Former Facebook Inc. (FB) executive and venture capitalist Chamath Palihapitiya came to bitcoin’s defense after scathing criticism for the cryptocurrency by legendary investor Warren Buffett and Microsoft Corp. (MSFT) founder Bill Gates earlier this week. In a CNBC interview, Palihapitiya likened bitcoin to buying insurance against a financial crisis similar to the one that plagued markets in 2007. “It is a non-correlated hedge [to the stock market],” he said.
Monday’s tirade against bitcoin by Buffett and Gates had halted its march toward $10,000 and resulted in a significant drop in its price. But a slew of positive news, including announcement of a new crypto index and Palihapitiya’s vote of confidence, this morning helped it regain some lost ground. At 17:04 UTC, the cryptocurrency was trading at $9,275.62, up 1.6% from its price 24 hours ago. That figure also represents a climb of roughly 3% for bitcoin’s price from this morning.
A Case of Circle of Competence
During his conversation, Palihapitiya cited Buffett’s theory of sticking to one’s “circle of competence” as a possible reason that the legendary investor himself might be wrong. “It’s been clear in his entire investing career that technology is not in his circle of competence,” he said, referencing Buffett’s earlier investment in International Business Machines Corp. (IBM), a stock which reported 22 quarters of losses before returning to growth earlier this year.
Social Capital, the venture capital firm co-founded by Palihapitiya, is based in Silicon Valley, a hotbed for innovation in cryptocurrencies. According to him, a “passport” is required to navigate the divergence in thinking about cryptocurrencies between regular investors and bitcoin believers. “These are not the same people,” he said. Detailing strategy for his own portfolio, Palihapitiya said he was 99% risk on and 1% risk off. “In that 1% risk off bucket, bitcoin is really important because it is not correlated to the rest of the market,” he said.
During the cryptocurrency’s spectacular run-up in December last year, Palihapitiya had predicted a $100,000 target for the cryptocurrency within the “next three to four years” and a $1 million price target for it in the next 20 years. He revealed that his average purchase price for bitcoin was $100 and claimed to have held 5% of all bitcoin in existence at one point in 2013.
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