back to article Cryptocurrencies to end in tears, says investor wizard Warren Buffett

Famed investor Warren Buffett has predicted a nasty landing for cryptocurrencies. "In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending," the chairman and CEO of Berkshire Hathaway told CNBC in an interview. Later in the interview he added: "I think what is going on will …

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  1. Alan J. Wylie
    1. This post has been deleted by its author

      1. jmch Silver badge

        Re: Oh, the irony

        "Buffet would do well to examine the US Dollar, a currency printed ex nihilo (and completely at the will of the Federal Reserve and the fractional reserve banking system), and consider the value of something that can be printed to oblivion (for practical examples, see the Zimbabwean Dollar, the Venezuelan Bolivar, et cetera) "

        While in theory the USD, EUR, GBP, CHF etc *could* b eprinted into oblivion, they remain strong currencies because the market understands they have strong governance and will not be overprinted as in Zimbabwean Dollar etc. They ARE overprinted to keep a bit of inflation going, but that is known and 'built into the price', so to speak.

        Buffet is right that cryptocurrencies currently have no intrinsic value and will continue to do so until they reach some stability. After all the main purpose of currency is trade, the utility that I can buy something for it, and in theory cryptocurencies *could* provide that utility, having many useful features (accountability, public ledger, built-in hyperinflation control etc...) BUT what fool will buy an item worth $100 with $100 worth of bitcoin if they expect that within a month their $100 in bitcoin will be worth $120, $150, $200...?? The only exception to this rue is the grey and black market where criminals will be happy to pay / get paid in bitcoin for anonymity and then convert to other 'real' currencies when possible. In money-laundering the expense is calculated as part of the cost of 'doing business' so, not a problem.

        Currently bitcoin isn't functioning as a currency, it's functioning as a speculative asset backed by nothing, no more than a bunch of black tulips. Once the crash comes, speculation dies down and value stabilises, it can be used as intended.

      2. Rameses Niblick the Third Kerplunk Kerplunk Whoops Where's My Thribble?

        Re: Oh, the irony

        "...and compare it to cryptocurrencies, which have public ledgers, and have closed the "hyperinflation" cheat mode by design."

        But the current situation of hyperdeflation (in BitCoin terms at least) is totally fine and dandy? Just so you know, that way lies economic depression and recession. But hey, we all have pretend money to spend, so who cares, right?

        1. This post has been deleted by its author

          1. Mr Finance

            Re: Oh, the irony

            Yes, yes, kicking and screaming. I wonder who's going to win that fight? Will it be governments with their 20th century currencies good for nothing other than maybe paying for a few soldiers and police, or will it be the technoanarchists with their weight control issues and over developed right wrists? Sooo tough to call.

            Morons.

            1. Anonymous Coward
              Anonymous Coward

              Re: Oh, the irony

              A grossly inaccurate over simplification. Spend some time researching.

      3. Anonymous Coward
        Anonymous Coward

        Re: Oh, the irony

        Curious about the third generation of cryptocurrency. What I liked about the current was it being uncentralized. I would buy bitcoin and then transfer it through 3-4 wallets that were easy to create through either a vpn i trusted or tor and then i felt safe in spending it. For me, governements are the enemy but I would definately buy an uncentralized crypto currency if it was supported and backed by a country such as Israel before buying bitcoin for the same reasons if it completely preserved my anonyminity.

        1. Brangdon

          Re: third generation

          IOTA is currently centralised, and a bit flaky. The flakiness is partly due to being designed for machine-to-machine transfers, and dumb humans don't follow the rules as well as machines do. Might be fixed by better wallet software. The centralisation they say will be removed when usage increases sufficiently. An alternative is RaiBlocks, which is working now, but not supported by many exchanges.

          Neither has proven itself as well as Bitcoin in terms of security, and both have the usual issues of being deflationary and volatile. They are also proof of stake, so don't use huge amounts of electricity like Bitcoin does.

          1. This post has been deleted by its author

            1. Desgrippes

              Re: third generation

              I use a non-web XRB wallet. You must not be looking very hard as there is a download link on the site.

        2. Chris 155

          Re: Oh, the irony

          Bitcoin is "safe" only because the government doesn't (didn't) have a decent enough set of mappings between wallets and real people. This is changing very quickly and may possibly already have changed.

          Once the government has that set, working out where money is going and where it has come from is simply a matter of data analysis, the block chain literally gives you the entire history of that coin and every other coin in existence.

          Creating extra wallets is completely and utterly pointless and even coin laundering services are only a data problem.

          To repeat, if you're using bitcoin to escape the US government you're a fool. It's not anonymous, it just doesn't have real names.

    2. Anonymous Coward
      Anonymous Coward

      Re: Oh, the irony

      This neatly brings home the point that despite being designed as a currency Bitcoin no longer is one. It can now only be regarded as an investment. Whilst calling it a currency or an investment may sound just semantics it does have important ramifications. Currency trades are not subject to capital gains tax (under UK law at least) whereas if it's classed as an investment vehicle capital gains tax is due on all disposals. Sovereign states are free to rule that Bitcoin is not a currency because it fails to pass a test of what they consider to be the essential characteristics of a currency. Once this happens failing to declare gains above the threshold will be tax evasion.

      Of course the taxman won't know who is trading Bitcoins, however getting the proceeds of a significant gain back into real money that can be spent is going to be challenging. The technical term for achieving it without the tax man noticing is Money Laundering, and despite what you read in the press BitCoin isn't good for that either as every transaction is recorded in the blockchain.

      1. Anonymous Coward
        Anonymous Coward

        Re: Oh, the irony

        "Currency trades are not subject to capital gains tax (under UK law at least) whereas if it's classed as an investment vehicle capital gains tax is due on all disposals. "

        Glad it's not just me that see's that. I've paid my fair share of capital gains to HMRC over the years on investments. Bitcoin (and every other coin) will need to be disposed of and converted to GBP or USD or whatever other currency you need to actually spend them. No shops are really offering BTC or another currency to buy items in and haven;t even worked the VAT etc elements out.

        Granted - converting your BTC to cash will get you a lot of it - but it'll be subject to currency conversion, taxes, potentially income tax if it's brought in that way, capital gains etc.

      2. Dog Eatdog

        Re: Oh, the irony

        You are wrong. Currency gains are subject to CGT.

        From the HMRC manual:

        "When foreign currency is held in a bank account and the account has a credit balance, the account is an asset for the purposes of capital gains tax.

        For capital gains purposes all gains and losses must be computed in sterling (see CG78310) so on the disposal of all or part of this asset a capital gain or loss may arise."

        1. richsmith

          Re: Oh, the irony

          Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies

          https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies

          "As with any other activity, whether the treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies will be subject to CT, IT or CGT depends on the activities and the parties involved."

  2. Steve Davies 3 Silver badge
    Paris Hilton

    Who really does understand them?

    come on now. Don't be shy.

    I'd heard and read so many different definitions of Cryptocurrencies that I'm baffled.

    How exactly did they get a value in the first place.

    I guess that I'm like Mr B in that I think that they are at the moment a bubble. That may change in the longer term who knows eh?

    When I think of them, these phrases come to mind

    Get rich quick and poorer even faster

    A fool and their money

    Buy in haste repent at leisure

    I'm sure that there are many more.

    Paris because Bitcoins aren't 'blingy'.

    1. John Smith 19 Gold badge
      Unhappy

      Re: Who really does understand them?

      That is exactly his point.

      Buffet seems to have 2 golden rules.

      1) Don't invest in something you don't fully understand. If you can't explain the business model how can you trust the management?

      2) Look at the assets. Do they justify the share price.

      I don't think he's against companies that pay no dividends per se, but I'd bet he wouldn't Facebook with a barge pole, seeing it as essentially a bunch of servers, who's intrinsic worth is pretty much zero, compared to their share price. I doubt he'd go near Uber either.

      1. I ain't Spartacus Gold badge

        Re: Who really does understand them?

        Buffet called the dot.com bust in advance because he can count. So he looked at the balance sheet of a bunch of these companies and noticed that although they had rising turnover, and often were reporting profits (or predicting them for the future), they didn't seem to have the cash to match their claims.

        He's also confident enough to publicly say, "I don't understand this, so I won't do it".

        Before the great recession the head of one of the big European banks (UBS?) said something similar. That he didn't understand the CDO market - all those lovely mortgage backed securities that proved so disastrous, because they were impossible to value. So he stayed out of the market. In about 2005 he was sacked for not making enough profits. It's a shame we can't retrospectively go back and remove a bunch of peoples' bonuses from that era, and give some portion of them to people like him.

      2. h4rm0ny

        Re: Who really does understand them?

        Warren Buffet is very smart, very experienced and knows a lot more about investment and the economy than anybody who is likely posting here. It's outrageous arrogance for El Reg to be pronouncing on Buffet's lack of understanding. Especially given they seem to be misrepresenting Buffet saying "I don't fully understand this" to "will all end in tears".

        People saying Bitcoin et al are no different to the US dollar because neither are backed by physical wealth miss that the US dollar IS backed by two very important things: as the national currency you can pay US taxes in it. And the US tends to bomb any country that calls into question its value (Libya I'm looking at you).

    2. Desgrippes

      Re: Who really does understand them?

      The value is simple, it is what one is willing to pay or sell at in the free market. If you mean intrinsic value then there are many properties that are shared between say Bitcoin and Gold.

    3. Hstubbe

      Re: Who really does understand them?

      Bought a bunch way back for a dollar each, now selling one every month. Enough to live off and save some for when the bubble bursts.

  3. Ken Hagan Gold badge

    I'm not sure the "don't understand" bit is entirely fair. What he doesn't understand is why anyone could possibly think these currencies were worth anything. That's different from understanding how they work. (Possibly he doesn't understand that either, but at least that is because he doesn't *need* to, given his position on their intrinsic value.)

    On the other hand, he probably knows a pyramid scheme when he sees one.

    1. Dave 126 Silver badge

      Yeah, my understanding is that Buffet tends to invest long term - ignoring sharp rises and falls in value in the short term. Bitcoin, or tulips, or valid commodities speculation hasn't been his game.

  4. Anonymous Coward
    Anonymous Coward

    Cryptocurrencies seem way too volatile to function as actual currency

    Cryptostocks or cryptohotair might be more apt.

  5. Anonymous Coward
    Anonymous Coward

    Easy to understand

    1. I have to work (mine) therefore the item should have some value more then the effort I have put in.

    2. As I have decided in my own mind it has value then is the value I assign to it higher or lower then other peoples value.

    3. I can always find a sucker who values mine for more then I do, I should sell mine to him/her.

    4. That sucker can almost certainly find another sucker to sell them to for a higher price.

    5. Hey! There's a market....I should mine some more and sell them.

    6. Rinse and repeat.

    I find it amusing that people argue the underlying value of cryptos is worthless (a notional concept) while at the same time buying banking shares which have proved historically to be worthless time and again when confidence evaporates.

    Any system, except direct bartering is smoke and mirrors to some extent.

    1. jmch Silver badge

      Re: Easy to understand

      "I find it amusing that people argue the underlying value of cryptos is worthless (a notional concept) while at the same time buying banking shares which have proved historically to be worthless time and again when confidence evaporates"

      Banking (and any other company) shares are not worthless, they are backed by the assets and revenue-generating capabilities of that bank/company. Of course stocks etc can also be grossly overvalued, but you can look at their balance sheet before you buy. In case someone tries to screw the system, there are legal safeguards in place that are backed up by courts and the force that the state can bring to bear on non-compliance (arrest, jail time etc). Right now bitcoin's value is based solely on 'we think that someone else might pay more for it', and if you can't findsomeone who will pay more for it, the whole house of cards comes crashing down.

      Of course the value of stocks and shares is also to an extent a 'smoke and mirrors' built on the collective trust in the rule of law, and the legal system does not always work ideally,but it's highly unlikely that shares in Apple or Google are suddenly going to crash, whilewith Bitcoin I think it's a matter of when, not if.

      1. John Smith 19 Gold badge
        Unhappy

        " it's highly unlikely that shares in Apple or Google are suddenly going to crash, "

        Really?

        Not read "Flash boys" have you?

        That's exactly what has happened when you allow HFT on stock markets.

      2. This post has been deleted by its author

    2. John Jennings

      Re: Easy to understand

      [quote] 3. I can always find a sucker who values mine for more then I do, I should sell mine to him/her.

      4. That sucker can almost certainly find another sucker to sell them to for a higher price.[quote]

      Problem being 1:that eventually the suckers run out -

      and 2: with the design of BC, the cost you have in making the coins are such that no further suckers can afford them.

      There is a cost to producing a BTC, but you have no real asset delivered... There is no lump of coal to warm someone, there is no service given to a customer. Noone is actually buying stuff with BTC now. They are trading BTC (and it seems many are now really struggling to do so)- and that is a real problem. PPL claim banks having no intrinsic value - but that is not correct. Banks provide a service (overcharged, I believe but hey!). The banks needed to be bailed out by central governments to keep the rest of the economy working - they really were 'too big to fail'. Governments will not to do this for BTC.

      1. I ain't Spartacus Gold badge

        Re: Easy to understand

        The banks weren't bankrupt. Well apart from a couple of small building societies and Northern Rock and the government made a profit on selling the assets of that after it was broken up, so it probably wasn't either.

        The banks were illiquid. That is they had a bunch of assets that they couldn't sell (such as mortgages that were still being repaid) and a bunch of debts that they couldn't pay in the short term. Bonds and peoples' savings accounts.

        So the government took custody of their long-term assets in return for huge loans of freshly printed money. the banks were then liquid and the panic subsided. Within two years all UK banks had paid those loans back, and the Bank of England returned their collaterol and "unprinted" the money. This is what Central Banks are supposed to do, and is the only way so far discovered to have a stable banking system - short of the government running it.

        So shares went down, but didn't disappear. Obviously in the case of RBS the government also took a huge stake, so share value collapsed. But if you held on to them, the price started to slowly rise - and might continue to do so.

    3. Doctor Syntax Silver badge

      Re: Easy to understand

      "1. I have to work (mine) therefore the item should have some value more then the effort I have put in."

      I can work at, say, making mud pies. If I do that I've put effort in. But that effort creates no value at all. What would create value would be that someone finds mud pies useful. All the rest of your items could be applied to finding the person to whom they are useful. If no such person is found then they indeed worthless and the entire mud pie economy collapses - rather like the mud pies themselves.

      See also - The Emperor's New Clothes.

      1. John Brown (no body) Silver badge

        Re: Easy to understand

        "making mud pies."

        Wait till they grow in value (invest by baking them in the sun), then sell them to house builders. PROFIT!

  6. Nick Kew

    Alternative Hypothesis

    The debasement of the (traditional) coin - whether it be adulteration in a declining Roman empire or today's abuse of fiat - calls for an alternative. Bitcoin is an interesting candidate alternative. It has no inherent value, but then neither do those coins, notes and plastic cards we carry around.

    The problem there is the proliferation of competing cryptocurrencies, with nothing inherently to choose between them. And of course the implied hard restart: the people who own real wealth (like land, or Buffett's pile) can just sit it out.

    1. Stork Silver badge

      Re: Alternative Hypothesis

      Well, what is the worth of gold? Apart from electronics and door stoppers, what is the use of the stuff?

      OK, I know, to impress the ladies (or gents) - better at that than bitcoin.

      One problem with bitcoin is that the transaction cost is so high that it is useless as currency.

    2. Anonymous Coward
      Anonymous Coward

      Re: Alternative Hypothesis

      And here lieth an issue

      A few years ago everyone talked about cashless society....and even had some people survive on card alone for a few weeks

      Great if you live in Knightsbridge but our local Kebab, Chiaken and Corner shops dont deal in cards less than a tenner if, at all.

      So when do you think the Hackney Chicken shops will start taking BC?

      1. Kernel

        Re: Alternative Hypothesis

        "Great if you live in Knightsbridge but our local Kebab, Chiaken and Corner shops dont deal in cards less than a tenner if, at all."

        Good grief - the UK must be more of a benighted banking backwater than I've ever imagined!

        In NZ even a stall at a weekend morning farmer's market is risking a significant loss of sales if they don't offer card payment.

        1. This post has been deleted by its author

        2. John Brown (no body) Silver badge

          Re: Alternative Hypothesis

          "In NZ even a stall at a weekend morning farmer's market is risking a significant loss of sales if they don't offer card payment."

          You must have very low transaction overheads there. Here in the UK, the vendor has to pay for certification, rental and maintenance agreements on the reader(s), per transaction charges etc. I'm not sure of the exact figure, but most small traders will charge 50p per card transaction otherwise they are losing all (and more!) of their tiny profit margin on low value sales. Better to not sell at all than to lose out on the transaction.

          I do also note that the transaction charge for a debit card purchase is significantly lower than a credit card purchase, but small retailers do not make a distinction when adding a transaction charge and that most small retailers do have card processing facilities, very few don't do card sales at all, none that I know of will take a card for less than a fiver. The only people who can operate truly cashless are people who don't care about the "convenience" charge of going cashless and can absorb the likely few hundred quid per year they pay in charges.

          1. Charles 9

            Re: Alternative Hypothesis

            "You must have very low transaction overheads there."

            Most transaction fees in the US are percentages, usually with a monthly fee on top of it for equipment rentals, etc. Depends on the size of the business and the amount of traffic you generate (bigger business or more transactions = economies of scale meaning bulk discounts), but rates of about 2-4% per transaction are pretty common (debit transactions tend to be lower than credit ones). You're also supposed to get a break if you take Chips since there's less fraud risk with them.

    3. Charlie Clark Silver badge

      Re: Alternative Hypothesis

      The problem there is the proliferation of competing cryptocurrencies, with nothing inherently to choose between them.

      No, the problem with all the cryptocurrencies is that there is no backstop. While the central banks are currently working hard to erode confidence in them and hence the currencies they administer, the large currencies are still essentially backed by their economies.

      The blockchain is interesting and here to stay, the cryptocurrencies are a textbook example of a speculative fad: no real value but lots of volatility, ie. the chance to make money fom nothing.

  7. mt_head

    Heard an excellent quote

    ...on the most recent episode of "Risky Business": "Cryptocurrencies are basically an Internet-wide bug bounty." (I don't have the audio at the moment; the wording may not be exact.)

    It does seem to be the most consistent use for them: as something for criminals to steal, or extort, or to get other people to unknowingly mine. I think I'll start my own crypto coin and name it the McGuffin.

    1. Spanners Silver badge
      FAIL

      Re: Heard an excellent quote

      as something for criminals to steal, or extort

      Are you sure you are not thinking of the US Dollar? Much dodgier...

  8. Anonymous Coward
    Anonymous Coward

    Anyone know of anyone who specialises in Bitcoin property sales in the UK?

    Someone has asked me to sell his commecial property for bitcoin, bit of a surprise request because I don't do this at all. How exactly I'd accomplish this task, I have no idea, also would rather not have the grief to be utterly honest. He's got a mortgage he's paying on it, freehold property. The Land Registry accept bitcoin as currency, how exactly the contracts shape up is going to be the major problem.

    1. Tim Seventh

      Re: Anyone know of anyone who specialises in Bitcoin property sales in the UK?

      "Someone has asked me to sell his commecial property for bitcoin, bit of a surprise request because I don't do this at all. How exactly I'd accomplish this task, I have no idea, also would rather not have the grief to be utterly honest. He's got a mortgage he's paying on it, freehold property."

      You could just tell him you'll sell the property, but he has to buy the bitcoin online (on exchange, etc), leaving you out of the mess.

    2. katrinab Silver badge

      Re: Anyone know of anyone who specialises in Bitcoin property sales in the UK?

      No, but given there is a mortgage to be paid off, they will want paying in pounds, and the sale proceeds will need to go through a solicitors' client account. So I don't see how you can do that with bitcoin.

    3. I ain't Spartacus Gold badge

      Re: Anyone know of anyone who specialises in Bitcoin property sales in the UK?

      How do you sell the Bitcoin once you've got them? If you look at the charts online, quite a few exchanges total daily Bitcoin turnover is just a handful of coins. And are any of those exchanges regulated? What if you sell it for Bitcoins and then get ripped off, or it goes wrong? You've then still got to pay that mortgage.

      If the guy wants to invest, surely he sells for sterling cash, then buys the Bitcoins himself.

      It's an insanely risky investment, where you have to understand computer security and backups enough to guard your own wallet when you hold them - while also having to find an exchange that won't suddenly announce that it's been hacked - just after you've turned over £100,000 to them - or all your Bitcoin. Are any of them regulated or audited?

  9. //DLBL SYSRES

    What on earth do you spend crypto currency on? Not seen any supermarkets take it, or any car dealers, or house builders. It all seems rather risky and above all pointless.

    1. I ain't Spartacus Gold badge

      Steam used to. So you could buy games. But they just stopped, as the transaction costs were averaging $20.

      I presume you can also buy drugs still.

    2. Desgrippes

      You can use a card from TenX, Monaco, Centra or others and spend crypto wherever Visa is accepted.

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