The digital asset industry has marked an impressive year so far as many cryptocurrencies painted all-time high prices. Numerous experts and public figures showed their support, highlighting the merits of the asset class, while global institutions started diversifying their portfolios with bitcoin or some alternative coins.
Yet, Charlie Munger – Warren Buffett’s right-hand man – reiterated his skepticism once again recently by indicating that the hype around them is “crazier than the dot-com bubble two decades ago.” Furthermore, he vowed never to invest in the crypto market.
Why Is Munger Wrong about Crypto?
In a recent interview for the Sydney Herald, the 97-year-old Charlie Munger once again revealed he has no plans to enter the cryptocurrency market. To him, the craze generated around bitcoin, ether, and the rest is much similar to the Internet bubble between 1995-2000. Back then, investors rushed to pump money into Internet-based startups, hoping that these fledgling companies would soon turn a profit:
“I think the dot-com boom was crazier in terms of valuations than even what we have now. But overall, I consider this era even crazier than the dot-com era.”
The firms involved in the Internet bubble were indeed a target of mass attention, and many people invested more than they could afford at the time.
However, some organizations such as Amazon and eBay managed to overcome the subsequent bubble burst and now stand as giants in their field with millions of clients worldwide and a stable structure. Interestingly, SkyBridge Capital’s Anthony Scaramucci recently compared bitcoin to Amazon, predicting a similar success story for the primary cryptocurrency.
It’s also worth noting that the company Munger spearheads alongside Buffett famously missed on investing early in both Amazon and Google – some of the biggest corporations in the world and, famously, part of the dot-com bubble times.
Munger – the Vice-Chairman of Warren Buffett’s Berkshire Hathaway – went even further in his latest bashing fest, wishing the asset class “had never been invented.”
Cryptocurrencies, though, are seen by many as financial instruments against rising inflation, such as the one which the COVID-19 pandemic and the subsequent mass printing of fiat currencies caused. Currently, the inflation rate in the US stands at around 6%, which means that investors holding to their dollars will lose some of their buying capacity in the near future.
On the other hand, bitcoin has a predetermined number of coins ever to exist of 21 million. Thus, many legacy investors allocated funds to it to fight the growing inflation. Paul Tudor Jones and Stan Druckenmiller are just a few examples.
The Chinese Crypto Ban Made BTC Stonger
Another topic that the American billionaire investor scratched during his appearance was the total crypto ban that China imposed earlier this year. Unsurprisingly, Munger supported this move, while he regretted that the USA still allows local investors to deal with bitcoin and the altcoins.
“I think the Chinese made the correct decision, which is to simply ban them. My country – English-speaking civilization – has made the wrong decision.”
Shortly after the People’s Bank of China announced the restrictions, bitcoin’s price plunged significantly. However, it was a relatively short-term correction. In the following months, the leading cryptocurrency reached an all-time high of almost $70,000, meaning that the negative Chinese stance had a relatively small impact on BTC on a more macro scale. Many experts even opined this policy has worked in favor of the asset.
Katie Huan – a Partner at a16 – said the US should see China’s crackdown as an opportunity. In her view, American financial regulators must do the exact opposite to what the most-populated country did to enhance the nation’s economy.
Edward Snowden – the popular whistleblower – also joined the list of people believing the Chinese ban on BTC will actually benefit the cryptocurrency.
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