Warren Buffett, the famous investor and chairman of Berkshire Hathaway, celebrated his 93rd birthday on August 30. Throughout his long career, he has remained steadfast in his commitment to a value investing strategy, similar to the “buy and hold” approach commonly used in cryptocurrencies.
However, Buffett focuses on assets with strong profit potential. It is also defined as investing in companies and sectors with a deep understanding of competition and advantages. Buffett or Bitcoin?
The real question is whether this strategy can outperform Bitcoin in the long run, given its reputation. In addition, investors should ask why one of the greatest stock pickers of all time currently holds cash and short-term bonds as the second-largest position in his portfolio.
An interesting example of this approach is Berkshire Hathaway’s largest holding, Apple (AAPL) shares. The company initially purchased these shares in early 2016 when the company was valued at over $500 billion, making it far from an early investor.
Notably, Berkshire Hathaway continued to increase its investment in Apple in 2022, even though Apple stock has risen more than 500% since the initial purchase. This shows that Buffett is committed to a long-term investment strategy regardless of recent price movements.
Buffett's opinion on Bitcoin
In a shareholder letter dated February 2012, Berkshire Hathaway expressed concerns about the debasement of fiat currencies and discussed the limitations of gold as a store of value. They argued that gold had no practical use, that industrial and jewelry demand lagged behind production, and that its price was largely driven by fear-based sentiment, resulting in only temporary price increases.
In contrast, investments in productive companies provide attractive dividends and returns. Berkshire Hathaway also said that whether the future currency is based on gold, shells, or paper, people will always be willing to exchange a portion of their income for goods and services.
Unfortunately, in the 12 months after Buffett criticized unproductive commodities as a store of value, the price of Bitcoin increased by 683%. Moreover, in a 4-year period, Bitcoin gained a staggering 9,014%.
To compare the performance of Berkshire Hathaway's holdings to Bitcoin, Berkshire Hathaway's stock performance was simulated using a leveraged position using 3 factors, given Buffett's focus on earnings and returns, which are fundamentally different from the characteristics of commodities such as gold or Bitcoin.
If one had invested $1,000 in Bitcoin (spot) at the beginning of 2019 and established a leveraged long position in Berkshire Hathaway shares, they would have made a return of $7,020 in 2019. BTC Buffett’s holdings, by comparison, would have been $5,623. Similarly, for an investment begun in 2017, a leveraged long strategy using Berkshire Hathaway shares would have resulted in a gain of $3,798 in BTC instead of $1,998.
Warren Buffett's Investing and Bitcoin
It may be important to keep an eye on a potential gap in Buffett's investment thesis. Berkshire Hathaway currently holds a record $147 billion in cash and short-term investments, which represents 18.5% of the company's total market value. This makes one wonder if they are waiting for a better entry point in their selected stocks or if they feel satisfied with the 5.25% return on their fixed income investments.
The situation suggests that even the most successful stock investors may have reservations about deploying their cash. In addition, some funds currently on the sidelines, including $5.6 billion in money market funds, raise questions about whether they will seek other forms of protection if inflation rises again.
Bitcoin may not be a perfect store of value, and price volatility is always a concern. However, it should be acknowledged that Bitcoin has not yet faced a global economic downturn, so it is too early to draw a definitive conclusion.
Additionally, Bitcoin has consistently outperformed Berkshire Hathaway stock, suggesting that investors are increasingly viewing Bitcoin as a viable alternative store of value.
In light of this, Berkshire Hathaway's massive cash position is a potential warning to those skeptical of Bitcoin. The Bitcoin market is currently valued at $500 billion, a sign of the vast and untapped potential of the financial world.
