypto has a lot going for it.
Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster.
Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin.
Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster.
Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin.
"You put your trust in governments to not mess with the currency. That's on you. When shit hits the fan people buy gold, it's no different with crypto. People don't trust the government to manage currency correctly in times of trouble. But even in good times, crypto has a lot going for it."
Some people, not all people. And that's why I said that it unsure whether that's an actual value or not.
"Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster."
No, not really. Credit card transactions are far, far faster than a Bitcoin one. Bank transfers in Europe are quite fast, too.
"Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin."
You're gonna have to provide a citation for this.
Some people, not all people. And that's why I said that it unsure whether that's an actual value or not.
"Transactions are very fast and very low compared to traditional currency. Often it takes days to move money between banks, or will cost you much more than a bitcoin transaction fee to move faster."
No, not really. Credit card transactions are far, far faster than a Bitcoin one. Bank transfers in Europe are quite fast, too.
"Again, bitcoin could have 100x the users and the power requirements would be negligible compared to banking. There is no 'scale up' power wise needed for bitcoin."
You're gonna have to provide a citation for this.
If you ever studied economics, you'd know that scarcity is not intrinsically valluable. It might be a useful feature, but intrinsic value means having a minimum value. Gold can't be created, but it had real usefulness in manufacturing. Besides, you could make a new buttcoin tomorrow, but you can't make a new kind of Atom.
Stop proving that Bitcoin enthusiasts don't understand economics.
Stop proving that Bitcoin enthusiasts don't understand economics.
Gold can't be created, but it had real usefulness in manufacturing.
Are you saying that the intrinsic value of gold is the price manufacturers of "useful" products from gold are willing to pay for it?
Are you saying that the intrinsic value of gold is the price manufacturers of "useful" products from gold are willing to pay for it?
Scarcity is absolutely an intrinsic value. Gold has value because it is relatively scarce given the difficulty to mine. In addition to being really shiny which was valued by our ancestors. There are lots of useful rare elements used in manufacturing. In terms of a currency though gold has nothing on bitcoin. Gold is hard to move, hard to validate as authentic, heavy, easy to steal, etc..
My excrement is several orders of magnitude more scarce than Bitcoins and gold bars alike, but it has no value because nobody wants it.
Scarcity relative to demand pushes up market prices (i.e. extrinsic value) but that's something entirely different...
Scarcity relative to demand pushes up market prices (i.e. extrinsic value) but that's something entirely different...
Maybe you can work on drumming up demand for your excrement. Fecal transplants are a thing now.
> Scarcity is absolutely an intrinsic value
Then what is the number? No, scarcity is an important attribute that contributes to perceived value, but it's not intrinsic. Otherwise any cryptocurrency that is scarce would have intrinsic value, as opposed to the many that are essentially 0.
Then what is the number? No, scarcity is an important attribute that contributes to perceived value, but it's not intrinsic. Otherwise any cryptocurrency that is scarce would have intrinsic value, as opposed to the many that are essentially 0.
If you think gold can’t be created, you need to revisit your chemistry and physics books. While not economically feasible yet, with the mastery of fusion energy technologies it one day will be...
It can't be created practically which is the same as can't be created for purposes of this discussion. Talking about creating something using a tool that we haven't even created is futurism.
And of course as soon as it can be created practically and cheaply, the price of gold will drop to [close to] the cost of manipulating atoms to create new gold.
IF it's ever created practically and cheaply. Despite your comment, it may never be cost effective.
I am largely ignorant to the details of BTC and other coins, but your comment seems incorrect.
> Most importantly it can't be created/destroyed at will by a central government.
Couldn't someone destroy/steal my BTC wallet though? I'd have no recourse for justice, right? Also, doesn't the Federal Reserve print money mostly at will?
> Huge sums can be transferred globally at the speed of light with very low fees.
I think the speed claim here is totally false[1].
> With normal currency a wire transfer costs money
Don't all BTC transactions have confirmation fees?
> and moving a lot of money from a bank account usually takes days.
This is true crypto currencies shine here. It can take 20 minutes to transfer $5 or $5,000,000.
> The electricity it takes to maintain it is nothing compared to the rest of the banking system.
Maybe, but also maybe not. The rest of the banking system provides lots of services and protections that crypto currencies don't.
> These properties are the very nature of crypto, that's why it's intrinsic.
These are properties of crypto currencies for sure, but that these are valuable properties is entirely subjective.
[1] - https://blockchain.info/charts/avg-confirmation-time
> Most importantly it can't be created/destroyed at will by a central government.
Couldn't someone destroy/steal my BTC wallet though? I'd have no recourse for justice, right? Also, doesn't the Federal Reserve print money mostly at will?
> Huge sums can be transferred globally at the speed of light with very low fees.
I think the speed claim here is totally false[1].
> With normal currency a wire transfer costs money
Don't all BTC transactions have confirmation fees?
> and moving a lot of money from a bank account usually takes days.
This is true crypto currencies shine here. It can take 20 minutes to transfer $5 or $5,000,000.
> The electricity it takes to maintain it is nothing compared to the rest of the banking system.
Maybe, but also maybe not. The rest of the banking system provides lots of services and protections that crypto currencies don't.
> These properties are the very nature of crypto, that's why it's intrinsic.
These are properties of crypto currencies for sure, but that these are valuable properties is entirely subjective.
[1] - https://blockchain.info/charts/avg-confirmation-time
The gov can't print bitcoin. Transaction fees are much less than traditional currency, and much faster transfer. (Sorry for not being super exact) Wiring 20k into an exchange costs me $20, a normal transfer takes a few days. Crypto is way more useful to me for moving lots of $$ around.
The government has taken control of Bitcoins in the past, and will continue to do so in the future. All it takes is a warrant.
Also, unlike cash, you're making your transaction history public. Any central government in the world can see this. You have to jump through a lot of hoops and use multiple blockchains to anonymize your Bitcoins.
Transfers incur a network fee with Bitcoin as well. I doubt anyone making a small purchase wants to pay fees that might be a significant percentage of, or exceed, their purchase subtotal.
You cannot send Bitcoins "at the speed of light". On average, the Bitcoin network processes 7 transactions per second.
Also, unlike cash, you're making your transaction history public. Any central government in the world can see this. You have to jump through a lot of hoops and use multiple blockchains to anonymize your Bitcoins.
Transfers incur a network fee with Bitcoin as well. I doubt anyone making a small purchase wants to pay fees that might be a significant percentage of, or exceed, their purchase subtotal.
You cannot send Bitcoins "at the speed of light". On average, the Bitcoin network processes 7 transactions per second.
Wrong it's a block every 10 minutes. See I can be pedantic too :p 10 minutes is the speed of light compared to any typical bank transfer. The ledger isn't public in the sense that you can identify the owner of an address easily or at all.
I don’t think that’s what “intrinsic” means. Would Bitcoin have any value if no one else were using it?
Intrinsic properties are the things that remain even if no one is using it. So even if no one is using bitcoin it is still quick to transfer, hard to forge, difficult to create, etc.. etc..
This is totally reasonable, and I get why Warren should stay away from 'investments' in BTC. It's extremely wise to stay away from investments you don't understand, especially when you're a target like Buffett.
But what I can't get behind is his active and vocal bearishness. If he has a well-reasoned argument to make, then he should make it. If not, lay off.
But what I can't get behind is his active and vocal bearishness. If he has a well-reasoned argument to make, then he should make it. If not, lay off.
He has a well reasoned argument: https://finance.yahoo.com/news/bitcoin-rat-poison-buffett-tu...
ending:
>It’s something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbours are getting rich and neither one of them understands. It will come to a bad ending. Charlie…
I see a lot of that.
ending:
>It’s something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbours are getting rich and neither one of them understands. It will come to a bad ending. Charlie…
I see a lot of that.
I’m not a succesfull investor with decades of won bets but the amount of people pitching Bitcoin to me and wanting to talk about it drove me crazy for awhile.
I can’t imagine the frustration Warren Buffet feels when surrounded on all sides by digital snake oil peddlers.
I can’t imagine the frustration Warren Buffet feels when surrounded on all sides by digital snake oil peddlers.
Well, my point is that Buffett usually just uses some sound byte to bash it, like 'rat poison squared'. Give us an actual argument. Or convince us that he's done significant research into BTC to come to this conclusion. It's just frustrating to hear him make a very outlandish claim like this, and then not educate us with the explanation.
His argument against it, much like gold, would be that it is merely a store of value rather than a productive asset (e.g., crop-yielding land, companies, etc.).
If you read up on his comments on hold (someone copy-pasted it elsewhere in this thread), you will see that this is nothing more than his investment thesis. It seems to work well for him.
If you read up on his comments on hold (someone copy-pasted it elsewhere in this thread), you will see that this is nothing more than his investment thesis. It seems to work well for him.
I understand why he doesn't invest in them. I mentioned that in my original post. I want to know why he is so extremely bearish. Not why it fails to meet his investment criteria.
Statements like "rat poison squared" are not the same thing as disliking non-productive assets. I'm sure he doesn't think gold is going to $0. I want to hear why he thinks that Bitcoin is particularly destined for a price of zero. This is the analysis that he never gives us.
Statements like "rat poison squared" are not the same thing as disliking non-productive assets. I'm sure he doesn't think gold is going to $0. I want to hear why he thinks that Bitcoin is particularly destined for a price of zero. This is the analysis that he never gives us.
Bingo. He's also a value investor. He understands cash flows. Bitcoin produces no cash flow.
Also, Buffet is the insider's insider. Banks work for him. He has exactly a 0.00000% chance of having his accounts frozen. The US Congress would hesitate to pick fights with his companies. When you have those kind of connections and power, you're not well placed to understand the benefits decentralized sources of authority provides.
What Buffet is missing is that bitcoin is an alternative to cash, and when lightning networks and side chains are widely deployed it will be very, very competitive with cash on most axes. Eventually (if hyperbitcoinization actually happens) even the variability will be less than any one national currency, since global demand and stabilizers will buffer it against any localized shock.
Also, Buffet is the insider's insider. Banks work for him. He has exactly a 0.00000% chance of having his accounts frozen. The US Congress would hesitate to pick fights with his companies. When you have those kind of connections and power, you're not well placed to understand the benefits decentralized sources of authority provides.
What Buffet is missing is that bitcoin is an alternative to cash, and when lightning networks and side chains are widely deployed it will be very, very competitive with cash on most axes. Eventually (if hyperbitcoinization actually happens) even the variability will be less than any one national currency, since global demand and stabilizers will buffer it against any localized shock.
I think he understands it better than you give him credit for. He just doesn't see a future for it. To most investors the promise of Bitcoin is the same promise of snake oil.
Everything about Bitcoin is new and untested and most institutional investors abhor anything they can't quantify. Bitcoin is a huge gamble, and people like Gates and Buffet don't gamble.
Everything about Bitcoin is new and untested and most institutional investors abhor anything they can't quantify. Bitcoin is a huge gamble, and people like Gates and Buffet don't gamble.
Or he doesn't see why it should be valued at a high amount. As he says a check is a handy way to transfer money but isn't saleable for very much in itself.
It's been tested for over 10 years with the biggest bug bounty in the world.
Not the point. Besides, 10 years of testing still doesn't prove it's secure. Intel and AMD CPUs, manufactured since 1995 have the Meltdown and Spectre flaws that were only discovered recently.
Not security testing, I'm talking about testing economically. Decentralized currency has never been tested at scale. It's worked locally for many cultures, but never globally.
[deleted]
I think this is basically it. Good ol' Buffet. His argument against gold is similar [1]. It's always interesting to note the fundamental differences between these types of investors. Some investors place their faith only in things -- hard assets and hard money -- gold, bonds, and now bitcoin. Others like Buffet have maintained that the best thing to invest in is other human beings, specifically human ingenuity and sweat. This question -- whether wealth resides in things or in relations between people -- seems to drive a lot of investor psychology.
[1] http://www.businessinsider.com/warren-buf
[1] http://www.businessinsider.com/warren-buf
Your link is broken. What makes Buffet's annual letters so great though is the quality of his writing, so rather than fix your link I'll post his position on gold in his own words:
"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."
Source: http://www.berkshirehathaway.com/letters/2011ltr.pdf
"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."
Source: http://www.berkshirehathaway.com/letters/2011ltr.pdf
Fascinating, thanks for posting this.
Buffett thinks it's irrational to pay $1750 for one ounce of gold when he could own 22 shares of Exxon Mobil for the same price.
Let's assume he's correct. Since the value of Exxon Mobil should compound over the decades much faster than gold, it should be worth more today, right?
But markets are already discounting those future cash flows, isn't that already built in to the current market price of both Exxon Mobil and gold?
If the price of gold is irrationally high, then it's an irrationality that has lasted for centuries and will likely last centuries more.
Even Buffett isn't predicting that the "gold bubble" will burst, sending its price to zero, as everyone sells gold to buy Exxon Mobil.
So if he expects an asset will be valued irrationally high forever, is it really irrational buy it?
Buffett thinks it's irrational to pay $1750 for one ounce of gold when he could own 22 shares of Exxon Mobil for the same price.
Let's assume he's correct. Since the value of Exxon Mobil should compound over the decades much faster than gold, it should be worth more today, right?
But markets are already discounting those future cash flows, isn't that already built in to the current market price of both Exxon Mobil and gold?
If the price of gold is irrationally high, then it's an irrationality that has lasted for centuries and will likely last centuries more.
Even Buffett isn't predicting that the "gold bubble" will burst, sending its price to zero, as everyone sells gold to buy Exxon Mobil.
So if he expects an asset will be valued irrationally high forever, is it really irrational buy it?
Buffett recently said the annual real return on gold since Jesus's time would be about 0.2%/annum. I'm not sure what Exxon has done/is likely to do but probably a lot more than that. He tries to buy things likely to make 15%/annum hence no gold.
As an aside Buffett and others are very unfair to tulips. A tulip can produce many offspring tulips which can be sold for cash and currently account for about 10% of Hollands GDP. Many tulip bubble buyers may have done ok buying holding and sticking in compost. Try that with a bitcoin or a share of Berkshire.
As an aside Buffett and others are very unfair to tulips. A tulip can produce many offspring tulips which can be sold for cash and currently account for about 10% of Hollands GDP. Many tulip bubble buyers may have done ok buying holding and sticking in compost. Try that with a bitcoin or a share of Berkshire.
> the annual real return on gold since Jesus's time would be about 0.2%/annum
How many businesses from Jesus's time are still here today?
The gold that was around 2000 years ago is still here.
How many businesses from Jesus's time are still here today?
The gold that was around 2000 years ago is still here.
[deleted]
Those are good questions, and I don't have great answers, but it's worth reading the letter in full (or at least, the part of the letter I extracted from). His argument against gold is really a relative one, as its safety compares to that of investing in cash or productive assets. For example, here is the next paragraph from the letter, which shows that if the store of value changed from gold to Bitcoin, gold may turn out to be a bad investment, which is a risk you don't take by investing in a productive asset.
"Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard “cash is king” in late 2008, just when cash should have been deployed rather than held. Similarly, we heard “cash is trash” in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.
My own preference – and you knew this was coming – is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.
Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.
Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest."
"Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard “cash is king” in late 2008, just when cash should have been deployed rather than held. Similarly, we heard “cash is trash” in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.
My own preference – and you knew this was coming – is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.
Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.
Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest."
He has always said he doesnt understand technology and has resisted investing in it. While the value is fluctuating heavily due to speculation, over time it will stabilize.
Bitcoin will resist inflation and is somewhat out of control of governments or any central authority. People in countries where the govt has screwed up the currency can use it to get money out of the country or as a stable store even if dollars or other physical currency is in scarce supply. My family fled china carrying their wealth as gold and bank checks. Today, people can transfer their wealth as bitcoin across international borders.
The fundamental properties of money are:
<<Fungibility: its individual units must be capable of mutual substitution (i.e., interchangeability). Durability: able to withstand repeated use. Portability: easily carried and transported. Cognizability: its value must be easily identified. Stability of value: its value should not fluctuate.>>
It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value.
Bitcoin will resist inflation and is somewhat out of control of governments or any central authority. People in countries where the govt has screwed up the currency can use it to get money out of the country or as a stable store even if dollars or other physical currency is in scarce supply. My family fled china carrying their wealth as gold and bank checks. Today, people can transfer their wealth as bitcoin across international borders.
The fundamental properties of money are:
<<Fungibility: its individual units must be capable of mutual substitution (i.e., interchangeability). Durability: able to withstand repeated use. Portability: easily carried and transported. Cognizability: its value must be easily identified. Stability of value: its value should not fluctuate.>>
It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value.
> Bitcoin will resist inflation and is somewhat out of control of governments or any central authority
Can you back this up? From what I can tell, governments can ban mining, shut down exchanges and co-erce developers. If the handful of devs that have commit access to Bitcoin were working for the CIA, would we know? What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?
> Today, people can transfer their wealth as bitcoin across international borders.
Again, citation needed. How many Chinese people are doing this? The exchanges are banned, right? So how could your family buy Bitcoin in China? OTC? What's the spread on the OTC market in China versus US market? Is it actually worth it?
Can you back this up? From what I can tell, governments can ban mining, shut down exchanges and co-erce developers. If the handful of devs that have commit access to Bitcoin were working for the CIA, would we know? What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?
> Today, people can transfer their wealth as bitcoin across international borders.
Again, citation needed. How many Chinese people are doing this? The exchanges are banned, right? So how could your family buy Bitcoin in China? OTC? What's the spread on the OTC market in China versus US market? Is it actually worth it?
> From what I can tell, governments can ban mining, shut down exchanges and co-erce developers.
Cutting off exchanges from financial institutions will likely be the primary way the government attacks cryptocurrencies. Just look at what happened to online gambling 10 years ago. Online poker and sports gambling were booming. What the US did was prevent banking companies from doing business from gambling companies or intermediaries (e.g. Neteller). Basically overnight, online gambling became a shell of what it was previously. Sure there are still ways around it, but it's enough of a hassle that only the most die-hard players are going to find it worth it.
It doesn't take a huge stretch of the imagination to apply the same strategies to crypto. If financial institutions are prevented from doing business with Bitcoin, et al., it's basically game over, as long as its utility is dependent on buying with fiat currency.
Cutting off exchanges from financial institutions will likely be the primary way the government attacks cryptocurrencies. Just look at what happened to online gambling 10 years ago. Online poker and sports gambling were booming. What the US did was prevent banking companies from doing business from gambling companies or intermediaries (e.g. Neteller). Basically overnight, online gambling became a shell of what it was previously. Sure there are still ways around it, but it's enough of a hassle that only the most die-hard players are going to find it worth it.
It doesn't take a huge stretch of the imagination to apply the same strategies to crypto. If financial institutions are prevented from doing business with Bitcoin, et al., it's basically game over, as long as its utility is dependent on buying with fiat currency.
> Just look at what happened to online gambling 10 years ago.
And not a moment too soon. Gambling games are designed to be addictive, to bypass the judgment and decision-making centres in people's brains, and take their money. Providing places to go and gamble is one thing; people who walk in there ought to know they will probably lose every bean they walk in there with, so there's informed consent. Putting gambling games that accept real money on the web is effectively like putting coin-operated pokie machine in every living room (and these days every pocket) with a net connection. It's profoundly exploitative and totally deserved to be starved of financial oxygen IMHO.
And not a moment too soon. Gambling games are designed to be addictive, to bypass the judgment and decision-making centres in people's brains, and take their money. Providing places to go and gamble is one thing; people who walk in there ought to know they will probably lose every bean they walk in there with, so there's informed consent. Putting gambling games that accept real money on the web is effectively like putting coin-operated pokie machine in every living room (and these days every pocket) with a net connection. It's profoundly exploitative and totally deserved to be starved of financial oxygen IMHO.
Exactly this, this is one of the very reasons I have not invested in bitcoin. Anything relating to a technology and banks that hasn't been stamp of approved is a risk. I luckily got the news before it happened and withdrew all my money from neteller and poker sites before they went down, however I had friends that had a lot of money locked up for months.
>If the handful of devs that have commit access to Bitcoin were working for the CIA, would we know?
probably not, unless they're comically incompetent
>What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?
not much, considering there are independent implementations, there's no auto-update for clients, and consensus code changes are heavily scrutinized. I'm sure they can ram a PR through if they really wanted, but it's going to be very obvious what's happening.
probably not, unless they're comically incompetent
>What kind of damage could they do? Eg. Could they introduce consensus bugs without anyone noticing?
not much, considering there are independent implementations, there's no auto-update for clients, and consensus code changes are heavily scrutinized. I'm sure they can ram a PR through if they really wanted, but it's going to be very obvious what's happening.
> Can you back this up?
The money supply setup for Bitcoin is meant to make the currency deflationary by design. Whether that is successful or not remains to be determined.
The money supply setup for Bitcoin is meant to make the currency deflationary by design. Whether that is successful or not remains to be determined.
> While the value is fluctuating heavily due to speculation, over time it will stabilize.
Can you describe any mechanism that actually causes the price to stabilize and speculation to disappear? (Please, if possible, also define at least somewhat quantitatively what you mean by stable, and then discuss how successful this mechanism you first described has been stabilizing gold price during the last couple of thousand years when gold has been used as moneylike instrument and store of value.)
Can you describe any mechanism that actually causes the price to stabilize and speculation to disappear? (Please, if possible, also define at least somewhat quantitatively what you mean by stable, and then discuss how successful this mechanism you first described has been stabilizing gold price during the last couple of thousand years when gold has been used as moneylike instrument and store of value.)
Quantity of demand is equal to quantity supplied
And what makes them equal?
Wishful thinking does not count. I know no law of nature nor economics that says that demand of money is stable. And if you allow fractional reserve bitcoin banking without regulation[1], money supply would be completely chaotic.
[1] I guess the question is how would you prohibit fractional reserve bitcoin banking? It's not like there exists any regulatory authority that could do that...
Wishful thinking does not count. I know no law of nature nor economics that says that demand of money is stable. And if you allow fractional reserve bitcoin banking without regulation[1], money supply would be completely chaotic.
[1] I guess the question is how would you prohibit fractional reserve bitcoin banking? It's not like there exists any regulatory authority that could do that...
Not sure what you mean by "what makes them equal".
It is a supply and demand curve. Where they meet is the equilibrium. https://en.wikipedia.org/wiki/Supply_and_demand
Fractional reserve banking doesn't work with Bitcoin, unless you somehow trust a centralized party to always honor your withdrawal, or the coins never leave that internal system. Many exchanges could theoretically be running fractional reserve operations. But they are just risking themselves because once a rumour gets out, a bank run will occur and they will be exposed. Once you withdraw your coins from this trusted system, it is accounted for on the blockchain.
It is a supply and demand curve. Where they meet is the equilibrium. https://en.wikipedia.org/wiki/Supply_and_demand
Fractional reserve banking doesn't work with Bitcoin, unless you somehow trust a centralized party to always honor your withdrawal, or the coins never leave that internal system. Many exchanges could theoretically be running fractional reserve operations. But they are just risking themselves because once a rumour gets out, a bank run will occur and they will be exposed. Once you withdraw your coins from this trusted system, it is accounted for on the blockchain.
> It is a supply and demand curve. Where they meet is the equilibrium.
Academic economists like Steve Keen have totally demolished the classic supply/demand curve: https://unlearningeconomics.wordpress.com/2012/06/25/debunki...
Here's a suitably scornful graphical version: https://www.youtube.com/watch?v=Y3wUqcapSU4
Academic economists like Steve Keen have totally demolished the classic supply/demand curve: https://unlearningeconomics.wordpress.com/2012/06/25/debunki...
Here's a suitably scornful graphical version: https://www.youtube.com/watch?v=Y3wUqcapSU4
> Where they meet is the equilibrium.
You're not answering the question, just tautologically rephrasing it.
You're not answering the question, just tautologically rephrasing it.
Question regarding the list of "fundamental properties of money":
Should "liquid" (easy to spend and trusted to be exchangeable for goods or services) be on that list? I wonder if it's generally left off because it's assumed, but BTC is not currently what I would consider "liquid;" the average time to confirm a transaction ranges from 30 minutes to (sometimes) over 16 hours [source: https://coincentral.com/how-long-do-bitcoin-transfers-take/]. So it's not a money I can spend on a pack of gum.
Contrast that with cash, checks, or credit cards, which generally clear in under a minute (checks being the notable exception, and indeed, the exception that makes them not always equivalently useful to the other two).
Should "liquid" (easy to spend and trusted to be exchangeable for goods or services) be on that list? I wonder if it's generally left off because it's assumed, but BTC is not currently what I would consider "liquid;" the average time to confirm a transaction ranges from 30 minutes to (sometimes) over 16 hours [source: https://coincentral.com/how-long-do-bitcoin-transfers-take/]. So it's not a money I can spend on a pack of gum.
Contrast that with cash, checks, or credit cards, which generally clear in under a minute (checks being the notable exception, and indeed, the exception that makes them not always equivalently useful to the other two).
Compare how liquid it is to real-estate. I'd say it is pretty liquid.
Wait, who considers real estate money?
If the answer is no one, then this doesn’t seem like an interesting point of comparison for liquidity.
If the answer is no one, then this doesn’t seem like an interesting point of comparison for liquidity.
Liquidity comes in degree as does money stock. Sure, it isn't narrow money, but still relevant to your point which you so carefully misrepresent. Median confirmation time has never exceeded 29 minutes, and is around 15 minutes. Transactions are actually faster, but unconfirmed. But, go ahead, cherry pick for your point.
> It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies.
If you're comparing the stability of the major currencies to Bitcoin you really need to look at the price charts for any digital currency.
> Buffet always holds billions in cash which is constantly depreciating in value.
Buffett is always ready to use that cash to make deals. True, they have a lot of cash, but it's not like he doesn't constantly use it to make investments.
If you're comparing the stability of the major currencies to Bitcoin you really need to look at the price charts for any digital currency.
> Buffet always holds billions in cash which is constantly depreciating in value.
Buffett is always ready to use that cash to make deals. True, they have a lot of cash, but it's not like he doesn't constantly use it to make investments.
Buffet may not be deeply knowledgeable of tech, but I think his assessment of a currency is trustworthy.
Just because BTC is electronically transacted doesn't exempt it from rules of supply and demand, speculation, value stabilization, &c.
Just because BTC is electronically transacted doesn't exempt it from rules of supply and demand, speculation, value stabilization, &c.
>Stability of value: its value should not fluctuate.
Big problem for crypto. It's a spec market currently and shows no signs of settling down. Add that to the fact that transactions are a nightmare and... I just don't see this happening any time remotely soon. Also, if you think the powers that be are going to allow their currencies to be supplanted... well, they won't.
Big problem for crypto. It's a spec market currently and shows no signs of settling down. Add that to the fact that transactions are a nightmare and... I just don't see this happening any time remotely soon. Also, if you think the powers that be are going to allow their currencies to be supplanted... well, they won't.
>It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies.
Lots of crypto supporters will talk about inflation like it's bad. Hyperinflation is bad. Typical monetary inflation is a feature not a bug. This is because of people's expectation of wage increases over time. This results in increased demand and spending on goods and services.
Bitcoin by its very nature is deflationary. This reduces demand and increases hoarding. The currency then acts less and less like a currency (sound familiar?). In a deflationary environment, wages would go down over time and workers do not accept reduced wages vs increased wages even if their purchasing power remains the same in both cases.
Small amounts of inflation is a psychological trick that actually helps keep the economy moving along. Outside of hyperinflation the inflationary argument for cryptocurrency is one not rooted in the reality of economics.
Lots of crypto supporters will talk about inflation like it's bad. Hyperinflation is bad. Typical monetary inflation is a feature not a bug. This is because of people's expectation of wage increases over time. This results in increased demand and spending on goods and services.
Bitcoin by its very nature is deflationary. This reduces demand and increases hoarding. The currency then acts less and less like a currency (sound familiar?). In a deflationary environment, wages would go down over time and workers do not accept reduced wages vs increased wages even if their purchasing power remains the same in both cases.
Small amounts of inflation is a psychological trick that actually helps keep the economy moving along. Outside of hyperinflation the inflationary argument for cryptocurrency is one not rooted in the reality of economics.
That's a lot of "will" without the hows and whys that should go with it to make an interesting point.
"It is not unreasonable to argue that fiat currencies around the world are not stable because of inflationary monetary policies. Buffet always holds billions in cash which is constantly depreciating in value."
I would say that fiat currencies are quite predictable. The last thing the Fed, for instance, wants to do is to come out of left field and change things. That would be disastrous for markets.
I would say that fiat currencies are quite predictable. The last thing the Fed, for instance, wants to do is to come out of left field and change things. That would be disastrous for markets.
He's the third-largest shareholder of Apple behind Vanguard and Blackrock.
He's the third-largest shareholder of Apple behind Vanguard and Blackrock.
He waited until 2016 before investing, not exactly an early adopter.
He waited until 2016 before investing, not exactly an early adopter.
The comment is replying to a blanket statement that Buffet doesn't invest in tech. He may be conservative about it, but he clearly does invest in tech.
And he regrets not investing in Amazon back in the 90s. I believe that he only recently started to invest in tech.
He bought IBM in 2011. That was his first venture in tech companies. Apple came along in 2016.
So he probably lost money on that.
There's an estimate here. Roughly break even https://www.gurufocus.com/news/651725/how-much-did-warren-bu...
I figured it had to be close.
But the value of bitcoin could very easily stabilize at 0 if it falls out of vogue...
but will it? I would buy BTC at $1, at $10, at $100... There are many like me. I think its foolish to think that it will reach 0. Too many folks believe in it...
I'm guessing you all believe in bridges too, right? I've got one to sell you if you're willing to drop that $100 in a bank account for me ...
Fred Wilson of Union Square Ventures presents a counterargument to Buffett: https://avc.com/2018/05/is-buying-crypto-assets-investing/
> "They are the fuel that powers a new form of technology infrastructure that is being built on top of the foundational internet protocols."
I can't get my head around this sentence.
> Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.
That is exactly what collectibles are. Art has been used in this way for a long time.
https://www.theguardian.com/artanddesign/jonathanjonesblog/2...
> Crypto-assets produce decentralized infrastructure.
There is pro and cons on decentralized currencies. (https://www.economist.com/news/briefing/21721354-contemporar...) But is nothing new, nor nothing that needs cryptocurrencies.
Cryptocurrencies are an interesting experiment. Its intrinsic value is zero. It can be used, like other collectibles to transfer wealth. How it works when people lose confidence in them is to be seen. It is usually ugly, even for currencies backed by countries (https://en.wikipedia.org/wiki/Hyperinflation).
Tulips where at least beautiful.
I can't get my head around this sentence.
> Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.
That is exactly what collectibles are. Art has been used in this way for a long time.
https://www.theguardian.com/artanddesign/jonathanjonesblog/2...
> Crypto-assets produce decentralized infrastructure.
There is pro and cons on decentralized currencies. (https://www.economist.com/news/briefing/21721354-contemporar...) But is nothing new, nor nothing that needs cryptocurrencies.
Cryptocurrencies are an interesting experiment. Its intrinsic value is zero. It can be used, like other collectibles to transfer wealth. How it works when people lose confidence in them is to be seen. It is usually ugly, even for currencies backed by countries (https://en.wikipedia.org/wiki/Hyperinflation).
Tulips where at least beautiful.
I've been a long-time AVC commenter. It's marketing speak trying to legitimize attaching an added cost of the Pyramid-Ponzi scheme of incentivized crypto-assets into a transactional layer.
In the end it will cost less in the short-term (per transaction costs) and in the long-term (the unnecessary, unreasonable amount of wealth reallocated weighted towards earlier adopters) to compete not using blockchain for everything - especially not incentivized crypto-assets - as they're banking on and investing in perpetuating an ecosystem for.
Competition will exist to show the cost differences, however there will continue to be a strong and growing push by those who are already vested in and own any number of these incentivized crypto-assets, and the platforms/services that have tied themselves into them.
It's understandable that VC would enter the market once it gained enough traction, at least once the ecosystem matured enough, once there was enough hype, and gaps in the market were spotted by competent teams who were wanting to fill them, e.g. Coinbase as one example of USV's investments; selling services during a "gold rush" is likely the safest bet and most profitable.
Albert, another partner as USV has been evolving his understanding and has been working on a book called World After Capital - http://worldaftercapital.org/
USV as a whole have been evolving a thesis related to decentralization, which I believe they've perhaps mispurposefully attributed to being solved by blockchain; the thesis and conversation that Fred posted around years ago was relating to the idea of the The Independent Web - my blog post on this from 7 years ago: http://mattamyers.tumblr.com/post/2903098250/the-independent... - "The Independent Web, How Can It Work?"
The answer of trying to create collaboration by aligning everyone in a Pyramid-Ponzi scheme however is wrong and immoral IMHO, and there's a better way - as even with decentralization you still need centralization for governance, as without it you allow bad actors to flourish - and with the current system of incentivized crypto-assets, existing/known bad money certainly has entered that ecosystem.
Whenever I write responses like this to Fred or other people's posts who seem all-in for incentivized crypto-assets, the responses are none-to-shallow in depth. And I have gone into much more nuanced detail in other comments relating to why incentivized crypto-assets are overall bad for society. Perhaps the most purposefully ignored long-term negative is that there is a tipping point of adoption - let's say it's at "40%" adoption - where after that tipping point those later adopters are simply realizing the added cost of the increasing cost per "coin," and so they are no longer incentivized to collaborate. The danger here for society however is you now have up to "40%" of society vested into making sure this gets adopted fully by society, including any number of bad actors - who perhaps will have then hundreads of billions-to-trillions of dollars they want realized; this could be as subtle as enough politicians getting elected into government, or bribing existing, or of course the worst.
The solution, if blockchain is a necessary technology to use, is to have all existing fiat currencies globally merge - and only when governments are ready and under no pressure or force (and with no lobbying efforts by incentivized crypto-asset groups trying to indoctrinate based on their biased desires or ask to not be regulated..) - into a single digital ledger/currency. And with this solution instead of "you" giving me cash in exchange for a digital asset, "you" give cash to that government's mint and it gets converted into the digital ledger/removed from regular circulation; the conversion rate would likely only simply need to match going exchange rates between currencies - there will be some nuance to explore of course.
In the end it will cost less in the short-term (per transaction costs) and in the long-term (the unnecessary, unreasonable amount of wealth reallocated weighted towards earlier adopters) to compete not using blockchain for everything - especially not incentivized crypto-assets - as they're banking on and investing in perpetuating an ecosystem for.
Competition will exist to show the cost differences, however there will continue to be a strong and growing push by those who are already vested in and own any number of these incentivized crypto-assets, and the platforms/services that have tied themselves into them.
It's understandable that VC would enter the market once it gained enough traction, at least once the ecosystem matured enough, once there was enough hype, and gaps in the market were spotted by competent teams who were wanting to fill them, e.g. Coinbase as one example of USV's investments; selling services during a "gold rush" is likely the safest bet and most profitable.
Albert, another partner as USV has been evolving his understanding and has been working on a book called World After Capital - http://worldaftercapital.org/
USV as a whole have been evolving a thesis related to decentralization, which I believe they've perhaps mispurposefully attributed to being solved by blockchain; the thesis and conversation that Fred posted around years ago was relating to the idea of the The Independent Web - my blog post on this from 7 years ago: http://mattamyers.tumblr.com/post/2903098250/the-independent... - "The Independent Web, How Can It Work?"
The answer of trying to create collaboration by aligning everyone in a Pyramid-Ponzi scheme however is wrong and immoral IMHO, and there's a better way - as even with decentralization you still need centralization for governance, as without it you allow bad actors to flourish - and with the current system of incentivized crypto-assets, existing/known bad money certainly has entered that ecosystem.
Whenever I write responses like this to Fred or other people's posts who seem all-in for incentivized crypto-assets, the responses are none-to-shallow in depth. And I have gone into much more nuanced detail in other comments relating to why incentivized crypto-assets are overall bad for society. Perhaps the most purposefully ignored long-term negative is that there is a tipping point of adoption - let's say it's at "40%" adoption - where after that tipping point those later adopters are simply realizing the added cost of the increasing cost per "coin," and so they are no longer incentivized to collaborate. The danger here for society however is you now have up to "40%" of society vested into making sure this gets adopted fully by society, including any number of bad actors - who perhaps will have then hundreads of billions-to-trillions of dollars they want realized; this could be as subtle as enough politicians getting elected into government, or bribing existing, or of course the worst.
The solution, if blockchain is a necessary technology to use, is to have all existing fiat currencies globally merge - and only when governments are ready and under no pressure or force (and with no lobbying efforts by incentivized crypto-asset groups trying to indoctrinate based on their biased desires or ask to not be regulated..) - into a single digital ledger/currency. And with this solution instead of "you" giving me cash in exchange for a digital asset, "you" give cash to that government's mint and it gets converted into the digital ledger/removed from regular circulation; the conversion rate would likely only simply need to match going exchange rates between currencies - there will be some nuance to explore of course.
> Albert, another partner as USV has been evolving his understanding and has been working on a book called World After Capital
It's probably no reflection on the rest of his thesis, but he's wrong about what was scarce in pre-agrarian societies (see 'The Original Affluent Society by Marshall Sahlins). Looks like an intriguing book though, thanks for sharing. Seems similar to the thesis of Jeremy Rifkin's 'Third Industrial Revolution' and 'Zero Marginal Cost Society' books.
As for your worst-case-scenario about crypto-currencies, replace them with over-valued real estate and we've already seen it play out at least once. The majorities (or 40% minorities in my country) who vote for fiscally conservative parties pushing austerity policies, despite all the evidence they make the problem worse not better, are desperately trying to prop up the value of their real estate investments and retirement funds. Like goldbugs and bitcoinbugs, they have an irrational fear and hatred of even mild inflation, as any inflation causes some erosion of the value of their stored wealth. This fear and hatred makes them willing to ignore the acid that austerity pours of the social fabric, and the way its gradual demolition of public services built up over generations, so it can feed the remains into barrel fires and convince itself this is "growth".
It's probably no reflection on the rest of his thesis, but he's wrong about what was scarce in pre-agrarian societies (see 'The Original Affluent Society by Marshall Sahlins). Looks like an intriguing book though, thanks for sharing. Seems similar to the thesis of Jeremy Rifkin's 'Third Industrial Revolution' and 'Zero Marginal Cost Society' books.
As for your worst-case-scenario about crypto-currencies, replace them with over-valued real estate and we've already seen it play out at least once. The majorities (or 40% minorities in my country) who vote for fiscally conservative parties pushing austerity policies, despite all the evidence they make the problem worse not better, are desperately trying to prop up the value of their real estate investments and retirement funds. Like goldbugs and bitcoinbugs, they have an irrational fear and hatred of even mild inflation, as any inflation causes some erosion of the value of their stored wealth. This fear and hatred makes them willing to ignore the acid that austerity pours of the social fabric, and the way its gradual demolition of public services built up over generations, so it can feed the remains into barrel fires and convince itself this is "growth".
USV has invested in CryptoKitties (https://www.usv.com/blog/cryptokitties-1).
This doesn't invalidate his position, but it's worth remembering he is not an objective observer in the situation; his company is positioned to directly gain from a crypto-mania.
This doesn't invalidate his position, but it's worth remembering he is not an objective observer in the situation; his company is positioned to directly gain from a crypto-mania.
Agreed but I think the opposite is much too prevalent. People with absolutely no experience using crypto currencies write articles bashing them without ever using them first hand. Im not advocating for them but I think to actually assess their use/value they must be tried.
That's a silly argument. You don't need to drink Coke to assess it's value. If you don't see value in Bitcoin on its face, buying a pizza with it won't change much.
"Don't tell me what you think, show me what's in your portfolio."
"Bitcoin has produced a transaction processing infrastructure that looks a lot like Amazon Web Services (something I am sure Buffett would agree is extremely valuable)."
How many transactions per minute can AWS do?
How many transactions per minute can AWS do?
> How many transactions per minute can AWS do?
How many transactions can the bitcoin network do if Amazon goes out of business or cancels AWS? (hypotheticals seem relevant here, to make the point)
How many transactions can your business perform if AWS blocks you, or your transaction type?
How many transactions can the bitcoin network do if Amazon goes out of business or cancels AWS? (hypotheticals seem relevant here, to make the point)
How many transactions can your business perform if AWS blocks you, or your transaction type?
Hypotheticals aren't relevant here, though. Amazon isn't cancelling AWS anytime soon.
How about the not-hypothetical?
> How many transactions can your business perform if AWS blocks you, or your transaction type?
> How many transactions can your business perform if AWS blocks you, or your transaction type?
That applies to very few people doing legitimate things, although there are some. In that case, you may find some value in it, or in the several other alternative payment processors.
Bitcoin is designed to process <10 transactions per second.
It feels like the author missed the fundamental bit of Buffet's investment/speculation split: that the goods you obtain in an investment are valuable in themselves, which cryptocurrencies are not, even if we consider them the foundation of a new world. Comparing Ethereum to Aws seems odd too.
I'd argue, cryptocurrencies are the worst thing to happen to such a great concept, decentralized agreements.
Consensus algorithms have shifted focus away from decentralization and towards pushing cryptocurrency agendas. Shame!
Consensus algorithms have shifted focus away from decentralization and towards pushing cryptocurrency agendas. Shame!
Yeah, and they haven't been terribly great for the gaming market either, as they're consuming production of graphics card components.
I find this to be such a curious argument: "The graphics card industry would be so much better off if these cryptocurrency people would stop giving AMD and Nvidia so much money!"
From an AMD PR:
“The cryptocurrency market is unstable and demand could change quickly. For example, China and South Korea have recently instituted restrictions on cryptocurrency trading. If we are unable to manage the risks related to a decrease in the demand for cryptocurrency mining, our GPU business could be materially adversely affected.”[1]
The mining market is too unstable to bet trillions of dollars expanding fab capacity, which is why they haven't been able to increase production to match demand. So while they are currently sitting atop thrones of cash, they cannot accurately forecast demand. If either a) ethereum tanks or b) someone cracks ASIC mining for ETH & curriencies mined w/ GPUs, then all of a sudden they will see a huge drop in demand. Additionally, there would likely be a massive surge of fairly new used cards hitting the market, further dropping demand. That's a scary thought for a manufacturer, they could potentially end up sitting on large stocks of unsold inventory.
[1]:https://usethebitcoin.com/amd-worried-business-cryptocurrenc...
The mining market is too unstable to bet trillions of dollars expanding fab capacity, which is why they haven't been able to increase production to match demand. So while they are currently sitting atop thrones of cash, they cannot accurately forecast demand. If either a) ethereum tanks or b) someone cracks ASIC mining for ETH & curriencies mined w/ GPUs, then all of a sudden they will see a huge drop in demand. Additionally, there would likely be a massive surge of fairly new used cards hitting the market, further dropping demand. That's a scary thought for a manufacturer, they could potentially end up sitting on large stocks of unsold inventory.
[1]:https://usethebitcoin.com/amd-worried-business-cryptocurrenc...
That is a very well formulated rebuttal to my argument- I agree there is some truth in this.
You make a great point in the long run; more money flowing into graphics cards should imply more R&D and improved technology (although if there's a lack of synergy between "developments good for faster graphics" and "developments good for faster mining," I'd expect innovation to follow the money).
... in the short run, the production space hasn't ramped up to meet the demand from a new consumer sector and my graphics cards have jumped in price. ;) And (depending on how bullish you are on the notion of crypto solvers being a permanent need and not a bubble) the market may be setting up for a crash if these currencies turn out to be a flash-in-the-pan and demand evaporates overnight for solver hardware. I'm not super-convinced of that crash outcome though; it's a risk, but I'd rate it a low one.
... in the short run, the production space hasn't ramped up to meet the demand from a new consumer sector and my graphics cards have jumped in price. ;) And (depending on how bullish you are on the notion of crypto solvers being a permanent need and not a bubble) the market may be setting up for a crash if these currencies turn out to be a flash-in-the-pan and demand evaporates overnight for solver hardware. I'm not super-convinced of that crash outcome though; it's a risk, but I'd rate it a low one.
Right, but the "short run" argument sort of sounds like saying "I hate people that wear green tshirts because they keep buying Teslas and people like me who wear red tshirts can't get one because of them!"
"I hate Teslas because they're consuming all the lithium for their gigantic car batteries and regular folk like me who just want a humble smartphone can't afford one anymore." ;)
I could change my t-shirt color, but I can't change the thing I actually want to do with the hardware or the configuration I need it in that's optimal for my use case.
I could change my t-shirt color, but I can't change the thing I actually want to do with the hardware or the configuration I need it in that's optimal for my use case.
Buffett/Munger have always argued that Gold and other commodities are equally worthless investments based on fear and ponzi like attributes[1]. No surprise then they feel even worse about Bitcoin.
The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."
While perhaps true, such rebuttals ignore the arguments being made by folks like Buffett around predictability, likelihood of a return, confidence in underlying asset value, volatility etc... So the argument isn't about whether or not you can make money on these things, it whether it's a prudent instrument to invest your money into.
[1] http://www.minyanville.com/trading-and-investing/commodities...
The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."
While perhaps true, such rebuttals ignore the arguments being made by folks like Buffett around predictability, likelihood of a return, confidence in underlying asset value, volatility etc... So the argument isn't about whether or not you can make money on these things, it whether it's a prudent instrument to invest your money into.
[1] http://www.minyanville.com/trading-and-investing/commodities...
> The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin."
Mortgages have been payed off with lottery wins. That doesn't make lottery tickets a good investment.
Mortgages have been payed off with lottery wins. That doesn't make lottery tickets a good investment.
Yea that's basically the point, it's a terrible argument to say that it worked.
Maybe it depends how many mortgages it pays off?
"The interesting thing here is that the common response here is: "Hey that's a great theory, but in real life, I just paid off my mortgage with my proceeds from bitcoin.""
Weren't there a bunch of people who went in debt recently to buy BTC when it was close to $20k?
Weren't there a bunch of people who went in debt recently to buy BTC when it was close to $20k?
'Billionaire investor Warren Buffett on Monday said buyers of bitcoin, which he has characterized as “rat poison squared,” thrive on the hope they’ll find other people who will pay more for it.'
isn't this in a nutshell stock market form 'normal person' perspective? Or antiques market, or any other from thousands 'buy cheap - sell for more' types of market?
isn't this in a nutshell stock market form 'normal person' perspective? Or antiques market, or any other from thousands 'buy cheap - sell for more' types of market?
To some degree, but the valuation of shares is (in theory) based on fundamentals - price to earnings ratio for instance - as well as speculation of how well it will be doing in the future. Companies can also choose to pay dividends if they have made a lot of cash, and choose to issue some of it to shareholders.
Valuation of Bitcoin to a large degree is purely based on market psychology, and it doesn't pay dividends.
Valuation of Bitcoin to a large degree is purely based on market psychology, and it doesn't pay dividends.
It is actually used to replace banks and remitters and central banks. You know, it performs some utility like companies do.
> it performs some utility like companies do.
Pipes perform utilities, not companies. What companies do is manage the social and financial infrastructure around making, or delivering, or laying, or servicing pipes. See the difference? What Buffet is saying is that when people speculate on BitCoin, they're buying over-priced pipes, in the hopes that some other sucker will pay even more for the same pipes. The companies that will make money out of crypto-$ long term are the ones sell services (like the hoteliers and general store owners in the gold rush), not the ones spending money (or god forbid going into dept) to buy crypto-tokens. Those service companies can pivot to selling similar services to another sector if (when) the crypto bubble bursts. They are the ones the likes of Buffet consider an investment.
Pipes perform utilities, not companies. What companies do is manage the social and financial infrastructure around making, or delivering, or laying, or servicing pipes. See the difference? What Buffet is saying is that when people speculate on BitCoin, they're buying over-priced pipes, in the hopes that some other sucker will pay even more for the same pipes. The companies that will make money out of crypto-$ long term are the ones sell services (like the hoteliers and general store owners in the gold rush), not the ones spending money (or god forbid going into dept) to buy crypto-tokens. Those service companies can pivot to selling similar services to another sector if (when) the crypto bubble bursts. They are the ones the likes of Buffet consider an investment.
Curious that both Buffett and Bill Gates [0] are publicly criticizing Bitcoin right now.
People make big dumb investments every day, and you don't see Buffett and Gates talking to the media about it.
What's their objective? And why together? And why now?
[0] https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bit...
People make big dumb investments every day, and you don't see Buffett and Gates talking to the media about it.
What's their objective? And why together? And why now?
[0] https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bit...
Good question... Though likely the answer is pretty mundane: It's probably something they keep being asked about in interviews, and they feel some obligation to dampen the hype on cryptcurrency- Also, there's a "survivorship bias" issue, in that both guys got very successful using business strategies involving an unrelated domain, so of course they would say "If you want to build wealth, maybe instead focus on these other asset classes that worked really well for me."
Yeah that and I think an effort to stop the public getting burnt.
Berkshire vice chairman and longtime Buffett confidant Charlie Munger was even more blunt.
"I like cryptocurrencies a lot less than you do," Munger said to Buffett. "To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out."
http://money.cnn.com/2018/05/07/investing/warren-buffett-bit...
"I like cryptocurrencies a lot less than you do," Munger said to Buffett. "To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out."
http://money.cnn.com/2018/05/07/investing/warren-buffett-bit...
He's thinking of it in investing terms, underlying asset value, cash flows, etc. Because the media asks him "Should we buy bitcoin?" every damn day of the year.
I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.
Does he also think that the US Dollar is rat poison because it's not a productive asset? He holds like $80b cash.
"But bitcoin has high fees" well yeah, there are 1,000 newer cryptos with lower fees. (and plenty of scams)
"But local stores don't use it" well yeah, nobody used credit cards in the 40s either. (and now cash is dead)
"But it's not user friendly" well yeah, neither was the internet until ~2000. (i've seen nearly zero progress in crypto here, btw)
I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.
Does he also think that the US Dollar is rat poison because it's not a productive asset? He holds like $80b cash.
"But bitcoin has high fees" well yeah, there are 1,000 newer cryptos with lower fees. (and plenty of scams)
"But local stores don't use it" well yeah, nobody used credit cards in the 40s either. (and now cash is dead)
"But it's not user friendly" well yeah, neither was the internet until ~2000. (i've seen nearly zero progress in crypto here, btw)
> and now cash is dead
Maybe it is in your little corner of the first world, but this certainly isn't true for most of the world. Plenty of people are still using cash and it isn't going away anytime soon.
Maybe it is in your little corner of the first world, but this certainly isn't true for most of the world. Plenty of people are still using cash and it isn't going away anytime soon.
>cash is dead
lol
lol
Somewhat of a class-based statement, definitely not dead among the working/lower class.
If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash...
If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash...
> If anything it was the 'tap-to-pay' feature of debit/credit cards that is finally putting some death-knell pressure on cash. It's so much faster than paying with a pin card or cash...
Is it just me or aren't debit/credit cards much faster than paying with cash, too? Making change and then dealing with all of the coins is way higher effort than swipe, maybe pin or sign, and move on. And the sign step is going away, at least in the US, soon.
Is it just me or aren't debit/credit cards much faster than paying with cash, too? Making change and then dealing with all of the coins is way higher effort than swipe, maybe pin or sign, and move on. And the sign step is going away, at least in the US, soon.
His argument is that debit cards aren't cash or something...
The laughter is justified not only for the illogic of this, but the fact that this is somehow a good reason to buy Bitcoin.
The laughter is justified not only for the illogic of this, but the fact that this is somehow a good reason to buy Bitcoin.
Debit cards aren't cash. They're credit cards that get instantly paid off from your bank account by direct debit. But you're right to laugh at the idea that cash is dead. In China, everyone who isn't using AliPay or WeChatPay (ie credit cards without the plastic card) is using cash. Yes, people use credit or debit cards a lot more often now, but paying with cash is very much still a thing.
This guy must be living in a bubble to think that cash is dead...
> He holds like $80b cash
> ...
> now cash is dead
Do you really think he's going to come out as friendly to bitcoin on any of these?
> I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.
> I'd be more interested to hear what he thinks makes for a good currency, inflation vs. deflation, freedom of transfer, protection against forfeiture, etc.
> Buffett said investors would instead be much better off investing in U.S. stocks, which in turn are also a far better investment than 10- or 30-year U.S. government bonds... He said he would much rather have Berkshire’s pile of cash and equivalents be $30 billion, rather than the $108.6 billion it was at the end of March, but good deals have not emerged.
$100B is a colossal amount of money to have sitting around in the form of cash equivalents. I wonder why he hasn't just put it into the S&P 500, given that he belives the stock market is currently a good investment. Given the index's liquidity, I would think he'll still be able to sell it off quickly, if he needs the cash for an acquisition.
$100B is a colossal amount of money to have sitting around in the form of cash equivalents. I wonder why he hasn't just put it into the S&P 500, given that he belives the stock market is currently a good investment. Given the index's liquidity, I would think he'll still be able to sell it off quickly, if he needs the cash for an acquisition.
S&P tracking ETFs are the most liquid equity instruments, but $100b is large even for them. The largest ETF by assets is SPY, with $250b. 'Liquid' for you or me or even Stevie Cohen isn't even close to the same thing as 'liquid' for Warren Buffett.
http://etfdb.com/compare/market-cap/
http://etfdb.com/compare/market-cap/
SPY has a daily trading volume of $25B. I would have thought that this would allow someone to liquidate ~$1B every day, without distorting the market. This would have allowed Buffett to raise the cash needed for any acquisitions, in a relatively short period of time. Is there any hard data on how big a trade would have to be, to cause significant price distortion?
Speaking of which, it's also common for acquisitions to be carried out using stock, instead of cash. Given that acquirees are open to getting paid in stock, I would have thought they would be open to getting paid in SPY.
https://seekingalpha.com/article/4164368-spy-cost-liquidity
https://www.investopedia.com/ask/answers/06/macashstockequit...
Speaking of which, it's also common for acquisitions to be carried out using stock, instead of cash. Given that acquirees are open to getting paid in stock, I would have thought they would be open to getting paid in SPY.
https://seekingalpha.com/article/4164368-spy-cost-liquidity
https://www.investopedia.com/ask/answers/06/macashstockequit...
[deleted]
You can’t just put 100B into vanguard. That kind of money distorts markets.
Part of the point of keeping cash around though, is that you don't want your buying power to be correlated with market movements. It is entirely possible/likely that the next good deal that comes up does so in the middle of a market meltdown. Just see the deals he made buying during the 2008 financial crisis.
As you said, $100B is a colossal amount of money. You can't get it in and out of the market like that. SPY, the most traded S&P500 ETF has a market cap of $230B.
Kind of started me thinking it was going to be a "Variety" headline... Something like "Berkshire's Buffett Blasts Bitcoin Buffoonery"
>rat poison squared
Very poor choice of words, heh.
Very poor choice of words, heh.
I can't agree or disagree on any investment recommendations as I have no expertise in the area, but I have that is pretty much what my gut reaction to Bitcoin/crypto has always been
As I've learned a bit about blockchain, I feel cryptocurrency is distracting from the broader implications of the technology. It's going to be hard enough for non-technical users to see the underlying value of immutable, distributed data and applications, so that conflation is unfortunate.
The technology has existed for many years already, and it has already made 'broader implications', see git. The only thing new about it is that people now call it 'blockchain' instead of a merkle tree. The reason banks and governments don't use better technology to track land titles or whatever other applications is that they're always slow to adopt technology, not because 'blockchain' is a new concept
But this isn't really the case. Both git and blockchain track a history of actions, true, the difference is that in git anyone can rewrite history at any time and there is then no way to agree amongst untrusted parties whose history is the true one. With blockchain, there is. That's the innovation, that's what makes blockchain novel.
As we've seen many times now immutability is not a strong property (indeed, none of the properties provided by blockchains are) of them, so not all that useful. E.g. Ethereum's various hard forks to un-do things.
In a manner of speaking, "history is written by the victors" applies to blockchains in more way than one (miners, orgs, hardforks, ...)
In a manner of speaking, "history is written by the victors" applies to blockchains in more way than one (miners, orgs, hardforks, ...)
Ethereum has had exactly one hard fork to undo something. All the rest were protocol upgrades.
Blockchain without Bitcoin is not an innovation. How do you incentivize people to secure the network?
It's actually very similar to the stock market, it's just that there's no company backing it and there's no rules. It's why people were warned against investing so much not that long ago.
In Europe meanwhile, investing in the stock market is getting harder and harder, as new european rules (e.g. MIFID II) make any stock broker require to fill in a test and whatnot to prove basic stock market knowledge and competency, plus accept the risk to lose money explicitly.
There's a lot of people that invested money in the stock market they couldn't lose, due to promises of huge returns. Sounds familiar, doesn't it?
In Europe meanwhile, investing in the stock market is getting harder and harder, as new european rules (e.g. MIFID II) make any stock broker require to fill in a test and whatnot to prove basic stock market knowledge and competency, plus accept the risk to lose money explicitly.
There's a lot of people that invested money in the stock market they couldn't lose, due to promises of huge returns. Sounds familiar, doesn't it?
Well I trust the stock market more cause normal people invested in it and not mostly weird internet libertarians who thought Obama was going to take their savings and drug dealers (I'm sure other people were investing in Bitcoin in 2011 but these are the guys I was aware of)
[deleted]
The experimentation of ideas around what money is is certainly not "nonproductive" and to dismiss it like that is silly. He might not like it for any reason at all and that's fine, but to call it nonproductive is ridiculous.
All right, then - how is it productive?
I have been curious about the case for bitcoin.
A short time ago all currency was on the gold standard. Then it was loosely based on the underlying productivity of the country that issued the currency. Then it was loosely based on the underlying safety of the country that issued the currency. Even gold has bounced around in value.
Having said that, I am still not convinced that bitcoin is a viable monetary standard. There is no way (that I can see) to evaluate its underlying value. Underlying value is needed for trust. Trust is needed for exchanging goods and services. Monetary standards are just stand ins for barter.
Please convince me.
A short time ago all currency was on the gold standard. Then it was loosely based on the underlying productivity of the country that issued the currency. Then it was loosely based on the underlying safety of the country that issued the currency. Even gold has bounced around in value.
Having said that, I am still not convinced that bitcoin is a viable monetary standard. There is no way (that I can see) to evaluate its underlying value. Underlying value is needed for trust. Trust is needed for exchanging goods and services. Monetary standards are just stand ins for barter.
Please convince me.
Seeking ways to improve existing systems, financial or not, is a productive activity in my book. How successful the effort is, is another discussion entirely.
I think the question then, is Bitcoin doing that. And whether it is or not varies from person to person.
It depends on your definition of productive but in my opinion it's creating wealth, companies, & jobs.
People are going into work every day to work on crypto-related products. Bitcoin & other cryptocurrencies are putting food on the table for those people.
People are going into work every day to work on crypto-related products. Bitcoin & other cryptocurrencies are putting food on the table for those people.
> it's creating wealth, companies, & jobs
based 100% on people trying to make a quick buck, and not based on solving a problem virtually anyone actually has.
by this bar, Dutch tulips in the 1600s were also extremely productive
based 100% on people trying to make a quick buck, and not based on solving a problem virtually anyone actually has.
by this bar, Dutch tulips in the 1600s were also extremely productive
It's fine that you have that definition. And certainly I can understand why you want the words to mean that. But that's just not what a 'productive asset' is. You can have your own language, and that's cool, but creating your own definitions to invalidate someone else's use of that word is just ridiculous.
People are doing the same for the IRS scams that pop up around tax time, too.
We have a global conversation about technology and money backed by large scale experiments. The production value is the basis for the future of trust and money in a digital world.
More productive work has been done by Bitcoin devs and users than much of the normal finace work and money spent when it comes to investment and future value creation though experimentation right now. To dismiss all of that as nonproductive is ridiculous because it is very clearly extremely productive. This is true regardless of how much money an investment in Bitcoin might make.
More productive work has been done by Bitcoin devs and users than much of the normal finace work and money spent when it comes to investment and future value creation though experimentation right now. To dismiss all of that as nonproductive is ridiculous because it is very clearly extremely productive. This is true regardless of how much money an investment in Bitcoin might make.
I agree in principle, but I think that there are fundamental problems with Bitcoin that make it intrinsically unsuitable for its stated purpose of being a decentralized world currency. Any success it makes along that axis essentially occurs in spite of itself, based on the commitment of people who are riding the hype wave to try to make something good of it.
If people were honest, they'd admit that Bitcoin is flawed, that it was never intended or conceived as the perfect realized implementation of a digital currency, etc. It's a thought experiment that grew rapidly out of control.
The Lightning Network is a good example of an earnest try to make something workable out of Bitcoin, but even that has real difficulty overcoming some of bitcoin's core design flaws, which are: a) difficulty mechanism blocking out commodity miners and essentially assuring there will always be centralization, which means network security will always be dubious at best, fees will always be high, and other undesirable consequences; b) inability to provide reliable, rapid transaction confirmations; c) inherent scalability difficulties based on the amount of work needed to verify transactions.
Lightning networks address some of this for some partners, but even for those who find lightning networks a reasonable workaround (that is, those with sufficient btc to open, maintain, and populate mutual funding channels), there are additional negative trade-offs that make the process undesirable (if the counterparty can prevent them from crying 'foul' within the settlement deadline, a lot of money can be successfully stolen).
Continued insistence on Bitcoin/blockchain deployment as such is non-productive. Lessons should be extracted from the bitcoin experience and we should move on to something that tries to resolve Bitcoin's fundamental issues. Let's accept Bitcoin's role as a thought leader and early implementation of digital currency, but stop pretending that it's ever going to be useful as a major economic backbone.
If people were honest, they'd admit that Bitcoin is flawed, that it was never intended or conceived as the perfect realized implementation of a digital currency, etc. It's a thought experiment that grew rapidly out of control.
The Lightning Network is a good example of an earnest try to make something workable out of Bitcoin, but even that has real difficulty overcoming some of bitcoin's core design flaws, which are: a) difficulty mechanism blocking out commodity miners and essentially assuring there will always be centralization, which means network security will always be dubious at best, fees will always be high, and other undesirable consequences; b) inability to provide reliable, rapid transaction confirmations; c) inherent scalability difficulties based on the amount of work needed to verify transactions.
Lightning networks address some of this for some partners, but even for those who find lightning networks a reasonable workaround (that is, those with sufficient btc to open, maintain, and populate mutual funding channels), there are additional negative trade-offs that make the process undesirable (if the counterparty can prevent them from crying 'foul' within the settlement deadline, a lot of money can be successfully stolen).
Continued insistence on Bitcoin/blockchain deployment as such is non-productive. Lessons should be extracted from the bitcoin experience and we should move on to something that tries to resolve Bitcoin's fundamental issues. Let's accept Bitcoin's role as a thought leader and early implementation of digital currency, but stop pretending that it's ever going to be useful as a major economic backbone.
I'd be more excited about the productivity if my observations didn't suggest people experimenting in the space were ignoring history.
We've had a century or so of modern economic theory and thousands of years of history before that time to study how money, tangible goods, production, and consumption interact. Maybe I'm not being charitable, but a lot of the cryptocurrency experiments feel like tossing that history out the window and starting over from base principles---which would be fine if I didn't watch them recapitulate the same mistakes nation-states have made throughout history.
To take BTC as a specific example: it's considered a feature of the currency that there is no fiat institution that can just print more BTC. Which is great up until the point that a hacker compromises an exchange and re-assigns a giant pile of value to anonymous criminals (or just makes it evaporate), and there's no back-stop institution to make victims whole. In a world where FDIC insurance exists, why would I bother with that nonsense? We've already had history from the Great Depression to observe the ramifications of common people getting screwed when the money storage and transfer institutions they rely upon go haywire; I don't see a need to jump feet-first into the barrel of unregulated transaction institutions again (and for BTC specifically, without those institutions available to close out transactions quickly, the lag on BTC transaction resolution makes it undesirable for day-to-day spending).
We've had a century or so of modern economic theory and thousands of years of history before that time to study how money, tangible goods, production, and consumption interact. Maybe I'm not being charitable, but a lot of the cryptocurrency experiments feel like tossing that history out the window and starting over from base principles---which would be fine if I didn't watch them recapitulate the same mistakes nation-states have made throughout history.
To take BTC as a specific example: it's considered a feature of the currency that there is no fiat institution that can just print more BTC. Which is great up until the point that a hacker compromises an exchange and re-assigns a giant pile of value to anonymous criminals (or just makes it evaporate), and there's no back-stop institution to make victims whole. In a world where FDIC insurance exists, why would I bother with that nonsense? We've already had history from the Great Depression to observe the ramifications of common people getting screwed when the money storage and transfer institutions they rely upon go haywire; I don't see a need to jump feet-first into the barrel of unregulated transaction institutions again (and for BTC specifically, without those institutions available to close out transactions quickly, the lag on BTC transaction resolution makes it undesirable for day-to-day spending).
Buffett should follow his own advice, and stick to commenting on things that he understands.
Like... finance, economics and investments?
He seems to understand intrinsic value pretty well.
If there's one thing I've learned in my 45 years, it's that actually no one has figured yet what the term "intrinsic value" really means. The more you dig into that term it just ends up meaning "what someone else is willing to pay for it" blended together with some fuzzy subjective notions of morality.
Perhaps, though:
> In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset.
- Buffett in http://www.berkshirehathaway.com/letters/1992.html
> In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset.
- Buffett in http://www.berkshirehathaway.com/letters/1992.html
This is like two old investors in buggy whips talking scaring people off of internal combustion engines. They have no idea what they're looking at but they'll make pronouncements anyway.
Bitcoin etc are currencies native to the network environment just as cash is native to the meatspace. Both have their advantages and shortcomings.
Wisdom is found in using things if they serve you and leaving them alone if they don't. Cash serves its purpose in the meatspace, cryptos serve their purpose on the network. Use them as they're useful.
I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about. It's even less wise to take advice from those who speak from ignorance.
Bitcoin etc are currencies native to the network environment just as cash is native to the meatspace. Both have their advantages and shortcomings.
Wisdom is found in using things if they serve you and leaving them alone if they don't. Cash serves its purpose in the meatspace, cryptos serve their purpose on the network. Use them as they're useful.
I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about. It's even less wise to take advice from those who speak from ignorance.
"I don't find it wise for anyone, Buffett or otherwise, to expound on things they don't know anything about."
He's talking about investment vehicles. I would say he knows more about those than most of us here on this board.
He's talking about investment vehicles. I would say he knows more about those than most of us here on this board.
Everyone that listened to him 20 years ago missed Amazon, Google, etc.
Not really. He said he wasn't buying tech because he didn't understand it, not that others shouldn't buy.
Indeed here's a quote from the 1998 letter
> Despite the pathetic technical skills of your Chairman, I'm delighted to report that GEICO, Borsheim's, See's, and The Buffalo News are now doing substantial business via the Internet.
Indeed here's a quote from the 1998 letter
> Despite the pathetic technical skills of your Chairman, I'm delighted to report that GEICO, Borsheim's, See's, and The Buffalo News are now doing substantial business via the Internet.
Yes, they had a couple of misses. But I'd say his hits have more than made up for it.
> It's even less wise to take advice from those who speak from ignorance.
Being in Bitcoin since 2011, I've found most Bitcoin advocates tend to be of the ignorant sort with regard to both the technology and the economics. They tend to gather their information from what they're told to think on places like Reddit, and are quicker to communicate via memes than have an actual real conversation.
Being in Bitcoin since 2011, I've found most Bitcoin advocates tend to be of the ignorant sort with regard to both the technology and the economics. They tend to gather their information from what they're told to think on places like Reddit, and are quicker to communicate via memes than have an actual real conversation.
We've been in it about the same length of time. I agree with your assessment.
A lot of trade in the stock markets is based on similar dynamics: lack of clue on the investor's part, just go with what someone told you.
A lot of trade in the stock markets is based on similar dynamics: lack of clue on the investor's part, just go with what someone told you.