Read Part 1, Part 2, Part 3, Part 4 and Part 5 if you haven’t already.
The figure of speech used by Warren Buffett and Charlie Munger to describe Bitcoin is very indicative that they are not willing to have a discussion on it. They have made up their mind and that’s it. They have said Bitcoin is ‘rat poison squared’. Munger has said trading in crypto currencies is ‘just dementia’. Buffett has gone a step further and said if he was given all the Bitcoin in the world for $25 he wouldn’t take it.
I get it. They are at the sunset of their illustrious lives and they can’t be bothered with understanding a new technology. Imagine how much more successful they would have been if they were early investors in Google and Amazon.
The truth is they have been wrong on Bitcoin since it was under a dollar. In the same interview where he said that Bitcoin is an asset that creates nothing, he also added that while Bitcoin is a “failed experiment going to zero”, the underlying blockchain technology is revolutionary. It is akin to saying that you don’t understand the internet but you think email is a good idea.
While Bitcoin is a great technology, there are many unanswered questions regarding its creation and its scaleability. Recently there is a video circulating on the internet where a woman who works for the homeland security claims that Satoshi Nakamoto are four people. That even the SEC was present at the meeting where homeland security met with Satoshi Nakamoto. If this is true, why was not the public made aware of it? Gary Gensler after long deliberations announced that Bitcoin could be a commodity. If so, where are the public disclosure documents? What if these four people who claim to be Satoshi Nakamoto are Chinese agents or North Korean agents? Could it be they created this in a remote hi-tech bunker?
Watch this video from the 7th minute onwards:
For this reason alone I don’t think Bitcoin will be adopted as a reserve currency by any G-20 country. It can remain as a private currency and its scarcity can make it a store of value. As for its utility in other areas, there are much better digital assets that are cost-efficient, secure, scalable and with higher speed.
One thing I know for sure if Bitcoin turns out to be a scam it will be much bigger than Madoff and Enron.
Now let’s get to Bill Gates’ assertion that Bitcoin is part of the ‘Greater fool theory’. As per the theory, price will continue to go up as long as there’s someone willing to buy it at a higher price. But isn’t that how the stock market works? Every tradable asset works on this principle. The only difference with Bitcoin is that there’s a limited supply, therefore it cannot be inflated away as stocks can be.
As I see it Bitcoin has many head winds ahead of it before it becomes a great store of value. With its mining costs, the carbon footprints it leaves amid the rising drumbeat of ESG (environmental, social and governance), governments could tax Bitcoin into oblivion.
On the other side, there could still be hope for Bitcoin as a store of value. Last week Uganda announced a major discovery of gold deposits worth $12.8 trillion in their country. This discovery was announced at the UN General Assembly by Uganda’s President Yoweri Museveni. It means Uganda is sitting on 31 mln metric tons of gold which should clearly increase the global supply of gold substantially. More supply means lower prices.
The current market capitalization of gold is around $ 11.6 trillion which means Uganda found more gold than there is in global circulation at the moment. Whether Uganda’s claims about their gold discovery are true or not remains to be seen. If true the Bitcoin maximalists will want to take full advantage of it, as with Bitcoin’s limited supply of 21 mln coins it is a better ‘store of value’ than gold.
Continue to Part 7
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.