Warren Buffett on Bitcoin: Has His Opinion Changed?

Bitcoin, it's ingenious and blockchain is important, but Bitcoin has no unique value at all. It doesn't produce anything. You stare at it all day and no little bitcoins come out or anything like that. It is a delusion, basically.

One point this weekend you said that Bitcoin—and this was basically you were asked—Charlie said Bitcoin's like rat poison. You were asked about that comment and you said, "Well, it's probably more like rap poison squared." Charlie went on in the meeting to then basically call Bitcoin turds. He is an expressive sort; maybe when he gets a little older he'll mature.

I just want to ask you about that because it sparked so much controversy and particularly on Twitter and some of the places where you might expect people who are trading in cryptocurrency to be pretty loud about what they heard. What is it about Bitcoin that gets you guys so fired up?

Well, when you buy a farm, you look at the crop every year and what prices are, and you decide whether it was satisfactory investment. I mean, you look to the asset itself and what it produces for you. When we buy a business, we look at what the business earns and decide how we feel about it in terms of what we paid. But we are buying something that at the end of the period, we not only have what we bought in the first place but we have something that the asset produced.

When you buy non-productive assets, all you're counting on is whether the next person is going to pay you more because they're even more excited about another next person coming along. But the asset itself is creating nothing. One of the interesting things, for example, is gold. If you go back to the time of Christ and you look at how many hours of labor you had to give up in order to buy an ounce of gold and you take it forward to now, you'll find the compound rate—maybe a tenth or two-tenths of one percent. And then you have to insure it during that time and make sure somebody doesn't steal it from you and everything, but it doesn't produce anything.

Productive assets, you may have—you can pay too much for a productive asset. But I bought a farm in the 1980s, and every year look at how much it produced, away soybeans and corn. And at the end of that period, I've still got the farm and I've gotten some significant income off of it: apartment house, operating business.

But if you and I buy various cryptocurrencies, they're not going to multiply plus. They're going to be a bunch of rabbits sitting here in front of us; they're just going to sit there. And I gotta hope next time you get more excited after I bought it from you. And then maybe I'll get more excited and buy it from you. Actually, we could sit in the house by ourselves and we could keep running up the price between the two of us. But at the end of the time, there's one Bitcoin sitting there, and now we've got to find somebody else. And they come to an end.

I mean, yeah, I mean that's a greater fool theory. That's what you're saying.

Well, yeah, 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. And it's wonderful because the rising price does create more buyers, and people think, "I've got to get in on this." And it's better if they don't understand it. That's the other thing about non-productive assets: if you don't understand it, you get much more excited than if you understand it.

I mean, if you buy a bond, it says you can pay you four percent a year; you're not getting any pleasant surprises. You're just going to pay you four percent a year. But if you look at something and say, "That's magic," you can do it with sharks' teeth or seashells or anything.

And, you know, they did it with tulips in the 17th century in Amsterdam. And they'll do it again. I mean, people, they like to speculate; they like to gamble. And if you can get something, maybe you have something half plausible going on.

If you had bought gold in 1942 and you said, "We might lose the war; we might have to run off to some other country. So let's put our assets in gold," you would have less than a penny for every dollar you got from owning stocks—less than a penny. Now, somebody calls that a store of value. I mean, I think they're delusionary.

Okay, Andrew has a question too.

Andrew: "Hey Warren, related to this issue of Bitcoin, you saw that Goldman Sachs just last week announced they were going to create effectively a trading operation around cryptocurrencies—in Bitcoin in particular. You've been an investor in Goldman. What do you think of their decision to do that?"

Well, they probably think that lots of people are going to get very excited about it—well, and maybe already are. But they think there's money to be made trading them. I don't think they're expressing an opinion on the ultimate value. I would be very surprised if the top partners of Goldman are selling their Goldman stock and putting it into Bitcoin.

But I want to cover the subject now because my friend Charlie will come on at 8 o'clock; there's no telling what he will say. That's my whole entire point. I do want to ask Charlie about it because I think when he talked about the turds, he was referring to this. He said, "If you're trading this, it's like watching other people trading turds and deciding you want to get a piece of that."

Well, you're not going to get me to comment on that. Hopefully, Charlie's not awakening. Truth is, people do trade on very crazy things over time. You know, imagine people selling their homes to buy a tulip in Amsterdam. If people think they're going to make money the next day, and worse yet, if they think somebody else that they know is going to make money and they aren't going to make money, it just draws people in.

You know, I could whisper something on this program and the more sillier it was, the more it might react because there's no quantitative limits. If you buy a stock, you say, "Well, I'll buy it at 15 times earnings, but I won't buy it 20 times," or anything. But when you get into something that doesn't produce anything, you know, there's no checkpoints there. There's nothing to reference it to; it's just gone up so it'll keep going.

In terms of cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending. Now when it happens or how or anything else, I don't know. But I know this: if I could buy long-term puts—if I could buy a five-year put on every one of the cryptocurrencies, I'd be glad to do it. But I would never short a dime's worth.

Have you thought about trading the futures to take a negative position on Bitcoin?

No, you would not do that.

No, there's no reason. I get into enough trouble with things I think I know something about. Why in the world should I take a long or short position of something I don't know anything about?

So, you know, we don't have to know what cocoa beans are going to do or any cryptocurrencies. We just have to focus on eight or ten stocks—that businesses, basically—that we think are decent businesses. But I do think that what's going on definitely will come to a bad ending.

I mean, you've got virtually everybody. I have a class; I have 11 schools coming on Friday. The questions will be on Bitcoin and I won't know the answers.

Although when we sat down, Warren, you did say I should have announced that we were getting involved in Bitcoin this morning.

Well, that is true. I mean to, that would be much more interesting to the audience that we were going to issue a whole series of cryptocurrencies tomorrow. But no, we aren't, believe me, and we don't own any. We're not short any; we'll never have a position in them.

The capitalization of cryptocurrencies approached that of Berkshire and Apple last year and clearly, the idea behind crypto will affect conventional banking groups where Berkshire is a shareholder. You always say you didn't go into too much detail to obtain an understanding on cryptocurrencies, so what factors caused you to say that it's a bubble?

Generally, non-productive assets remain—you know, if you bought gold at the time of Christ, and you figured the compound rate on it, you know, it may be a couple tenths of one percent. It essentially is not going to deliver anything other than supposed scarcity. You know, because you can only mine so many. But so what? I mean, what does it produce itself?

You know, the check is a wonderful idea. Just imagine how the world would be without being able to write checks or have wire transfers of funds. But it doesn't make the check intrinsically itself worth a lot of money.

And if you said you can't use something called check with a little piece of paper, you do something else to transfer money. I think that anytime you buy a non-productive asset, you are counting on somebody else later on to buy a non-productive asset because they think they can sell it to somebody for more money.

And it's been tried with tulips and it's been tried with various things over time, and it does come to a bad ending. I'm having a hard time—I mean, think of raw land. I mean, the Louisiana Purchase was, say, $15 million for 800,000 or so square miles of land. In fact, you're sitting on land that came with the Louisiana Purchase. And so what we paid—we paid 20 bucks a square mile. And, you know, 640 acres in a square mile and you're down to three cents or something.

So that was a pretty good purchase of what was then a non-productive property. But it depends. But it's very hard. You can buy stamps; Bill Gross got everything—collected a wonderful stamp collection and it sold for more money in the end. But it's dependent on somebody else wanting to buy, hoping they will sell it for more money and so on.

And in the end, you make your money out of productive assets. If you buy a farm, you try to estimate what the crops—what amount per acre of soybeans or corn or whatever may be raised—and how much you have to pay the farmer that farms it for you and what your taxes will be and various things. And you make a conclusion based on what the asset itself will produce over time, and that's an investment.

When you buy something because you're hoping tomorrow morning you're going to wake up, you know, and the price will be higher—only you know—you need more people coming into it than they're leaving. And you can get that; it will feed on itself for a while and sometimes for a long while and sometimes do extraordinary numbers.

But in the end, they come to bad endings. Cryptocurrencies will come to bad endings. Along with the fact that there's nothing being produced in the way of value from the asset, you also have the problem that it draws in a lot of charlatans and that sort of thing who are trying to create various sorts of exchanges or whatever it may be.

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 neighbor's getting rich buying this stuff that neither one of them understands. It will come to a bad ending.

Charlie: "Well, I like cryptocurrencies a lot less than you do, and so to me, it's just dementia. I think the people—professional traders that go into trading cryptocurrencies—it's just disgusting. It's like somebody else is trading turds, and you decide, 'I can't be left out.'"

To the extent that this brought—we're being webcast around the world—I hope some of our stuff doesn't translate very well, actually.

Bitcoin is worthless. Artificial gold, which if it succeeded would facilitate a lot of illicit activity, now that is not something I think the world needs. And the fact that it's clever computer science doesn't mean that it should be widely used and the respectable people should encourage other people to speculate in it.

Bitcoin reminds me of Oscar Wilde's definition of fox hunting: the pursuit of the uneatable by the unspeakable.

Well, it sounds better than what he used before. [Laughter]

We asked earlier, Charlie, and Andrew brought it up with Warren, but I think it's a scumball activity. Does that serve you better?

Thank you.

Yeah, we asked earlier about Goldman Sachs getting into the business of having a trading desk for Bitcoin. Berkshire Hathaway owns about $2.5 billion of Goldman Sachs. Does it bother you, or does it not surprise you?

Well, I don't expect every investment bank to agree with everything I think. They have a lot of animal spirits in investment banking.

Bill: "Charlie and Warren have weighed in on Bitcoin. Do you own any?"

Somebody gave me some for my birthday, and then a few years later I thought, "Hey, I'm going to sell that." So no.

There's some really good technology in terms of sharing databases and verifying transactions that is talked about as blockchain; that is a good thing. Bitcoin and ICOs—I agree completely—it's one of the crazier speculative things where it's not as an asset class; you're not producing anything. And so you shouldn't expect it to go up. It's kind of a pure greater fool theory type investment.

So, you know, I agree. I would short it if there was an easy way to do it. One of the interesting things is if people react when you criticize their investment. If they get mad, they're gambling. You know, if somebody criticizes Apple or Berkshire, we like it. I mean, if the stock goes out, we'll buy more of it.

Because, we don't care whether it's just—a we don't feel that it has anything to do with it. But if we criticize something that they own, because they only want it to go up tomorrow, they feel we are hurting them and therefore they get very upset about it.

If they really like what they own, what difference would it make? You know, if I criticize their wife or something, they don't get all upset about them. That's a bad habit.

Yeah, just had a conversation with Charlie Munger about a week and a half ago, and I asked him if he thought the golden era of value investing was over. He said, “No, not forever, but he thinks the game is a lot harder than it used to be.”

What are your thoughts just in terms of looking around trying to find businesses, trying to find pieces of a business versus when you started the game?

Well, it's harder for two reasons. One of which is peculiar to us. We’ve got a lot more money, so our universe of possible things to do has shrunk from thousands and thousands of things that I used to look at when I had small amounts of money to a relatively few things that seem to defy logic. I have more money so I have fewer things I can do, but it's just because a deal is going to be much bigger.

Yeah, so no. There's probably a hundred stocks. If we put five billion dollars in something and it's ten percent of the market cap—which would be as much as it would be—you're talking $50 billion and up market caps. And five billion is one percent of Berkshire's values. So if it goes up fifty percent, we make a half a percent, you know, basically on value before tax—thirty-five, forty basis points afterwards—yeah.

And then the second thing is, I mean, obviously, got way more competition than when we started in 194—well, really, when I took Ben Graham's class in 1951. I mean, the whole world was my oyster because people were not going through the manuals.

And you had to—it's easier to get the data now for one thing. I mean, just with the internet—it’s far easier. And I used to mail away for annual reports and go to the Interstate Commerce Commission, the Public Utility Commission, the Insurance Commission. I went to all those offices and dug through papers, and now it's, you know, it takes five seconds for somebody to get the same information.

I'll ask this very fleetingly: has your position changed on Bitcoin? I know—I mean, it's too bad, but Bitcoin, it's ingenious, and blockchain is important, but Bitcoin has no unique value at all. It doesn't produce anything. You stare at it all day.

And no little bitcoins come out or anything like that. It is a delusion, basically.

So we've gone from rat poison squared to a delusion.

Well, kind of an upgrade.

Yeah, yeah, I know. Who knows where we'll be next year? But I'm really sorry it happens because people get their hopes up that something like that is going to change their lives.

And it was a very ingenious thing to figure out how to have a limited supply and make it harder and more expensive to create them as you go along and all that sort of thing. But it doesn't—the function has, and this is explained to me by people a lot smarter than I am, but they say blockchain does not depend, I’m thinking, and JP Morgan is talking about creating their own, you know, JPM. And it’ll be worth a dollar. I mean, it’s matched to the dollar—to dollar.

And I'm sympathetic to people that—Lucas writes in. He said, "Did Justin's Son change your mind on cryptocurrencies?" For anybody who doesn't know, Justin's Son bought the dinner—or the lunch that you just had from the last Glide Foundation fundraiser.

He is actively involved in Bitcoin. After that meeting, his PR people put out some notes saying that, you know, you kind of listen to cryptocurrency, and maybe you're a little more in tune with the idea of Bitcoin now.

Well, I would say this: when Justin and four friends came, they behaved perfectly, and we had a good three and a half hour dinner, and the whole thing was a very friendly exchange of ideas. But cryptocurrencies basically have no value and they don't produce anything.

So you can look at your little ledger item for the next 20 years, and it says you've got x of this cryptocurrency or that. It doesn't reproduce; it doesn't deliver; it can't mail you a check; it can't do anything. And what you hope is that somebody else comes along and pays you more money for it later on.

But then that person's got the problem. But in terms of value, you know, zero.

So it sounds like he did not change your position.

Oh, but I didn't change his either. And I had a very pleasant dinner, and those people were—they behaved more than well. And they gave 4.6 million to Glide, and that will buy a lot of meals and provide a lot of beds for people in San Francisco.

So I thank him.

He gave you some Bitcoin. What's it feel like to be a Bitcoin?

I don't have any Bitcoin.

You don't?

No.

Okay, you don't own Bitcoin?

No, I do not own one. I don't own any cryptocurrency. I never will. And, you know, in the end, I may start a war in currency. You know, maybe I can create one and I'll say there's only going to be 21 million of them, and you can have a little ledger sheet from me and everything that says you have it and you can have it after I die.

But you can't do anything with it except sell it to somebody else. And the interesting thing, of course, is that Bitcoin's been out there a long time and people talked about how it would be used in various kinds of exchange, but none of our companies are doing business in Bitcoin or anything.

Yeah, Bitcoin has been used, I think, to move around a fair amount of money illegally, so the logical move from the introduction of Bitcoin is to go short suitcases. Because the money that was taken in two cases from one country to another suitcase will probably fall off in demand.

I mean, so you can look at that as the economic contribution of Bitcoin to the society as a whole.