“[Bitcoin is] probably rat poison squared”.
– Warren Buffett (Berkshire Hathaway 2018 annual shareholder meeting).
“Cryptocurrencies basically have no value and they don’t produce anything… I don’t own any cryptocurrency and I never will” .
– Warren Buffett (CNBC interview, February 24th 2020)
Where did we go wrong?
Most people who are excited about crypto react to Buffett’s comments with the proverbial “OK, boomer” mentality.
Buffett is old and doesn’t get it. He missed out on Amazon and Google and does not understand technology. Why listen to him when it comes to crypto?
Dismissing one of the greatest investors in history should be done with caution. Instead, it would be better to try to understand Buffett’s comments coming from the point of view of a value investor.
Note: it’s likely no one has ever pitched crypto to Buffett in terms he can easily understand.
Further, we argue that if one were to pitch crypto according to the true nature of the technology, it would become clear that cryptoassets are precisely the type of investments that Buffett could get excited about.
Warren Buffett is a value investor
Much has been written about Warren Buffett’s value-based and long-term investment strategy. A strategy most famously outlined in Benjamin Graham’s book The Intelligent Investor: The Definitive Book on Value Investing.
The value investing premise is easy to understand. Buy stocks that exhibit strong fundamentals and earnings power. Invest in companies with business models that stand the test of time, and thus have the potential for continued growth.
Buffett has never been a fan of investing in gold, or any other non-productive asset. This is based on the reasoning that gold does not generate any income or produce value. It’s price is simply based on what other people are willing to pay for it.
“Cryptocurrency” is a misunderstanding
Our focus at Token Terminal is to showcase that cryptoassets are not speculative, but productive assets that should be valued based on the cash flows they produce. Tokenholders of crypto protocols resemble shareholders in traditional companies — both tokens and shares give their owners financial and governance rights.
For example, Compound can be thought of as an open-source, Internet-native version of Lending Club. Users who use the Compound platform to borrow assets pay interest, which is divided between the lenders and owners of the Compound protocol.
Shifting the narrative from speculation to productivity
All crypto protocols today are comparable to startups in terms of their maturity. Investors base their decisions, not on today’s cash-flows, but the potential for future growth. Still, we think it’s important to change the narrative of tokens being merely speculative assets or currencies. Instead, they should be viewed as ownership shares in Internet-native companies.
Our hypothesis is that the world’s most valuable services will be owned and operated directly on the Internet.
Crypto protocols can be programmed to provide any kind of digital service directly to a global audience — from open financial instruments to computing resources. Protocols that emerge as winners within their respective vertical will become part of the core infrastructure of the Internet.
We think that the narrative about Internet-native companies could have a decent shot at converting Warren to a value-based, long-term HODLer.