The Real Reason Warren Buffet Doesn’t Like Bitcoin

The most recent tirades against Bitcoin by famed investor Warren Buffet and his sidekick Charlie Munger follow an all too familiar pattern that we’ve seen time and again.

First, a successful member of the financial community goes on a colorful rant against the very idea of Bitcoin. Then, the traditional financial media — whose readership consists mostly of people who probably don’t understand crypto and certainly don’t own any — picks up the thread and runs away with it. Last, coin prices take a tumble. Remember Jamie?

But there is a key fact that always gets left out in the reporting of these attacks, and it’s an omission substantial enough to rob the story of most of its credibility. A more honest headline of these events would read something like this:

Billionaire Bank Investor Does Not Support Technology That Was Invented To Eliminate Banks

In case you didn’t know it, Warren Buffet is arguably the world’s biggest investor in our existing banking system, both through his holding company Berkshire Hathaway and in his personal portfolio. According to the latest SEC Filings, Berkshire currently owns $24 billion worth of shares of Wells Fargo, making the mega bank its second biggest holding. It also owns $20B in Bank of America stock and $15B in American Express, along with multi-billion dollar holdings in US Bankorp, Bank of New York Mellon, Moody’s, Visa and Goldman Sachs.

Put it all together, and almost 40% of Berkshire’s portfolio is in financial services companies involved in everything from commercial banking to back office clearing to payments. Bitcoin, and various other cryptocoins like it, threaten the very existence of every one of those companies. Even a tokenized fiat currency riding a government-sanctioned blockchain would seriously crimp their profitability.

That Warren Buffet is not a believer in crypto is about as surprising as the CEO of Wonder Bread not believing in the Atkins diet.

Buffet’s primary gripe about cryptocoin investing has always been that people only do it on the greater fool theory, buying something because they believe someday someone else will pay them more for it. He certainly has a point there. But this argument is always something of a canard, because that’s the only reason anyone ever invests in anything. The real fool is the person who invests in something while not believing that someday it will go up in value.

Buffet’s real beef, I suspect, is that like most of today’s gatekeepers, he can’t fathom a world where distributed ledgers operating with transparent and meritocratic consensus mechanisms replace our centralized banking system.

How could he? Not only has such a centralized system made him lots of money over the years, it also prevented him from losing his shirt during the financial crisis.

Buffet’s love affair with big banks goes all the way back to before the crisis, when his single biggest holding was Wells Fargo. He owned a bunch of other banks as well, and was further exposed to the meltdown through the complicated derivative holdings of his insurance holdings. Buffet should have lost a lot of money during that period, for no other reason than because he made some very poor investment decisions (whereas others made the opposite bet.)

But thankfully for people like him, the government stepped in and threw billions of dollars worth of taxpayer money at the problem. The highly controversial decision to bail out the banks was nudged along by none other than Mr. Buffet himself, who after making a sizable investment in Goldman Sachs, went on national television and threatened to start dumping his bank shares if Congress didn’t “do the right thing.”

The rest of the story is history. Whatever your opinion of the bailouts, two facts remain undisputed: millions of people still lost their home and suffered years of financial hardship, but the banks (and their shareholders) rebounded smartly, despite being enrolled in one shameful scandal after another.

It’s no coincidence that Bitcoin was invented during that dark period. What the financial crisis and the ensuing bailouts made clear was that our existing banking system operated by the golden rule. Not that golden rule, but the one that says those who own the gold, make the rules.

When asked about his specific thoughts on Bitcoin recently, Birkshire vice-chairman Charlie Munger went on to say:

“I regard the whole thing as a combination of dementia and immorality. I think the people pushing it are a disgrace. There ought to be some things that are beneath you, that you just don’t do, and this is one”

As the old schoolyard saying goes: it takes one to know one.

Omid Malekan is the author of the newly published The Story of the Blockchain: A Beginner’s Guide to the Technology That Nobody Understands. You can purchase it on Amazon.