“People get excited from big price movements, and Wall Street accommodates.”- Warren Buffett (Trades, Portfolio)
On Nov. 30, the Wall Street Journal ran a front-page article with the title, "Bitcoin Mania: Even Grandma Is In." As the article describes it, 70-year-old Rita Scott was convinced by her grandson to take out money from a T. Rowe Price Fund to the "latest investment sensation" bitcoin (one of the many cryptocurrencies that have come to market). Once convinced, Scott began to check on her new investment throughout the day, even while at the casino, and is quoted as saying, "I didn't have much fun with T. Rowe Price."
Now, I cannot enjoy a cup of coffee without CNBC updating me every 10 minutes about bitcoin's latest price swings. And who can forget the Taihuttu family, who sold all of their assets for bitcoin.
I was not involved in the stock market during the dot.com bubble, but through the various investing books I have read, those individuals that survived the boom and bust talked about how your barber or taxi driver gave out hot stock picks, or invested in a new technology that will grow exponentially in the near future, how "so and so" is making so much money, etc.
I am not an expert on bitcoin, but it certainly is beginning to fit the mold of a bubble. If you study any history on bubbles, one common characteristic is a strong, new, hot technology usually gets the crowd excited. Just look at all the new cryptcurrencies popping up. Even Amazon (AMZN, Financial) is rumored to be getting into the cryptocurrency game as it begins to purchase domain names related to cryptocurrency.
With all the hype around bitcoin and other cryptocurrencies, I was curious to know Warren Buffett (Trades, Portfolio)'s thoughts on bitcoin. Judging from his comments over the past couple of years, he is not exactly excited about bitcoin or any other cryptocurrency:
"You can’t value bitcoin because it’s not a value-producing asset...it's a real bubble in that sort of thing.”
I will keep it simple. Unless something dramatically changes with bitcoin, Buffett will not like it as he remains one of the biggest critics of the cryptocurrency.
Like gold, Buffett does not believe it is something you can value since it is not a value-producing asset. This argument makes sense considering bitcoin is simply a way of transferring money (think money orders or a check), it has no earnings, no assets and does not pay dividends. One of the main concerns he has, which is, in my opinion, bitcoin's biggest risk, is the cryptocurrency is not regulated by any government. As voiced in a Forbes article:
"It doesn't make sense. This thing is not regulated. It's not under control. It's not under the supervision [of] any...United States Federal Reserve or any other central bank. I don't believe in this whole thing at all. I think it's going to implode."
Back before bitcoin's unprecedented rise, Buffett was on CNBC with QuickenLoans and Cleveland Cavaliers owner Dan Gilbert discussing technology. Gilbert asked him about the cryptocurrency. His first words? "Stay away from it."
He continued:
"The idea that it has some huge intrinsic value, is just a joke".
What is funny about this interview is he briefly mentioned how bitcoin can be replicated. Sure enough, it seems like a new cryptocurrency is being launched every week.
