Bitcoin Brevity: A Critique
During his recent Zoomtopia Conference keynote address in 2023, the vice president of Berkshire expressed a rather negative opinion about Bitcoin, going as far as calling it the "most imprudent investment I've ever come across."
However, he didn't stop there and continued to emphasize his belief that most cryptocurrencies are not only unprofitable but are poised to lead investors into substantial losses:
"Don't get me started on Bitcoins. I anticipate that the majority of these investments are headed towards the null."
Charlie Munger's viewpoint is that the majority of cryptocurrencies are destined to become worthless
Admittedly, Munger's viewpoint holds some validity when considering all cryptocurrencies, commonly referred to as "Bitcoins." Historically, most cryptocurrency ventures have indeed faced a grim fate. Since the inception of Bitcoin and its decentralized counterpart, Ethereum, a multitude of crypto projects have arisen.
The track record illustrates that the majority of these new crypto projects end up in failure. In fact, approximately 80% of newly introduced altcoins vanish within a year. Even Brad Garlinghouse, from Ripple, suggests that approximately 99% of cryptocurrencies are likely to meet the same fate.
Nonetheless, it's cru-cial to contextualize these statistics. This failure rate is not unlike what is observed in the restaurant or business industry, regardless of the sector. Venture capitalists and angel investors can attest to the challenges of turning a new venture into a profitable enterprise.
This reality doesn't render the entire industry worthless or senseless. Instead, it underscores the considerable difficulty in making a new business lucrative. Picking the winners, even for experienced experts like venture capitalists and angel investors, is far from a straightforward task.
Successful endeavors in the realms of new restaurants, technology startups, and blockchain projects often yield such substantial profits that they more than compensate for the losses incurred on unsuccessful investments by capitalists.
Is Bitcoin truly the most foolish investment that Munger has ever come across?
So, when it comes to Bitcoin, it would be unjust to label it as the most imprudent investment that Charlie Munger has ever encountered. Although his choice of words involved hyperbole, he has encountered more unfavorable investments in the past. For instance, in 2019, Berkshire Hathaway suffered a staggering $4.5 billion loss in a single day due to its 2015 investment in Kraft Heinz.
To his credit, Warren Buffett swiftly acknowledged the overvaluation of the acquisition. Considering that Berkshire Hathaway is willing to invest in high-flying stocks such as Kraft Heinz in 2015, the price volatility of a borderless, deflationary digital currency secured by a peer-to-peer network doesn't appear as illogical as it may initially seem.