Cryptocurrencies

Core Definition

Warren Buffett and Charlie Munger hold a notoriously skeptical and deeply negative view of cryptocurrencies (specifically Bitcoin). They categorize cryptocurrencies as the ultimate non-productive asset—an asset that produces nothing, has no earnings, and relies entirely on the "Greater Fool Theory" (the hope that someone else will pay more for it in the future).

"Rat Poison Squared"

At the 2018 Annual Meeting, Buffett delivered his most famous and scathing critique of Bitcoin. When asked to clarify a previous comment where he called Bitcoin "rat poison," Buffett famously upgraded his assessment:

"It's probably rat poison squared." — Warren Buffett, 2018 Meeting

Munger followed up with an equally brutal assessment:

"To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out." — Charlie Munger, 2018 Meeting

The Philosophical Objection

Buffett's objection to cryptocurrencies is rooted in his fundamental definition of investing versus speculation:

1. Productive Assets (Investing): You buy a farm because you expect it to produce corn. You buy a business because you expect it to produce cash flow. The asset has intrinsic value based on what it produces.
2. Non-Productive Assets (Speculation): You buy an asset that produces nothing (like gold or Bitcoin), entirely dependent on the expectation that someone else will want it more in the future.

Furthermore, Buffett noted that cryptocurrencies draw in "charlatans" and prey on people's hopes of getting rich quick without doing any real work. He considers it a massive speculative bubble that creates no societal value and ends up causing significant harm to unsophisticated investors.

The $25 Farmland Test (2022)

At the 2022 Meeting, Buffett offered his most analytically precise statement on Bitcoin — not as rhetoric, but as a clean test of what "value" means:

"If you told me you owned all of the bitcoin in the world, and you offered it to me for $25, I wouldn't take it. Because what would I do with it?"

The contrast:

• All U.S. farmland for $25B: Buffett would write the check immediately. Farmland produces food — it has a yield independent of what the next buyer thinks.
• All U.S. apartment buildings for $25B: Same. Apartments produce rent.
• All Bitcoin for $25: No. Bitcoin produces nothing. Its only value depends on selling it back to someone else at a higher price.

This is not a psychological objection — it is a definition of the word "asset." An asset is something that generates value for its owner independent of future sale. Bitcoin fails this test completely. It is a token whose value is entirely a function of the next buyer's enthusiasm.

Buffett acknowledged that Bitcoin has "a magic to it" and that people have attached magic to many things throughout history. But magic is not a productive yield. The aggregate "gains" of all Bitcoin holders are simply money transferred from late entrants to early entrants, minus the frictional costs extracted by the ecosystem (miners, exchanges, advisers). No new wealth is created.

Munger's Three-Part Indictment (2022)

Munger's formulation at the 2022 Meeting was more categorical than any prior year:

"In my life I try and avoid things that are stupid and evil and make me look bad in comparison with somebody else. And bitcoin does all three."

1. Stupid: It is "very likely to go to zero" — a non-productive asset with no earnings floor has no fundamental support level.
2. Evil: It "undermines the Federal Reserve system and the national currency system, which we desperately need to maintain its integrity." A functioning civilization requires a trusted medium of exchange. Bitcoin's design is explicitly adversarial to sovereign monetary control.
3. Embarrassing: "It makes us look foolish compared to the communist leader in China. He was smart enough to ban bitcoin in China, and with all of our presumed advantages of civilization — we are a lot dumber than the communist leader in China."

🔗 Connections

• Related Concepts: The Three Categories of Assets, Intrinsic Value, The Market as a Casino
• Sources: 2018 Meeting, 2022 Meeting