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  1. Warren Buffett says cryptocurrencies will have bad ending; but he will still make money from it

Warren Buffett says cryptocurrencies will have bad ending; but he will still make money from it

Days after ace banker Jamie Dimon seemed to have given on his conviction that private digital currencies such as Bitcoin were bad investments that would blow up soon, legendary investor Warren Buffett has chosen to take the mantle forward for the investing class and said that all such cryptocurrencies will have a ‘bad ending’.

By: | Published: January 11, 2018 10:48 AM
In 2014 also, Warren Buffett had warned against the cryptocurrencies.

Days after ace banker Jamie Dimon seemed to have given on his conviction that private digital currencies such as Bitcoin were bad investments that would blow up soon, legendary investor Warren Buffett has chosen to take the mantle forward for the investing class and said that all such cryptocurrencies will have a ‘bad ending’. Berkshire Hathaway Chairman Warren Buffett said on Wednesday he will never invest in cryptocurrencies. “I can say almost with certainty that cryptocurrencies will come to a bad end,” Warren Buffett told CNBC television in an interview. The statement comes just a day after JP Morgan CEO Jamie Dimon offered regrets for earlier saying “the currency isn’t going to work” in an interview with FOX Business Network last year. Warren Buffett, nicknamed the Oracle of Omaha for his market prescience, also declared that he will never own a position in cryptocurrencies. However, even though Warren Buffett said he won’t make any investment in the cryptocurrencies, he would be happy to buy five-year put options on every one of the cryptocurrencies, implying that he hoped to make money from the eventual crash in the value of these instruments then. Put options provide a way for investors to bet against an asset, as they become more valuable as the underlying asset’s price falls.

In 2014 also, Warren Buffett had warned against the cryptocurrencies. Bitcoin has taken the investing world by storm, surging to a high of more than $19,000 last year, and has created a divide on Wall Street about whether it is a legitimate financial instrument or not.

Bitcoin slump

On Tuesday, not just star cryptocurrency Bitcoin slumped but others such as Litecoin, Ethereum tanked too, and as much as 20%. While the cryptocurrency mania continues, one decision by one of the many websites led to this bloodbath in the cryptocurrency world.CoinMarketCap posted a tweet on Monday, saying that it was excluding some Korean exchanges in price calculations due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity. “We are working on better tools to provide users with the averages that are most relevant to them,” it added.After the announcement, the total market capitalisation tanked by more than $150 billion. Bitcoin slumped as much as 14 percent as the world’s largest cryptocurrency continues to be whipsawed by concerns about regulation and demand from Asia. Some reports also suggested that both China and South Korea are increasing oversight on trading and mining of cryptocurrencies. Meanwhile, Reuters reported that two US companies withdrew proposals to launch bitcoin-based exchange-traded funds pending before the Securities and Exchange Commission (SEC) on Monday, citing ongoing concerns by the regulatory agency.

“Every crypto is priced at a 30% premium in South Korea,” said Greg Dwyer, head of business development at cryptocurrency derivatives exchange BitMex. “By removing that, it looks like the market cap fell by 30 percent and so people rushed to sell because they’re not sure what’s happening.”

“South Korea has always had a premium because it’s very difficult to get cash out of the country,” said Dwyer. “Anyone looking to take advantage of an arbitrage in South Korea needs to do it with fiat currencies.” Ripple’s currency XRP fell more than 30 percent on the day, after hitting an all-time peak of around $3.84. In 2017, XRP soared 35,000 percent, surpassing bitcoin’s surge of around 1,500%. However, the massive fall is not a first for Bitcoin. It plunged by 30% to below $12,000 on December 23, as investors dumped the cryptocurrency after its sharp rise to a peak close to $20,000 prompted warnings by experts of a bubble.

What he also said:

On the stock market:

  • Stocks “are not richly valued relative to interest rates.”
  • “Net we’re buying,” he said. “We’re basically buyers over time. There could be conditions under which we’re sellers. For one thing, the money keeps coming so we basically keep buying.”

On IBM:

  • Buffett was asked whether he’s been a buyer or seller of the stock. Berkshire owned 37 million shares of the company as of the end of September.
  • “It was advantageous if you had a loss in shares and we did in some of IBM, it was advantageous to sell last year rather than this year,” he said. “It would certainly mean that if we had a high cost of IBM that we were selling, we would have sold it last year, and if we had low cost, we would have waited until this year. And we had some of both.”Buffett was asked whether he’s been a buyer or seller of the stock. Berkshire owned 37 million shares of the company as of the end of September.
  • “It was advantageous if you had a loss in shares and we did in some of IBM, it was advantageous to sell last year rather than this year,” he said. “It would certainly mean that if we had a high cost of IBM that we were selling, we would have sold it last year, and if we had low cost, we would have waited until this year. And we had some of both.”

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