Over the past few weeks, Bitcoin’s price has skyrocketed to almost $40,000, yet Warren Buffett continues to oppose the cryptocurrency. His views on the digital currency were made perfectly clear after stating: “I don’t own any cryptocurrency and I never will.”
But why exactly is Buffett not interested? Let’s take a closer look.
Warren Buffett vs the Bitcoin price
When looking to invest in anything, Warren Buffett seeks out something that creates value. Just like gold, Bitcoin doesn’t ‘do’ anything. It doesn’t provide any products or services as a business does. With no underlying fundamentals, It seems to me that the value of Bitcoin is entirely subjective. In other words, the price is driven by what the next person is willing to pay for it.
A more concerning aspect of the cryptocurrency is the lack of regulation. As such, it’s common and perfectly legal to artificially inflate the price of Bitcoin through ‘pump & dump’ schemes. Put simply, this is where a large group of individuals ‘pump’ up hype through publicity after buying a large portion of a cryptocurrency. When it reaches a specific price, they ‘dump’ their position and often crash the price in the process. Such practises are illegal in the stock market.
Investing in undervalued UK shares
Warren Buffett’s net worth today is approximately $86bn. He built his fortune by employing the simple strategy of buying high-quality businesses at low prices. More specifically, looking for stocks whose share price has fallen due to short-term problems but that could recover and thrive over the long term.
When the pandemic struck the UK markets in early 2020, many great businesses saw their share prices slashed. Industries such as travel and entertainment were especially hard hit by the disruptions. However, some stocks whose operations were temporarily impacted have since returned to pre-Covid levels of output. Yet their share prices remain low.
Needless to say, I think there are still plenty of opportunities in 2021 to buy shares in high-quality businesses.
The bottom line: is Warren Buffett right?
Only time will tell whether Warren Buffett’s view of cryptocurrencies is correct. The thought that Bitcoin’s price might keep climbing forever does make it seem very attractive. But it’s a gamble I’m not willing to take. After all, we could be in the middle of a pump & dump scheme right now.
Meanwhile, the UK market remains seriously undervalued, in my opinion. The FTSE 100 continues to trade at pre-Covid levels, despite the vast majority of businesses in the index becoming well adapted to the new environment.
With so many great stocks trading at discounted prices, the opportunities to grow my wealth seem endless. I could, of course, be wrong. The price of Bitcoin might continue to climb higher. But I’d rather stick to a strategy proven to work for decades, than gamble with an intangible asset.