Demystifying why Buffett and Munger hate Bitcoin?

Berkshire Hathaway’s annual shareholder meeting was held on May 1st, Eastern Time. Warren Buffett and Charlie Munger once again dissed Bitcoin. Buffett refused to discuss Bitcoin, and Munger directly stated, “I hate the success of Bitcoin. I don’t welcome a currency that is so useful to kidnappers and extortionists. I also don’t like asking someone who has just invented a new financial product out of thin air. Spend hundreds of millions, billions of dollars. This damn development is disgusting and runs counter to the interests of civilization.”

Since learning about Bitcoin, Buffett has been lashing out at Bitcoin. Many people have doubts in their hearts. As investment masters, why do Buffett and Munger hate Bitcoin so much? Most of them interpreted from multiple perspectives of investment style, value, and thought. Perhaps the truth of the matter lies in:

The reason they hate Bitcoin is written in the genes of Bitcoin.

Bailout

At 18:15:05 on January 3, 2009, Satoshi Nakamoto wrote the title of the front page article of the day in the Bitcoin genesis block-The Times 03/Jan/2009 Chancellor on brink of second bailout for banks (January 3, 2009, the chancellor was on the verge of implementing the second round of emergency bank assistance).

Note the keyword “bailout”. This word is simply a complete denial of some of Buffett’s sources of wealth.

Penetrating behind Buffett’s “investment master” persona, the binding of Buffett and the traditional financial system is far beyond most people’s imagination. This is an important reason why Buffett always diss bitcoins, and it can even be said to be the main reason.

In the 2008 financial crisis, Goldman Sachs, the leading investment bank in the United States, was hit hard. On September 24, 2008, Berkshire, controlled by Buffett, made a $5 billion investment to purchase Goldman Sachs preferred stock and $5 billion of common stock warrants. In the past month alone, on October 28, 2008, the US Treasury Department injected US$10 billion into Goldman Sachs.

On October 1, 2008, Berkshire invested US$3 billion in General Electric. It was also a month later, on November 12, 2008, General Electric Capital received a debt guarantee of US$139 billion from the Federal Deposit Insurance Corporation of the United States.

Also in October, the US Treasury Department injected US$25 billion in Wells Fargo Bank, and Buffett bought a 10% stake in Wells Fargo Bank as early as 1990. As of the latest report, Berkshire has hardly reduced its holdings and still holds a 9.8% stake in Wells Fargo Bank.

In addition, in 2008, the US Treasury Department injected US$6.6 billion in U.S. Union Bank, US$3.38 billion in American Express, and US$750 million in M&T Bank. Mr. Buffett is the majority shareholder of these financial institutions.

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Buffett later claimed that Wells Fargo was forced by the US Treasury Department’s “Troubled Asset Relief Program” (TARP) to forcefully inject capital.

Is the truth really like this? In December 2018, the documentary “Panic: The Untold Story Behind Finance in 2008” produced by HBO in December 2018 revealed that on October 3, 2008, after the US Congress and the President passed the Economic Stabilization Economic Act, Buffett called late at night to tell the US Finance Minister Paulson suggested that Paulson directly inject capital into the banks that are in crisis. In the end, the U.S. Treasury Department used $250 billion from the $700 billion “Troubled Asset Relief Program” (TARP) to purchase preferred shares to inject capital into financial institutions.

Although these preferred shares will be repurchased at maturity, the current unanchored banking system will inevitably choose inflation. After the economic crisis, the United States began to implement quantitative easing monetary policy in 2009. In this process, wealth will be transferred to the person who gets the money from the central bank first. Mr. Buffett was the first to get the money.

This is also the reason why Buffett does not look down on gold, because gold rigidly restricts the government’s fiscal and monetary discipline.

Buffett’s cash cow

Many people will ask, the prerequisite for accepting government bailout is to have ammunition to buy assets in times of crisis.

Buffett is known for making long-term value investments in good companies for decades. This requires both keen value discovery and long-term low-cost funding sources. For Buffett, this long-term funding comes from Berkshire’s insurance float (that is, premiums).

Although insurance premiums are funds that are temporarily managed by insurance companies that do not belong to it, some funds may take 10 years or more to be paid. If the business is good, these funds may be zero-cost funds. Consider the inflationary effect under the power of time, and even the negative cost.

Berkshire is not only a major shareholder of many banks, but also a major shareholder of many insurance companies. These insurance companies have become Buffett’s cash cows, providing him with a steady stream of huge low-cost insurance funds, enabling him to acquire high-quality companies on a large scale. The high return on investment will make Berkshire’s insurance companies more capable of paying compensation and have more insurance float, thus forming a virtuous circle.

According to the GF Non-Banking Research Report, in terms of revenue structure, Berkshire’s largest source of revenue is the retail service industry, which accounts for nearly 50% of its revenue. The insurance industry’s income is closely followed, with premium income contributing nearly 20%. Although the proportion of premium income is not high, premiums that can be retained for a long time can match medium and long-term investment funds. This is the “ammunition depot” that Buffett has invested in, and it is a sustainable and sufficient cash pool.

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At present, Buffett’s insurance business is divided into four important parts: National Employees Insurance Company, General Reinsurance Company, BHRG (subsidiary reinsurance business group) and BH Primary (mixed independent operation insurance group).

The insurance industry in the United States is also a licensed and strictly regulated industry, and is inextricably linked to financial institutions under the control of a centralized central bank.

This is also completely contrary to the spirit of decentralization, deregulation, deintermediation, free competition, and deinflation required by Bitcoin.

So Buffett hates Bitcoin

Buffett is not an investor who refuses to admit his mistakes. In fact, Buffett has also missed many major investment opportunities in his investment career, and he has also corrected old misconceptions.

At the Berkshire shareholder meeting for two consecutive years in 2017 and 2018, Buffett personally admitted to shareholders: he did not expect Amazon to develop so well to achieve large-scale success, and it was a mistake not to buy Google stock a few years ago. .

In 2013, Buffett firmly stated that he would not buy Apple stock because he did not know what Apple would look like in ten years. But starting in 2015, Buffett bought Apple stocks aggressively.

But Buffett has never let go of his criticism of Bitcoin.

At Berkshire’s 2013 Shareholders’ Meeting, the price of Bitcoin was less than US$130, and before it soared to more than US$1,000 to arouse the attention of ordinary people, Buffett had already paid attention to Bitcoin. He publicly stated that Bitcoin is rat poison. Of the 49 billion US dollars in cash, none of the assets are Bitcoin and there is no plan to invest in Bitcoin.

In 2014, Buffett warned investors to stay away from Bitcoin in an interview with CNBC. He believes that Bitcoin is just a “mirage”, saying that Bitcoin has great value is a joke in itself, and this prosperity is false.

At the Berkshire shareholders meeting in 2014, Buffett said that if Bitcoin does not succeed in the next 10 or 20 years, I would not be surprised. It is not a currency and does not conform to the laws of currency. Bitcoin is a speculative “Buck Rogers” phenomenon. All buying and selling behaviors are up and down by everyone’s own judgment, just like the tulip bubble of the year.

In 2015 and 2016, Bitcoin bear market. Like ordinary people, Buffett did not pay attention to Bitcoin.

In the Bitcoin bull market in 2017, when Bitcoin rose to more than $9,000, a reporter asked him again. Buffett replied: “It may be the square of rat poison.”

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In November 2017, Buffett published an article in Forbes that Bitcoin is meaningless, and neither the Fed nor other central banks can supervise it. It is an “out-of-put bubble”.

In January 2018, in an interview with CNBC, Buffett once again predicted that cryptocurrency will definitely have a “bad ending”, although it is not clear how long this ending will happen? How did it happen?

As Bitcoin reached an all-time high in January 2018, in February 2018, Buffett satirized Bitcoin as a complete FOMO (Fear of Missing Out).

On the eve of the Berkshire shareholders meeting in 2018, Buffett once again stated in an interview with Yahoo Finance that buying Bitcoin is a gambling, not an investment.

On February 23, 2019, Buffett continued to diss Bitcoin in his letter to shareholders in 2019. Bitcoin does not have any unique value.

This time Buffett and Munger once again expressed their dislike of Bitcoin. The current price of Bitcoin is around US$57,000. Since Buffett’s first public bad-mouthing of Bitcoin in 2013, it has risen by nearly 438 times from US$130, which is far better than the stock god’s. value investment”.

Concluding remarks

After the collapse of the Bretton Woods system, the abandonment of the indirect gold standard has become a fait accompli. People who love freedom can only start anew, and through the efforts of generations of scholars and software engineers, they have developed a central bank that cannot be manipulated by the Internet’s native currency-Bitcoin.

If Bitcoin and gold become widely accepted currencies, it will severely limit the government’s ability to issue excess currency out of thin air, and of course it will also weaken the government’s ability to deliver benefits to individual groups.

This is the real reason why Buffett has always hated Bitcoin and gold.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.