Why Warren Buffett, Bill Gates and Elon Musk are all wrong about Bitcoin.

If you want to learn to invest in successful businesses watch Buffett, operative systems or philanthropy (but not pandemic), Gates, and reusable rockets and electric cars, Musk. But if you want to invest in crypto, better go and research yourself.

9 min readMay 31, 2021

There is a problem with well-intentioned successful people: Christ Syndrome (1). Some of them think they have the duty to save us from ourselves. It would be fine if they were right. But then it comes the second issue: the obvious but wrong solution. Of this, the entire humanity suffers, and success is not a cure. The obvious but wrong solution surges when people are confronted with extremely difficult questions wrapped in a simple narrative or idea. There are thousands of examples. Some of them have driven people, groups of people, even entire nations, into spectacular failures. It happens all the time; it is happening now. The damages are high, in lives and capital. In this article, I will concentrate on just one case: the ideas about money, particularly about disruptive money like Bitcoin. Money seems to be simple, anybody can own it, spend it, save it and even touch it, in case of normal money. Difficult to understand is money dynamics because it involves human value dynamics, which represents a volatility paradigm, please see my previous article (2). Is natural to think that extremely successful people accumulating money, like Buffett, Gates, and Musk, have something useful to say about it. The issue is; nobody understands really money, even less a new “hacked” money. Each of them, in their well-intentioned advice about Bitcoin, commit errors because they are out of their expertise field. They assume an obvious but wrong solution about the Bitcoin idea. It is worth examining each of them separately.

The obvious but wrong solution surges when people are confronted with extremely difficult questions wrapped in a simple narrative or idea.

Warren Buffett’s Criticism on Bitcoin.

In many viralized videos (3), Warren Buffett expresses his concerns about Bitcoin and advice not to make any inversion related to any cryptocurrency. His opinion is based on successful deals through many years in productive enterprises. According to him, Bitcoin in the best case is just a value carrier. He compares it to a farm acquisition. If somebody buys a good farm, he can expect each year an income due to the produced goods. This is not Bitcoin’s case, which produces nothing, like gold. Peoples who buy Bitcoins do it in the belief that somebody else, the greater fool, will buy them in the future at a higher price. Therefore, Bitcoin should be nothing more than a bubble that sooner or later will explode, hurting many people. In this sense, it was compared many times with the Tulip mania (4). Warren Buffett is right; Bitcoin produces nothing, but just in the usual sense of value. The value of a farm is sound as long as the surrounding infrastructure stands; a market that buys the farm’s products, a network of suppliers, and a community of potential workers. Those conditions are closely related to the same conditions that give a meta-value to the farm’s country currency: banking system, judicial system, and commercial network (2). A farm buyer is giving a confidence vote in the farm’s country and currency. A good farm is a low volatile asset associated with a country, and therefore with their political and social issues. Bitcoin is a highly volatile asset associated with no country and therefore with no political system. Bitcoin is a bubble, but any fast-growing asset is also. One needs to wait until the bubble explodes, if the asset dies for good, then it was a real bubble full of vacuum, if it recovers, it was a false bubble full of real value which outgrew the momentary expectations. Bitcoin has burst many times, just to recover stronger than before. Tulips couldn’t survive the bubble burst because it is limited the value any human can deposit in a tulip. Bitcoin’s price is proportional to the adoption and therefore its value grows non-linearly with it, completely in opposition with tulips on which just the uncertainty grows with the price. Buffett is right about Gold, which is a bad inversion on the long stand. The problem with Buffett is he never experienced living in a country with hyperinflation. In those countries, a gold inversion is an excellent one, as well as a Bitcoin inversion. Bitcoin’s high volatility is caused by the collision of the old Fiat currency and the new free of attachments cryptocurrency. This is the same that happens in a hyper-inflationary country, but there the local currency has no chance against an stable dollar for example. In Bitcoin’s case, Bitcoin is a better currency than the dollar, but the dollar is good currency on its own, this generates the huge changes in the relative value. Humanity never has experienced this kind of transition. Therefore persons like Buffett can’t have accumulated knowledge on it. He doesn’t need to prove anything, his method is sound and works, why would he even think about trying out something new and potentially dangerous as Bitcoin. He gives the only possible answer according to his experience, and he is wrong about, but can’t help on it.

A good farm is a low volatile asset associated with a country, and therefore with their political and social issues. Bitcoin is a highly volatile asset associated to no country and therefore to no political system.

Bill Gates opinion.

It is difficult to judge Bill Gates’s opinion about Bitcoin. During the years, he has shown a neutral to a negative tendency on it (5). He usually praises Blockchain technology but criticizes Bitcoin itself. When he is in an interview alone, tends to be more neutral, but in the company of Buffett or Monger, he likes to agree with them and becomes more critical. It seems, he seeks to be good with God and the devil, because he would dislike being criticized after an eventual worldwide economy overtaken by cryptocurrencies. He denies this last possibility with an argument he repeats frequently: the world’s biggest economies would stop somehow or simply forbid the further development of Bitcoin or any other crypto, once they realize it is a threat for the monetary control they exert with their Fiat currencies on the global economy. This is again another case of the obvious but wrong solution. The reason is subtle: Bitcoin seems to be inoffensive until it is too late, and it seems it is too late already. The problem (or blessing, depending on the viewpoint) was that 12 years ago, nobody (except Satoshi Nakamoto perhaps) understood money’s real essence (2). Good money is just a universally accessible ledger wrapped in inviolable trust. After normal money’s discovery by necessity, it took humanity several thousand years to discover this. But now, millions know that is possible and quite easy to replicate. Already, there are many hundreds of them. Some are just insignificant copycats, but there are several heavy contenders, therefore even if somebody discovers how to kill Bitcoin, it would be a Pyrrhic victory as someone would discover how to build a new and resilient version. But even killing Bitcoin is extremely difficult or impossible because entire nations are using it as a way to escape US sanctions. Paradoxically, they are digging their own grave, as Bitcoin is humanity’s best discovery against any tyranny.

The problem (or blessing, depending on the viewpoint) was that 12 years ago, nobody (except Satoshi Nakamoto perhaps) understood money’s real essence (2). Good money is just a universally accessible ledger wrapped in inviolable trust.

Elon Musk’s shame.

I must confess, am a fan of Elon. I like Space X, Tesla, Solar City, Boring Company, Neuralink, Starlink, etc. I watched many of his interviews on YouTube and followed his Instagram, Facebook, and Twitter, and totally agree with Mars colonization. Until he started to criticize Bitcoin wrongly. How can he be wrong, if he is definitively against Global Warming (as I am), made a trend from the gas to EV transition with his Tesla company, and “suddenly” discovers the “outrageous” worldwide power consumption made by the Bitcoin miners? Well, this shows that nobody is perfect, not even Elon Musk. Or it is maybe lack of time? The fact is: any currency, crypto or fiat, needs a huge trust system (2). The case of Bitcoin consists of the worldwide network of miners. In case of Dollar is made of the US bank system, judicial system, and commercial network. Just the US bank system consumes more energy than the Bitcoin network (6), but those numbers are only the tip of the iceberg. The electricity used directly by the banking system doesn’t reflect the reality behind the dollar’s trust-enhancing structure. For example, US citizens produce at least 20 times more Carbon Dioxide than Africans (7)(it depends on the country, the quotient could be over 100 for example with Sierra Leone or the Democratic Republic of Congo). The issue is; the banking system is embedded in the society and therefore is difficult to differentiate which part of the population is producing a relatively big carbon footprint as a consequence of being a pivotal part of the local currency. In any case, the last reflection only hints toward the idea that the real carbon footprint of the dollar is far greater than the reported in reference (6), which is already favorable to Bitcoin. Besides, all the big world currencies Dollar, Euro, Yuan, etc, are not anymore restricted to their geographical origin but instead are used elsewhere, making the goal of calculating their carbon footprint even harder and certainly bigger than the previous one. As Bitcoin’s carbon footprint is well delimited; it is eventually perfectible, which is not the case of normal currencies, which trust system is diluted in the society . Elon Musk just noticed the apparently huge electricity consumption of the Bitcoin’s network, without considering the same problem in the established currencies, again a case of obvious but wrong solution.

The fact is: any currency, crypto or fiat, needs a huge trust system (2). In case of Bitcoin consist in the world wide network of miners. In case of Dollar is made of the US bank system, judicial system and commercial network.

Scapegoats

There is a narrative in popunist countries (a joint venture between populism and communism that ensembles in one doctrine the worst of both) about the origin of inflation (which is usually endemic there): that it is caused by greedy businessmen who try to maximize they winnings “beyond any conceivable moral”. I really don’t want to deepen now in how stupid this concept is, just to remark one point: No businessman put a gun in their client’s head and obliges them to buy his merchandise. The problem is the clients have no better choice but to buy the expensive item because of a scarcity of alternatives in the market. The businessman is usually just offering the best price he can. Neither I want to relate the reason the scarcity happens, I just want to show the scapegoat role the businessmen play in this story. If you go and sell off all your positions in crypto because one day Elon Musk decided wrongly that Bitcoin consumes too much electricity, just to realize a week later that the market rebound, who is to blame? You or Elon Musk? The quest for scapegoats signals clearly the result of an obvious but wrong solution: To suppose that billionaires, just because they are billionaires, have a better idea about anything than experts. Musk, Buffet, and Gates have the right to say whatever they like, bad or wrong, well-intentioned or not, the point is whether we pay attention, if we confer value to it. The freedom we all should defend includes the right of the businessman to sell his products at the price he wishes or the right of anyone to have his opinion about anything (as long as it is no libel). The price of freedom is the responsibility of our decisions and assume them even when they go bad. By the way, if you look at the trading indicator MACD at one day scale (8), in Bitcoin vs. USD or Ether vs. USD, it shows a clear maximum at May 12, so the price was about to fall with or without Elon Musk’s tweet. Was he aware and tweeted on May 13 purposely in order to gain notoriety? I consider conspiracy theories just another form of an obvious but wrong solution, however, for those of you who like them, read about it here (9). Finally, my advice is: think, think and think again, and if you fail, learn and try a second time, but don’t look after scapegoats.

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