Buffett’s remark comes on top of his comment last week that denigrated bitcoin as an investment class. He compared bitcoin investment akin to gambling as no one knows exactly what it is. According to the widely followed investor, cryptocurrencies don’t produce anything; rather they simply bank on the speculations that the next guy will pay a higher amount for them. With zero clarity about the business fundamentals and no visible indicators behind the valuation of such cryptocurrencies, the price moves simply depend upon the temporary phases of speculative demand and supply that leads to high-magnitude price fluctuations. Such high volatility does not qualify cryptocurrencies like bitcoin as an asset class. (See also: Warren Buffett Says Buying Bitcoin Isn't Investing.)
Buffett’s Long-Running Bitcoin Critique Continues
Buffett has been regularly advising against investing in bitcoin and other virtual tokens. Last October, when bitcoin was set to commence its upward move to the crest of above $19,000, he had then called it as a "real bubble," reports CoinDesk. Clarifying his stand against cryptocurrencies, he had then said that "If I could buy a five-year put (option) on every one of the cryptocurrencies, I'd be glad to do it, but I would never short a dime's worth." A put option provides profits when the price of an asset goes down.
After touching the peak value in December, when the bitcoin started its downhill move in January toward the low of $6,800, he called that “the recent craze over bitcoin and other cryptocurrencies won't end well.” (See also: Buffett: Cryptocurrency Will Come to a Bad End.)
Another prominent figure, Charlie Munger, the vice chairman of Berkshire Hathaway and long-time Buffett collaborator, echoed the sentiment by saying that trading in cryptocurrencies is "just dementia."
There are growing concerns around wide swings in prices of cryptocurrencies. Additionally, there have been regulatory crackdowns on the working of cryptocurrencies and associated entities like exchange and participants across the globe. In America, there are possibilities of backdated tax liabilities for individuals who have dealt in and profited from bitcoin and other cryptocurrencies over the past years. (See also: How Cryptocurrency Taxes Affect Bitcoin Price.)
Bitcoin was trading at $9,363, down more than 2% on Monday afternoon, Eastern time.
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.