The Flinchum File

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Warren Buffett Is Right

Bitcoin is a solution in search of a problem.  Warren Buffett called  bitcoin a mirage, urging investors to “stay away.”

Railing against the cost, slowness, and open transparency in the international movement of money, bitcoin was one of the original crypto-currencies, which are stateless currencies backed by nothing, not even by bankrupt governments.  They are the ultimate “fiat” currencies, which means they have no value unless someone is willing to accept them as currency.  Just try to buy groceries or a tank of gas with bitcoin.  Amazon will not accept bitcoins.  Yes, they have recently risen dramatically (up 300% this year) in value, but look at the wildly volatile charts.  It is no place for retirement assets.

The total value of crypto-currencies has increased SIXFOLD so far this year.  It reminds me of the tulip bubble in 17th century Holland.

In a world with too many currencies already, why do we need more?  Europe consolidated their myriad currencies into the euro.  Many nations have simply nailed their currency to the dollar, effectively abandoning their own currencies.  If we need more currencies, maybe each city and state should issue its own currency??

Of course, criminals, drug lords, and terrorists love bitcoin, because they can receive value while maintaining their secrecy.  Now, why would I invest in something like that?

Those who believe market value is determined by “supply and demand” assure us that the world cannot be flooded with bitcoin, because there are only 21 million that are possible to “mine” in the internet by complex algorithmic puzzles, and 14 million have already been mined.  Of course, that ignores newer crypto-currencies, like ethereum, ripple, nem, litecoin, dash and other new currencies appearing almost daily.  (Bitcoin’s share of the market dropped from 85% of the crypto-currency market in the first quarter to only 41% now.)

The only plausible business model of crypto-currencies is the blockchain, that secretive ledger that records all transactions without identifying the players.  Again, why would I invest money in
something with no redeeming social value?  I have no desire to own any business for the benefit of criminals, drug lords, and terrorists.

I may be wrong, and crypto-currencies may someday become a legitimate asset class commanding a percentage of a modern portfolio, but that is definitely not today.