Value investor Warren Buffett took his antipathy toward crypto to new heights over the weekend. The Oracle of Omaha was asked about bitcoin at Berkshire Hathaway’s annual meeting over the weekend and claimed he wouldn’t buy it at any price.
“If you told me you owned all the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it?” Buffett said. “I’d have to sell it back to you, one way or the other. It isn’t going to produce anything… That explains the difference between productive assets and something that depends on the next guy paying you more than the last guy paid for it.”
The heart of Buffett’s crypto critique goes back to first principles. “Assets, to have value, they have to deliver something to somebody,” he told the audience. Compare that to a slightly different perspective: For an asset to have value, someone must be willing to pay for it.
Those concepts are not the same, even though financial markets often treat them as if they are.
As Mariana Mazzucato, an economist at University College London, explains in her book The Value of Everything, early economists distinguished between actual “value creation,” where new, socially useful resources were created, and “value extraction,” where money changed hands but nothing was produced. (Adam Smith had a list of which industries he thought did and didn’t create value.) Over time, economics became more “subjective”—more willing to defer to consumers about what value meant to them, and so willing to treat market demand as a measure of value.
Buffett’s view makes perfect sense seen through this lens: Unlike an apartment or a farm, two examples he used for contrast, bitcoin has no productive value so it has no worth.
Though Buffett is the world’s most famous value investor, that doesn’t mean he invests only in virtuous, socially beneficial companies—the kind of value Mazzucato talks about. Value investing started out closer to what today we’d call distressed assets. The field got its start in the 1920s when investor Benjamin Graham realized some companies were valued less than the sum of their parts. You could buy them, dismantle them, sell everything off, and make a profit.
Buffett’s flavor of value investing involves buying stable, well-managed companies, but even his version of value investing has a complicated relationship with social value. Buffett says he likes to invest in companies with “moats,” meaning some barrier to competition. That’s fine, up to a point and depending on where the moat comes from. But as the world’s richest troll Elon Musk has argued, “Saying you like ‘moats’ is just a nice way of saying you like oligopolies.”
To Musk, the only good kind of strategic advantage for a company is technological innovation—a form of productive, tangible value creation that Buffett has consistently missed out on. (He has admitted he didn’t grasp the potential of Google and Amazon and didn’t come around to internet companies until 2011.)
And ultimately, that’s the case for crypto—that it’s not just financial speculation but instead a fundamental technological breakthrough that will eventually enable new, productive use cases that even an investor as accomplished as Buffett just can’t imagine.