The past year has been groundbreaking for Bitcoin. The cryptocurrency quadrupled in price while late-to-the-party investors bemoaned having missed out.
So what does the world’s most famous investor think of Bitcoin?
It’s “probably rat poison squared,” Warren Buffett once said.
If you listen to the billionaire, cryptocurrency may not be the big financial opportunity you’ve been dreaming of, nor is it the only way to get impressive returns if you have some cash you’re looking to put into the market.
Here’s how the Oracle of Omaha chooses his stocks and why he hates cryptocurrency.
Why the crypto contempt?
The CEO of Berkshire Hathaway doesn’t hold back his feelings.
“I don’t have any Bitcoin. I don’t own any cryptocurrency, I never will,” he told CNBC in 2020.
Here are three reasons Buffett won’t go near it.
1. It has ‘no unique value at all’
The billionaire investor doesn’t like Bitcoin because he considers it an unproductive asset.
Buffett has a well-known preference for stocks of corporations whose value — and cash flow — come from producing things. But cryptocurrencies don’t have real value, Buffett said in a CNBC interview in 2020.
“They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem.”
Though Bitcoin is intended to provide real value as a payment system, that use is still pretty limited. As Buffett sees it, Bitcoin’s value comes from the optimism that someone else will be willing to pay more for it in the future than you’re paying today.
2. He doesn’t think crypto counts as money
As a tradeable asset, Bitcoin boomed. But does it meet the three criteria of money? According to the most common definition, money is supposed to be a means of exchange, a store of value, and a unit of account.
But Buffett calls it a “mirage.”
“It does not meet the test of a currency,” the billionaire said on CNBC in 2014. “It is not a durable means of exchange, it’s not a store of value.”
He adds that it’s a very effective way of anonymously transmitting money. But: “a check is a way of transmitting money too,” he said. “Are checks worth a whole lot of money just because they can transmit money?”
3. He doesn’t understand it
Buffett became one of the most successful investors in history by sticking with stocks he understands.
“I get in enough trouble with things I think I know something about. Why in the world should I take a long or short position in something I don’t know anything about?”
But people like to gamble, he told CNBC after a 2018 Berkshire Hathaway annual meeting, which is another problem with non-productive assets.
“If you don’t understand it, you get much more excited than if you understand it. You can have anything you want to imagine if you just look at something and say, ‘that’s magic.’”
How does Buffett pick winning stocks?
The billionaire investor follows the value investing strategy — which focuses on buying undervalued stocks of strong companies and holding them for a long time.
Simple, right?
Berkshire Hathaway looks for companies with a good profit margin and those that produce unique products that can’t easily be substituted. As Warren Buffett once said in a letter to his shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
But Buffett’s distaste for crypto stocks doesn’t mean you shouldn’t buy Bitcoin. Even the billionaire has come around on sectors he previously spoke out against.
He notoriously avoided tech stocks, even at the height of the dotcom bubble, and now his company’s largest holding is Apple.
You can start investing today
Bitcoin has made a lot of people rich along the way. But that doesn’t mean you’ve missed the boat on investing — just listen to Buffett’s words of wisdom.
Found a company you believe in? Even if you’re not swimming in cash, one popular investing app allows you to buy pieces of companies for as little as $1.
You can invest in fractional shares of stocks, options, exchange-traded funds (ETFs) and, yes, even cryptocurrencies. There are no fees and no commissions, and when you sign up, you’ll get a free share of stock added to your account to help you get started.
Or you might buy into companies with just your spare change, using a different app that rounds up your debit and credit card purchases to the nearest dollar and invests the leftover pennies.
If you’re interested, but intimidated, that’s normal. Don’t be afraid to get some expert advice before you hit the stock market. Today, there are certified financial planners who will work with you online to create a personalized investing plan.