Yesterday, Berkshire Hathaway, the temple of 20th century industrial capitalism, led by “the Oracle of Omaha” himself, Warren Buffett, invested in the largest “neobank” in Latin America. Brazil’s Nubank has some (very) indirect exposure to cryptocurrency, which caused a stir given Buffett’s long-time aversion to all things crypto and blockchain. Has Buffett, a man known for eating the same McDonald’s breakfast every day, changed his mind?
It would be a very big deal indeed if he did. Berkshire Hathaway is one of the most profitable corporations ever. Buffett’s investment thesis is taught in business schools around the world. Lehman Brothers asked Buffett for a bailout in 2008 – before imploding (he declined). And so far he has stayed at arms length from bitcoin, famously calling the digital asset “rat poison, squared.” A reversal, even just a softer view, would be great for validation.
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But some stories are too good to be true. To start, this isn’t even the first investment Berkshire made in Nubank – it took a $500 million stake a few months before the company went public in December 2021. And while the bank does offer roundabout bitcoin exposure through its investment arm, at this point it just looks like a single BTC exchange-traded fund (ETF).
Buffett’s right hand man, Berkshire Vice President Charlie Munger, did the press rounds yesterday afternoon to clear the air. At a Daily Journal conference in Los Angeles, Munger reiterated the famed financial duo’s hatred of crypto. "I certainly didn't invest in crypto. I'm proud of the fact that I avoided it. It's like some venereal disease,” he told Yahoo Finance Editor-in-Chief Andy Serwer.
That said, in the same interview, Munger suggested that although he wished crypto had “never been invented” or was regulated out of existence it’s likely to stick around for the long haul. “We can't do much about it, so we spend our time on the matters we can do something about,” he said. (He did say, if he were the “benign dictator of the world,” he’d make it “infeasible” to make short-term profits from securities.)
This gets at something much deeper and much more interesting about the state of the crypto markets. Crypto, the great disrupter, is increasingly embedded within the financial system. Over the past two-plus years, more than a handful of formerly skeptical institutions have begun rolling out crypto services. JPMorgan offers crypto to wealthy investors, despite CEO Jamie Dimon’s deep skepticism. Its competitors have similar offerings. Billionaire investors, like Munger and Buffett’s peer Ray Dalio, discuss bitcoin as a potential inflation hedge.
Munger said the asset class is nothing more than “heavily promotional capitalism.” But it’s also an industry that, whether you like or not, people can no longer avoid. Even though Nubank is not a “crypto” firm, it’s likely to increasingly take on exposure to the region’s blockchain industry. The Association for Private Capital Investment in Latin America found that crypto-related venture spending increased tenfold in 2021 compared to the year before. Two of Latin America’s latest unicorns, or private firms with at least a $1 billion valuation, Mercado Bitcoin and Bitso, are crypto exchanges.
There’s money to be made in the crypto industry, in part by disrupting the very industries and practices that made Berkshire Hathaway so profitable. But that doesn’t necessarily mean crypto is incommensurate with Buffett’s “value investing” tenets. You don’t even need “dog tokens” to finance a real-world monstrosity like the “Munger dorm.” Crypto, like any market, would basically go to bed with anyone. Whether that makes it a “speculative orgy,” as Munger said, or a going concern is an open question.
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