(Update Note: Originally the published article described the Bitcoin exposure as “significant”˳ This adjective has been removed, and we’ll leave to to readers to assess the significance of the exposure˳)
Thesis Summary
While Warren Buffett has openly criticized Bitcoin (BTC-USD), he has actually built some exposure in the asset through his stake in a Brazilian “crypto bank”˳ This has become increasingly relevant now that Brazil has actually legalized cryptocurrency as a payment method˳
Banking on Crypto
As of February of this year, it is known that Warren Buffett invested $1 billion in Nubank (NU), which was labelled as a crypto-friendly bank˳ After recent events, calling Nubank crypto-friendly might be an understatement˳
First off, in May, Nubank announced that it would be offering Bitcoin to its customers and that it would also be committing 1% of its portfolio to Bitcoin˳ That means Warren Buffett is exposed to Bitcoin, even if it is indirectly˳ Interestingly, Buffett initiated a position in Nubank just as he exited from positions in traditional financial stocks like Visa, Inc˳ (V) and Mastercard Corporation (MA)
But there is more˳ At the beginning of November, NU introduced Nucoin, its own digital currency˳ For now, Nucoin is being developed with the help of 2000 customers, with the intention of launching officially by 2023˳ Initially, Nucoin will be a way for customers to receive rewards, but it will also trade as any other cryptocurrency does˳
Nubank is clearly committed to the idea of crypto, and this is something an investor like Buffett must have been aware of at the time of investing˳ But is that all he knew?
Yesterday, Brazil, the country where Nubank is based, passed a law making cryptocurrencies a legal payment method˳ This was approved by the Chamber of Deputies of Brazil but still requires the signature of the president˳ It’s important to understand that this doesn’t mean that crypto is legal tender, like in El Salvador, but it is a step in that direction˳
Whether by luck or, more likely, foresight, Buffett has interest in an up-and-coming fintech with crypto exposure which is located in a country of 214 million people that just legalized crypto˳
Do as I say, not as I do
Warren Buffett and Charlie Munger have made themselves a name as value investors guided by fundamentals and cash flow˳ This is the foundation of their publicly traded company Berkshire Hathaway (BRK˳A) (BRK˳B)˳
It’s hard to justify Bitcoin as a value investment, and this is something that Buffett himself has talked about:
“Whether it goes up or down in the next year, or five or 10 years, I don’t know˳ But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said˳ “It’s got a magic to it and people have attached magic to lots of things˳”
Source: Warren Buffett
However, Buffett must see some potential in at least some new financial technologies since he sold “traditional” financial companies in favour of Nubank˳
This is also not the first time Buffett has invested in Brazilian fintech˳ In 2018 he bought 14 million shares, 8% of StoneCo Ltd˳’s (STNE) IPO˳ This is a company that offers similar services to Square (SQ)˳
Also, while Munger has also positioned himself as a cryptocurrency detractor, he did not speak fondly of fiat currencies in this interview with Yahoo Finance˳
“The safe assumption for an investor is that over the next hundred years the (fiat) currency is going to zero˳”
If fiat can’t be trusted either, then what is the solution?
Buy When there is Blood on The Streets
There is definitely wisdom in Buffett’s words, and I am particularly fond of this quote˳
“I will tell you how to become rich˳ Close the doors˳ Be fearful when others are greedy˳ Be greedy when others are fearful˳”
Source: Warren Buffett
The best time to buy stocks is when everyone is too afraid to˳ Big panics lead to generational buying opportunities and this can be applied to Bitcoin too˳ In the 13 years since its inception, Bitcoin has given investors a lot of reasons to panic but has so far never failed to recover˳
Bitcoin has suffered three episodes of +80% drawdowns, which is where we sit now, roughly 74% below the recent peak˳ The next rally could be very close, and if history is any indication, we should easily be looking at triple-digit returns˳
Final Thoughts
Bitcoin has been dead many times before, and this time is no different in my opinion˳ In the grand scheme of things, today’s prices offer a great opportunity to buy˳ Of course, there are always other things to consider, which is why I provide regular analysis on Bitcoin and the crypto markets for my subscribers˳ With the right approach, you can enjoy the massive gains of Bitcoin while also limiting your risk exposure˳