Warren Buffett's Cryptocurrency Prediction Is Grim

Crypto tokens have been around since the mid-2000s, when Bitcoin entered the conversation as a decentralized fiscal commodity. Surprisingly, in all that time, the legendary investor Warren Buffett hasn't commented too often on them, though his negative stance is all-too-clear — you can't get less ambiguous than calling cryptocurrencies "probably rat poison squared" as he once did. 

What does he think their long-term outlook is, though? Well, per a CNBC interview in 2018, his forecast is dire. "In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending," Buffett stated. In the same interview, he added, "If I could buy a five year put on every one of the cryptocurrencies, I'd be glad to do it [...]"

Puts, for those who don't wade into the options market, is a contract that allows an owner the ability to sell a holding for today's price at a later date. What this means is that Buffett envisions cratering value among the entire marketplace, although he didn't suggest that his research specifically pointed to an actual time horizon on his predictions. The trouble for Buffett largely comes down to the underlying reality of what cryptocurrencies are. Rather than a thing that derives value from a real-world, tangible asset, cryptocurrencies are a mental framework. Collectively, cryptocurrency traders give these tokens their worth by exchanging them. There's no explicit value in any of these tools (though to be fair, you could actually say this about the dollar, too, since it's no longer pegged to gold).

Buffett is a research-driven investor: When hype, speculation, and belief come together to form the entirety of an asset's value, it's impossible to definitively examine the tool.

It's important to understand where Warren Buffett is coming from, especially if you're someone who is thinking about investing in cryptocurrencies. Buffett's ideal time horizon is forever. He frequently buys assets with no plans to ever sell them. Berkshire Hathaway bought two lots of American Express shares in the 1990s, and the position has remained unchanged since. His advice for those seeking to manage tariff instability is to buy and hold, waiting out volatility by allowing the market to simply continue moving along its long-trending trajectory. Buffett employs substantial thinking and research when selecting investments, but his method for managing existing positions is simplified to the point of near-nonexistence.

Buffett's approach looks to the very distant horizon, and his decisions are informed by that timeline, even as an old man. Cryptocurrency is a short-term game. With value that's not pegged to a business that produces something, or a physical asset that can ebb and flow in scarcity, cryptocurrency is almost pure speculation. With the benefit of hindsight, this is an asset nearly purpose-built for day trading and high velocity movement. But that volatility makes it a very risky asset. Companies can suddenly implode, sure, but they're dramatically unlikely to experience this without significant internal rot. Cryptocurrencies, on the other hand, could be regulated out of existence tomorrow, or the power could suddenly snap off, or investors could just abandon the project on a whim. There's nothing keeping it afloat other than interest, hype, and a wild west mentality. So if you're taking money tips and tricks from Buffett, avoid crypto like ... well, rat poison.