Bitcoin Is “Probably Rat Poison Squared” – Warren Buffett

News | May 7, 2018 By:

Billionaire investor Warren Buffett has reiterated his negative stance towards bitcoin, likening the most popular cryptocurrency to “rat poison squared.”

Presiding at the Berkshire Hathaway 2018 annual shareholder meeting on Saturday, Buffett reiterated his earlier warning that “cryptocurrencies will come to bad endings.” He said crypto price gains are dependent on more people coming into the market so one holder can sell it to the next at a higher price than they bought it for.

“The asset itself is creating nothing,” Buffett said. “When you’re buying non-productive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along. It’s buying something because you expect the pool of people who want to buy it because they want to sell it to somebody else will grow.”

The billionaire also compared buying bitcoin to investing in gold. “If you go back to the time of Christ, and you look at how many hours we had to give up in order to buy an ounce of gold and you bring it forward to now, you’ll find the compound rate may be a tenth or two-tenths of 1 percent, … but it doesn’t produce anything,” he said.

Last week, the Berkshire Hathaway chairman and CEO argued that investing in bitcoin is a gamble, not an investment.

“If you buy something like a farm, an apartment house, or an interest in a business […] it’s a perfectly satisfactory investment. You look at the investment itself to deliver the return to you,” Buffett said at the time. “Now, if you buy something like bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.”

During the company’s shareholder meeting, which attracted 20,000 attendees in an arena, Berkshire Hathaway’s vice chairman Charlie Munger also chimed in on the technology, comparing bitcoin to turds being traded by people with dementia.

In an open letter response, Fred Wilson, venture capitalist and co-founder of Union Square Capital, wrote that instead of disparaging crypto assets with words like rat poison and dementia, the Berkshire Hathaway executives should take a little bit of time to understand that what they are seeing here is the creation of a new Internet, built upon protocols that allow for decentralized networks to form and tokens that allow people and companies to be compensated for that formation.

“What Buffett and Munger may also be saying is that they don’t know how to value this “fuel” that powers the creation of this decentralized infrastructure,” Wilson said. “If they are saying that, then I agree with them. I don’t know how to value this fuel either. We cannot use discounted cash flow because this decentralized infrastructure may not produce a lot of cash flow. It is designed to create hyper-competitive networks that are self-commoditizing.”