Warren Buffet famously has said that he would not buy all the Bitcoin in the world for $25 if he was offered to do so. And you probably think he is crazy for not doing so. I know I initially did. But as I thought more on it I think he is correct. Let me try and explain why.

What Warren is actually saying

If you watched the clip where Warren Buffet famously said the now infamous quote about not wanting to buy all the Bitcoin in the world for $25. He then goes on to explain why. It is because Bitcoin in info itself is not producing anything. It does not have any intrinsic value. An intrinsic value in finance is used to calculate something's "true worth". You can say it is the maximum value at which you can buy the asset, without making a loss in the future when you sell it.

If you want to view the whole video for yourself you can see it here

And because Bitcoin does not produce anything of value, unlike let us say farmland, apartment, or stocks. This means that the highest you can pay for a Bitcoin, and be certain you will not make a loss when you later sell it is $0. Farmland will produce food, apartments will produce rent and stock will give evidence to its owners. But Bitcoin will not give its owner anything.

What would happen if you owned all the Bitcoin in the world?

Let us now take a look at this. What Bitcoin did that was revolutionary was it allowed people to transfer wealth between themselves without including a third party like a Bank. But after Bitcoin's introduction to the world, a myriad of other Blockchains have popped up. And they all offer the same core feature as Bitcoin. 

If you then now waved a magic wand and removed all Bitcoins. This would not have any effect whatsoever. People would still be able to transfer wealth between them using any of the other Blockchains. And that is basically Bitcoins only feature or use it offers. Other than the novelty of being first. But that has no value in info itself.

If you ... owned all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it -Warren Buffett

So if I got all the Bitcoins in the world, it would be the same thing as if they did not exist. People could still use other Blockchains, and all dApps and DEX and CEX would be virtually unaffected. As Bitcoin is not central to any of their existence.

But what about the miners?

Yes, indeed, what about the miners. If one person holds all the Bitcoin or Bitcoin no longer existed. It would virtually be the same thing for the miners. It would be the same as if people stopped using it. The miners only exist for two reasons, well one reason is if you want to be technical. To verify the transaction on the Blockchain. And in the case of one person having all Bitcoins or Bitcoin no longer existing or people stopped using it. It would virtually be the same scenario for the miners. There would be no transactions to verify. So they would either stop mining altogether or move on to mining something else. 

To an extent, I agree with Warren

I agree with Warren that most Coins and Tokens do not offer an intrinsic value to their holders. There are however a few projects that are trying to change this. And with that bring a real tangible value to their holders. And in that sense, it would be as if those Coins or Tokens were shares or bonds. 

Do I think that all crypto projects need to be like this, no far from it. But I do think we need to have way more than we currently have. I see them serving two purposes. One is the opportunity for people like Warren Buffett to now invest their money into crypto. More money in crypto I would argue is a good thing for the whole ecosystem.

The second is without having any intrinsic value on any crypto project. The crypto ecosystem could be targeted by speculators trying to profit from bursting what they see as a bubble. 

Because without any intrinsic value, if we are being honest there are only two things giving any value to a crypto project. Those are the ability to transfer money in a per-to-pear way. And while Warren Buffett sees no value in that a lot of people do. Me being one of them. The second part is the reason so many are calling crypto a bubble. And that is the speculative value associated with the project. As long as more and more people are getting into crypto it will keep growing. But when that stops. The speculative value will go away overnight. And that could very well cause the biggest financial crash the world has seen.

If you want to see an example of what it can look like when you remove the speculative value from something overnight. Then all we need to do is look at Netflix and its stock value.

Netflix stock dropped ~35% of its value on April 19 this year just after its Q1 report was made public

On April 19th this year, Netflix posted its Q1 report. And in it, they showed a slight drop in their subscriber numbers. Al while their earnings numbers were basically on target with the expectation. This caused an instant drop of around 35% in their stock price. And why this. Well, it was because of speculation.

For the longest time, the model that was used to evaluate streaming services was that there were around 1 billion customers. But now with Netflix showing a drop in subscribers, and an increase in cost for recruiting new subscribers. This caused a shift in the model. Now the new target was around 500 million subscribers. And this removed a lot of speculative value from Netflix. 

Unless we want to risk all f it coming crashing down all at once. Then we need to get some intrinsic value associated with crypto projects. Not all of them but enough of them that we can prevent such a crash from happening. And I think non of us, well except maybe Do Kwon, do not want another crash to happen.

Do you agree with me or do you think I am way off base here and far into fantasy land? Please share your thoughts on this subject in the comment section down below.

If you would like to support me and the content I make, please consider following me, reading my other posts, or why not do both instead. You can find my other posts here and here. 

I have also just started a new series of weekly posts, that will go live every Friday. You can catch the fifth step here:

How playing board games has helped me with crypto - My Journey to Financial Freedom

See you on the interwebs!

Picture provided by: https://pixabay.com/