Cryptocurrency, in general, and bitcoin, in particular, introduce a powerful new paradigm to personal finance. As bitcoin creator Satoshi Nakamoto spelled out in his landmark white paper, bitcoin removes the trusted third party from financial transactions.
That means a true peer-to-peer interface, with money changing hands between people and businesses in all kinds of permutations without the interference of a bank, lawyer, government, or any other extraneous middleman. This new system carries an implicit threat to those middlemen: If bitcoin takes off, you will quickly become irrelevant. Add to that the entrenched position of already-wealthy folks in the tech sector, and you have a recipe for a lot of fear and misunderstanding surrounding the bitcoin project. Let's take a look at some of bitcoin's most high-profile foes and what reasons they might have for opposing the spread of a truly peer-to-peer global currency.
Warren Buffett was once the richest man on the planet. He's still comfortably in the top 10. Buffett's Berkshire Hathaway owns or holds controlling interests in a slew of household names, like Geico and McLane Company, which acts as the distribution arm for Wal-Mart, Taco Bell, KFC, 7-Eleven, and more.1
Buffett began his investing career early, but in the most traditional sense - the stock market. Since acquiring and then becoming the long-time chairman of Berkshire Hathaway, Buffett has garnered for himself a sort of guru status. He's a White House staple and has been hailed as the "Oracle of Omaha" for his seemingly prescient understanding of the stock market.
His investment strategy is based on two principles - understanding the fundamentals of a company to get a sense of its true value and good old-fashioned patience.2
Two of his more famous quotes regarding investing provide the foundation for his mistrust of bitcoin.
"Never invest in a business you cannot understand," Buffett has said, along with, "The stock market is a device for transferring money from the impatient to the patient."3
Buffett's criticism of bitcoin has been fairly wide-ranging. He's said it's more like gambling than investing, predicted an eventual market crash, and most famously called it "probably rat poison squared."4
Considering Buffett's two golden investment standards, it's fairly easy to see how he arrived at that conclusion.
Buffett is a financial product of another era. His money was made in the traditional stock market, taking calculated risks on businesses that he could grasp through-and-through.
Bitcoin is another animal entirely, which Buffett admits.
"I get into enough trouble with things I think I know something about," he has said. "Why in the world should I take a long or short position in something I don't know anything about?"5
That seems self-evident. But it also begs the question - if Buffett doesn't truly understand bitcoin, then on what basis can he critique it? This is where the patience angle comes in. bitcoin has seen a meteoric rise in price and adoption since Nakamoto's famous white paper. The very idea of a bitcoin millionaire flies in the face of a man who gathered his money slowly, over time, in the regular stock market making insightful but ultimately orthodox moves.
The more cynical minded might also note that bitcoin is a direct threat to some of Berkshire's biggest holdings. As of 2018, Berkshire had its finger in several major banks, including Bank of America and Goldman Sachs.
If a new competitor arises that promises to put some of your core businesses under pressure in ways you don't completely understand - and quickly - it only makes sense to lash out.
Bill Gates is the poster child for the nouveau-rich, and he made his fortune in the tech sector. It might seem strange, then, for him to pooh-pooh bitcoin. After all, bitcoin promises a technological revolution at least on par with the personal computing that Gates made possible. In fact, it could be argued that bitcoin is a direct result of Gates' success in getting personal computers into as many hands as possible. It's the logical next step. Once folks have access to widespread computing power, they should begin to take the initiative in all other areas of their lives. The U.S. Postal Service gives way to widespread email. Document creation shifts from businesses like Kinkos to home computers with printer access. And money flows from huge central banks to individual bitcoin wallets.
And yet, Gates is one of the more notable critics of bitcoin.6
He's claimed he would short the market if he could - which, as some have pointed out, is totally possible and gives Gates an outlet to "put his money where his mouth is."7
He's also said bitcoin doesn't really produce anything, and so it's a flimsy investment.
"As an asset class, you're not producing anything and so you shouldn't expect it to go up," Gates has said. "It's kind of a pure 'greater fool theory' type of investment."8
That needs a bit of unpacking.
The greater fool theory of investment hinges on this supposed truth - you can make money selling any kind of security because there will always be a greater fool down the road willing to pay more a valueless product. It's a permutation of the apocryphal P.T. Barnum quote about a sucker being born every minute.
This relies on Gates' view that bitcoin itself has no intrinsic value.
Some would argue that bitcoin does have intrinsic value, as all currencies do, by providing a medium of exchange. A U.S. dollar is just paper and cloth, after all, without the backing of the U.S. government. bitcoin at least has a proof-of-work mechanism behind it. Each bitcoin represents a substantial investment in electricity and computing power.9
But that's a bit beside the point. bitcoin observers' criticisms of Gates hinge on his already-substantial net worth via traditional technological architectures, which bitcoin and other cryptocurrencies threaten. After all, distributed computer and blockchain endeavors fly somewhat in the face of Gates' heavily centralized tech empire. This can be extended to other high-profile bitcoin tech foes, like Facebook.
A Bitcoin Future
The world has a lot to gain from a future fueled by bitcoin and other cryptocurrencies. They promise a future in which value can be traded across national borders without a reliance on stable governments or banking cartels. A refugee from a war-torn nation could, in theory, walk across the border to safety and retain his or her net worth by writing their seed phrase on a scrap of paper, or even just by memorizing it. There are no banks to get involved, no government strictures to deal with. bitcoin promises freedom, in essence.
The flip side of that is bitcoin remains a threat to the established moneyed and technological interests of the world. A useful gauge for how promising bitcoin's future is can be prepared by looking at exactly who is criticizing it and what they stand to lose.
The higher profile the foe, the more likely it is that bitcoin will be a disruption to the status quo in the future. The bitcoin future looks very different from the present. That's a promise to the vast majority of the world and a threat to those already on top of the system.
1) Top 6 Companies Owned by Berkshire-Hathaway, Investopedia.
3) Buffett Stress Patience in a World Where Deals Look Expensive, Bloomberg.
4) The Genius of Warren Buffett in 23 Quotes, MarketWatch.
5) Warren Buffett Says bitcoin is Probably Rat Poison Squared, CNBC.
6) Warren Buffet Doesn't Understand BTC, TechNewsLeader.
7) Bill Gates: I Would Short bitcoin If I Could, CNBC.
8) Tyler Winklevoss Tells Bill Gates How to Short bitcoin, CNBC.
9) Greater Fool Theory, Investopedia.
10) bitcoin Has No Intrinsic Value - Neither Does a Dollar Bill. Wired.