Why Warren Buffett is wrong – The eternal dispute between speculation and investment in the crypto ecosystem

Without a doubt, Warren Buffett is an outstanding investor who is rightly regarded as a luminary of value investing. His credo: “Invest only in things you understand”. With this promising slogan in mind, Warren Buffett’s investments have performed well for decades. This investment strategy brings many advantages, but is disadvantageous when it comes to new technologies that have yet to be explored. Since Buffett has no special technical know-how, he had already overslept investments in the large Internet companies. For example, it was only in 2008 that he invested in an IBM that was already very well established at the time.

Even several years later nothing seems to have changed in Warren Buffett’s investment behaviour. Since he openly admits not to understand blockchain and crypto currencies, he does not invest in them either. An absolutely consistent and legitimate attitude – who can claim to have fully penetrated the crypto economy?

Warren Buffett’s contradictions about the Bitcoin loophole

It only becomes contradictory when you still think you can judge a new market or a new technology. Buffett had already stated in an interview at the beginning of the year that crypto currencies will have a bad ending. Also in a current interview two days ago Buffett did not leave good hair at crypto currencies and stressed that these would be suitable at best as speculation object for gamblers – he basically denied an investment case for Bitcoin loophole crypto currencies.

Apart from the unfounded thesis that crypto currencies will have a bad end, the question arises as to how far Warren Buffett is right and crypto currencies are only suitable for speculation and not for investment. If one looks at the crypto exchanges and the overheating phenomena at the end of 2017, then it is quite obvious that Warren Buffett is right with his statements – all speculation.

More than just speculating: Why investments in the news spy market are possible

If, on the other hand, you take a closer look at the technology, Buffet’s assertion quickly cracks. According to Buffet, an investment is characterised by the news spy fact that the investor can generate a return from “production”. On a farm it is apples and potatoes that can be sold for money. In the case of a rented apartment, it is the rental income that is generated. And in the news spy company it is the profits from the sale of goods and services. But what is produced in the crypto economy?

If you look at crypto currencies such as Bitcoin or Monero, which serve as pure payment and value retention instruments, then according to Warren Buffett these are just as little investment objects as foreign exchange or gold. But what if a blockchain protocol produces the services that a company would otherwise earn? After all, according to Buffett’s definition one can very well invest in a service company, so the question arises why this cannot be the case with block chain platforms or utility tokens?

It’s about more than just crypto exchanges
A block-chain network can also be productive: more and more users (consumers) can be won over, services can be exchanged and developed, and profits can be distributed to the relevant actors via tokens – just like in a company, but decentralized. The fact that in reality there are hardly any commercial crypto-use cases that fall under Warren Buffett’s investment definition does not mean that investments in the crypto-economy are not possible. Those who invest in shares of companies may as well invest in tokens of blockchain start-ups.

Consequently, Buffett confuses the current situation on the crypto market, which is primarily speculatively driven, with the basic investment opportunities offered by the crypto ecosystem, unlike foreign exchange or commodities. Warren Buffett also ignores the possibility of tokenization, which is slowly taking hold of the crypto market. Via tokenized assets, in the sense of digital placeholders, one can finally invest in an apartment, an agricultural business, a ship or whatever that yields a return. It may not be the current impression, but the functionality of crypto currencies is not reduced to exchange trading, as Buffet assumes.

In short, the sharpness of the distinction between investment and speculation is less clear in the crypto economy than Warren Buffett claims. Even though Buffett may doubt the meaning of crypto currencies, investments in the