Warren Buffet is right when he says Bitcoin is not an asset, but that’s about all he’s got right when talking about the world’s leading reserve cryptocurrency.
Bitcoin, The World’s First Digital Commodity
Berkshire Hathway CEO and investing guru Warren Buffet, along with his cronies Charlie Munger and Bill Gates, had some scathing things to say about Bitcoin in an interview Monday morning. Buffet, long know for his prowess at investing, said it flat out: Bitcoin is not an asset. And he’s right. But that is just about the only thing he is right about when it comes to Bitcoin.
What, exactly, is an asset? According to Investopedia, an asset is a resource with economic value that an individual or corporation can control for future benefit. In the world of finance this means one thing: income. Assets provide income, they are things like stock (ownership of a business, typically dividend paying), bonds (deliver interest yield) and real estate (income from rents). When looking at Bitcoin through this lens it is indeed not an asset. It doesn’t pay dividends, it doesn’t deliver interest and you can’t rent it. So what is it?
Bitcoin, like all other digital tokens and cryptocurrency, are the fuel that powers blockchain technology. You can’t use the blockchain without them and, in most cases, they are a limited resource. By this definition Bitcoin is a commodity and as such it’s value is determined by supply and demand. When supply is high (sellers enter the market) prices move lower, when supply dries up (people are buying or hoarding their Bitcoins) prices move higher.
When Mr. Buffet, Munger and Gates talk down on Bitcoin they are exhibiting a fundamental lack of understanding into what Bitcoin is, and that’s OK. They don’t have to understand it, Warren Buffet didn’t get rick investing in commodities or technology. He invests in assets which is why people interested in Bitcoin should take his and Charlie Munger’s comments for what they are and that is meaningless drivel from a pair of boys who don’t know what they are talking about.
Bitcoin Market Analysis
Some reporters have put forth the idea that Mr. Buffet’s views on Bitcoin, expressed Monday morning, are why the cryptocurrency failed to cross the $10,000. Those headlines are nothing but clickbait. The token had begun a mild correction at least 24 hours before the Buffet comments, sparked by regulatory announcement in Japan. The Japanese FSA is tightening its grip on the cryptocurrency market by requiring investor protections from local exchanges. Among the new rules are requirements for exchanges to monitor traffic for unusual activity, for exchanges to hold client funds separate from business funds and for all crypto holdings to be kept in cold storage.
The news was countered in the days following by positive announcements in South Korea (a softer tone on cryptocurrency regulation), Australia (government run cryptocurrency mining) and Europe (a call for regulation and transparency from the industry to regulators). All of which will support the cryptocurrency market over the long term. Bitcoin is now testing support at key target following its recent price reversal. Once this level is confirmed a move above $10,000 should be expected.