Why I’m buying Warren Buffett’s ‘rat poison’
From Eric Wade, Crypto Analyst, Stansberry Churchouse Research:
Imagine what would happen if investment legend Warren Buffett called shares of Walmart – the world’s biggest brick-and-mortar retailer – “rat poison.”
The effect would be immediate: Walmart’s shares would plummet. Billions of dollars in market cap would be erased overnight. Investors would call for the head of the company’s CEO. Management would convene emergency board meetings. Walmart’s public relations army would be unleashed. The Wall Street Journal would publish a soul-searching analysis of the future of American retail. It’d be more than a crisis – it would be cataclysmic.
Warren Buffett didn’t say that about Walmart. But he said it about the largest cryptocurrency – bitcoin.
Actually, in May, Buffett called bitcoin something even worse than rat poison. He called it “rat poison squared” (whatever that means). And in January, he said, “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.”
It was enough to give even the biggest crypto optimist some pause. After all, Buffett’s track record suggests that he’s usually right about these sorts of things.
Looking at the crypto market selloff since January, you might think Warren Buffett got it right. The market was overbought to the point of near-mania.
Warren Buffett doesn’t know what he’s talking about
But Buffett – and the mainstream media – knows next to nothing about bitcoin. Buffett admitted as much in January, when asked if he’d be willing to short (that is, bet against) the cryptocurrency.
“I get into enough trouble with things I think I know something about,” he said. “Why in the world should I take a long or short position in something I don’t know anything about.”
That line didn’t make headlines like Buffett’s rat poison comment (which it of course completely undercuts). And it’s crucial if you’re going to listen to what he says about cryptocurrencies.
You see, Buffett’s about as technophobic a trader as you’re likely to find on Wall Street. He personally avoided tech stocks for the first 30 years of his investment career, and – to this day – he owns just one technology stock: Apple. (He bought IBM in 2011 before recently selling his stake for a dismal return of around 5 percent over seven years.)
Buffett prefers steady, dependable income-producers – companies that make carpets, own trailer parks or sell auto insurance. He invests in things people need and want no matter what’s going on with the rest of the economy.
It’s an investing philosophy that’s served Buffett well. He’s the third-richest person on the planet. But looking to him for guidance on cryptocurrencies isn’t much better than visiting an astrologist.
They “want to burn you”
You know cryptocurrencies are striking a nerve when they can elicit such pointed criticism from people who acknowledge that they know nothing about them.
“First they ignore you,” American union leader Nicholas Klein once said. “Then they ridicule you. And then they attack you and want to burn you. And then they build monuments to you.”
It took bitcoin nearly a decade to get beyond the place where it was ignored. Then we started to see the ridicule and hate. But now, some of the cryptocurrency’s harshest critics are beginning to see value in blockchain technology.
For example, last fall, JPMorgan Chase CEO Jamie Dimon called bitcoin a fraud and said he’d “fire in a second” JPMorgan employees who traded bitcoin. “It’s against our rules, and they are stupid,” he added.
He’s since backpedalled, saying that he regretted his comments.
More recently, Goldman Sachs and Morgan Stanley – two of the biggest and most-respected investment banks on Wall Street – announced they’re launching cryptocurrency trading desks.
Unlike Buffett, these banks likely understand that the blockchain technology is just as important as carpet, trailer parks and auto insurance. They realise that cryptocurrencies are more than just virtual currencies.
We’re seeing the birth of an entirely new internet – what some people are calling Web 3.0.
The future of the internet
Web 1.0 marked the very beginning of the internet: mostly static webpages serving up static information. Web 2.0 saw the birth of social media. It was a new, interactive internet (think Flickr, MySpace, Weibo, Facebook and YouTube).
Web 3.0, which is in its earliest stages, is about transmitting value and giving users control over their personal data. That means moving off centralised servers (like the massive server farms operated by Facebook, Dropbox and Google) and onto decentralised networks that aren’t controlled by a single person or corporation.
Cryptocurrencies provide the incentive that makes these decentralised networks run. After all, why would you contribute your laptop’s computing power to a network if you weren’t getting compensation?
So while Buffett says that bitcoin doesn’t have intrinsic value, he probably can’t conceptualise services like Storj, Filecoin or Siacoin. These cryptocurrency projects are taking on Google Drive and Dropbox by giving people the means to store encrypted data on other people’s computers. In these scenarios, each token does have intrinsic value. You have to own them in order to use the service.
There are implications for almost every application that runs on the web. Blockchain-based social media services like Steemit are doing battle with Reddit and Facebook. An encrypted messaging platform called Status is taking on WhatsApp (the hugely popular messaging platform that Facebook bought for US$19 billion).
TZero is a new trading platform that will convert traditional stocks into blockchain-based digital assets (also known as security tokens). Investors have already pledged more than US$328 million to get a piece of the platform.
In short, payments and “virtual money” are just the tip of the crypto iceberg. The truly remarkable, world-changing technology lurks beneath the surface.
Now is the time to buy
Right now, I’m buying as much as I can of Buffett’s “rat poison”. But I’m making sure that my investments are in the right tokens, the right platforms and the right teams.
And I’m taking a page from Buffett’s playbook. His investment timeline isn’t focused on tomorrow, next month, or even next year. Instead, Buffett’s favourite holding period is forever.
When you invest with forever in mind, you stop fretting over the volatility of cryptos and you start looking at the long term. What will Web 3.0 look like three years from now? What technologies do people want and need? What will they continue to want and need? And which projects are the closest to realising that vision?
In short, when I take the longer view on cryptos, I don’t see “rat poison.” I see one of the greatest investment opportunities of my lifetime.
P.S. If you’ve been thinking about how to get started in cryptos, before they take off again… this is a great way to get started. You’ll learn what you need to know… how to understand cryptos… and the basics of investing. You’ll thank yourself later.