Billionaire Finance Expert Delivers Most Profound Response to Warren Buffett's Bitcoin Scepticism I've Ever Heard.
Chamath Palihapitiya — "I'm a Warren Buffett disciple, but he's wrong about Bitcoin."
Everyone has a blind spot now and then.
Chamath Palihapitiya is a self-made billionaire and Bitcoin bull who caught my attention after his public exit from Facebook.
He made me question my daily routine of doom-scrolling social apps that were liquefying my mind. In the early days, we were all hypnotised in a dopamine-fueled social media trance that few understood.
He created FB's viral growth strategy, which helped to increase the social media giant's user base from 50 million to over 700 million, and here he was, stoking the hornet's nest.
Chamath-Palihapitiya—Source
“We curate our lives around this perceived sense of perfection because we get rewarded in these short-term signals: Hearts, likes, thumbs up. We conflate that with value, and we conflate it with truth, and instead, what it really is is fake, brittle popularity that’s short term and leaves you even more vacant and empty before you did it.”
He's right.
CP's habit of speaking openly and honestly, even if it means being blunt and potentially upsetting people, goes back to his childhood.
Growing up in a dysfunctional household significantly affected his character. He publicly discussed the emotional and physical mistreatment he suffered as a child inflicted by his father.
Chamath had a tree near his apartment during his childhood. His father instructed him to gather a branch from it, which he used to hit Chamath.
If the branch he collected was too small, his dad would send him back to find another.
It led to his hypervigilance.
In a microcosm of his troubled upbringing, any moment not filled with fear and violence was an experience that left a positive, lasting impression in Chamath's memory.
For example, in grade five, when a teacher took him and two other kids to Dairy Queen, he tasted his first hamburger, fries, and coconut blizzard.
Growing up in a state of high alert meant moments of kindness from others deeply impacted his sense of value and worth.
The constant psychological abuse made him feel worthless, and as he grew older, he sought external validation through academic achievements and professional success.
Today, he has an estimated net worth of $1.2 Billion.
The media often highlights the early Bitcoin investor for his sharp critique of traditional finance and fearless criticism of renowned investors.
Most famously, Warren Buffett.
Buckle up, and let's get into it.
It would be wise to protect yourself from value destruction.
This was an aha moment for me.
I often hear that Bitcoin's most significant use case is as a hedge against inflation. Ironically, the digital asset plummets each time the inflation numbers are off the charts.
One part that's very hard to debate if you scan out a little is that BTC has been the best-performing asset in 8 out of the last 11 years.
Ordinary, everyday people now realise they have a significant hurdle rate just to tread water, with inflation at 3.48%. But we forget that the money supply is increasing at around 9%, devaluing purchasing power, so the benchmark rate is closer to 12.48%.
When people say to invest in the S&P 500 over the long term because you get 12% guaranteed every year, it made me re-think my thesis. Why the heck would I want to stand still?
Chamath thinks Bitcoin is the answer to this value destruction, predicting its price will eventually rise to $200,000 and then over a million dollars.
Chamath Palihapitiya — Source
“In 2012 and 2013, when Bitcoin was at $200, everybody was laughing at me on CNBC every time I talked about it. I said it was probably going to $100k, then $150k, then $200k.
I don’t know what period it is — five years or ten years — but it’s going there.
And the reason is that every time you see all of this stuff happening, it just reminds you that our leaders are not as trustworthy and reliable as they used to be.
So just in case we need some insurance, we can keep under the pillow that gives us access to an uncorrelated hedge.”
The best investor of all time says Bitcoin is a gambling token.
Warren Buffett is my guru.
I've watched countless videos from his investor meetings, and there's no denying that he knows his stuff. The Oracle of Omaha errs on the side of caution, sticking to investments he understands and using the now-famous value investing philosophy.
It's a thesis centred on finding undervalued companies with solid financials, stable earnings, good management, and a substantial competitive advantage and then holding onto them long-term.
The simplicity of it speaks to me.
But here's the thing — Buffett famously avoids investing in technology companies and prefers stable, predictable businesses in consumer goods, finance, and energy industries where he can see they produce output.
It's the polar opposite of Bitcoin.
He refers to BTC as a "gambling token" but doesn't fault people for wanting to "spin the roulette wheel."
Warren Buffett — Source
“Bitcoin has no unique value at all.
It doesn’t produce anything. You can stare at it all day, and no little Bitcoins will come out. It’s a delusion.
The asset itself is creating nothing.
I think that it’s a gambling device. There’s been a lot of fraud connected with it. There have been disappearances, so there’s a lot lost on it.
Bitcoin hasn’t produced anything. It doesn’t do anything. It just sits there. It’s like a seashell or something, which is not an investment to me.”
Define your circle of competence and stay within it.
Throughout Buffett's investing career, technology has not been within his circle of competence.
This is evidenced by the fact that the only technology companies he has invested in are Apple and Amazon.
Even when he made those investments as the "best-in-class performer", he entered the game late.
When asked why he didn't invest in technology stocks, Buffett famously replied, "I don't invest in companies I don't understand".
He now admits that might've been a mistake.
Chamath is now saying Warren Buffett is wrong again. This time, it's Bitcoin, and his comments are profound.
Chamath Palihapitiya — Source
“Not everybody is always right, and I think we must acknowledge that we all have biases.
Look, I’m a disciple of Buffett and Munger, and one of their sayings for years is: ‘Define a circle of competence and stay within it.’
In his entire investing career, it’s been clear that technology is not in his circle of competence, so the only technology name he’s owned is Apple.
My portfolio is 99% risk-on and 1% risk-off, and in that 1% risk-off bucket, something like Bitcoin is fundamental.
Why?
Because it’s not correlated to the rest of the market, I’ve been in the Bitcoin universe since 2012. I feel like I need a passport to go through different universes.
Most people who have held since 2012 view it as a hedge against the current financial infrastructure.
The Stock Market is correlated. We saw that in 2007, but things we thought were a hedge went away. It’s important not to forget what happened there.
If we go through the same events in the future, we’ll see the same correlation, so again, why would it not make sense to have a non-correlated hedge?
This is about buying insurance for a small amount of your portfolio.
Warren Buffett and others like him are exceptional at what they do!
It’s fair to say that in 30 or 40 years, if I’m a vibrant, successful investor, the idea that I know what’s happening in the market more than some other new entrant is just not true.
The reality is things change.”
Final Thoughts.
I'm a big fan of Warren Buffett — his principles are timeless.
You don’t amass enormous wealth and become the top investor by being clueless.
But I'm gonna say it — He's wrong about Bitcoin.
Chamath's views on BTC as an uncorrelated hedge to the traditional financial system are fascinating.
Naysayers of Bitcoin miss or fail to mention two significant points.
Bitcoin solves the store of value issue and is especially useful in developing countries, so just looking at it from our lens of privilege is wrong.
Bitcoin's value is in the network of people using it, not this fixation with productivity. As Buffett says, "No new little Bitcoins are created," lol.
Think Metcalf's Law.
It's a telecommunications and network theory concept that says a network's value is proportional to the number of users.
In other words, the more people use a network, the more valuable it is.
More and more people are adopting Bitcoin at a rate of 113% per year, outpacing peak internet adoption of 68%.
Are we becoming more digitalised or less?
My answer is more.
So I buy more.
It contradicts Warren Buffett's scepticism.