In the days leading up to Berkshire Hathaway’s annual shareholder meeting, Warren Buffett is in the news once again, as the “Oracle of Omaha” becomes the focus of much of the financial media’s attention. This time around he has made headlines for his comments on Bitcoin, claiming that those who invest in Bitcoin are actually engaged in gambling, not investing. According to Buffett, 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.”
If that’s the definition of gambling versus investing then there are a whole heck of a lot of people in this country who are engaged in gambling rather than investing. Consider the average American who invests in stocks or who holds a 401(k) or IRA. Those ordinary investors aren’t poring over balance sheets and financial statements to determine the long-term growth potential of a company or to analyze whether its stock price is undervalued. They’re only interested in one thing: stock price appreciation.
Anything that will drive up the price of their shares is welcomed. They hope to buy the stock low and sell it at a higher price to someone else once they need to sell their shares, so whatever else happens to the company is unimportant. Their investment decisions are driven solely by hoping to unload their investments to the next guy, who they hope is willing to pay more. That may be different than Buffett’s style of investment, but it’s no more a gamble than anything Buffett has taken a chance on.
Is Bitcoin a gamble? Perhaps, but no more so than any other investment. Because cryptocurrencies are such a new sector of the market, no one can see 5, 10, or 20 years down the road to figure out which ones will still be around then. What Bitcoin investors are betting on is: 1.) that cryptocurrencies are going to change society by completely altering what people use as money; and that 2.) Bitcoin will be the cryptocurrency to drive that change and will be the dominant cryptocurrency in the future.
That requires a fundamentally different view of investing from someone who sticks to more conventional investment sectors such as real estate or life insurance. Ultimately time will tell whether Bitcoin lives up to all its promises, but if it does it will be a shame that naysayers like Warren Buffett won’t be around to see their statements disproven.