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Bitcoin is 'Rat Poison' says Warren Buffett. Why is he wrong?


Content:


Glossary:

  1. Berkshire Hathaway: a Warren Buffett-led global conglomerate holding firm with extensive investments across numerous industries..

  2. Bitcoin (BTC): The first and best-known cryptocurrency, developed in 2009 by an unidentified person or group going by the name of Satoshi Nakamoto.

  3. BlackRock: One of the biggest asset managers in the world is an American company called global investment management.

  4. Central banks: National financial organizations in charge of setting exchange rates, controlling interest rates, and regulating a nation's monetary policy.

  5. Correlation: a statistical evaluation of the relationship between the movements of two assets or variables.

  6. Fiat debasement: the devaluation of a currency brought on by inflation or excessive money production.

  7. Glassnode: a supplier of blockchain data and information that provides on-chain market research and insights.

  8. JPMorgan: a top provider of financial services on a global scale as well as one of the biggest banks in the US.

  9. Microsoft: a multinational technology corporation based in the United States that creates, licenses, and maintains a variety of software products, services, and hardware.

  10. Non-zero Bitcoin addresses: Bitcoin addresses that have money in them.

  11. Rat poison portfolio: A hypothetical stock portfolio made up of shares of Berkshire Hathaway, Microsoft, Apple, JPMorgan, and BlackRock was given the name "rat poison squared" after Warren Buffett's controversial description of Bitcoin.




Key Points:

  1. Warren Buffett's long-standing negative stance on Bitcoin has potentially cost his investment portfolio a 320,000% gain.

  2. A "rat poison portfolio" that included a small yearly allocation of Bitcoin since 2014 would have increased returns by nearly 20% with reduced risks.

  3. Bitcoin's low correlation with stocks in the "rat poison portfolio" suggests it could serve as a reasonable hedge against potential negative returns.

  4. Bitcoin's adoption as an alternative to traditional safe-haven assets has been driven by its scarcity and increasing deflation over time.

  5. Warren Buffett's opinion on Bitcoin may be less relevant in developing countries, where cryptocurrencies are embraced for their potential to solve financial challenges that traditional institutions have failed to address.

  6. Exploring the benefits of cryptocurrencies like Bitcoin can help pave the way for a more inclusive and sustainable global financial future.


Introduction

Legendary investor Warren Buffett, also known as the "Oracle of Omaha," has been a vociferous opponent of Bitcoin, deriding it as "rat poison squared" in a famous quote. But data suggests that investing 2.5% of BTCinto a portfolio consisting of first class stocks such as of Berkshire Hathaway, Microsoft, JPMorgan, Apple and BlackRock could have increased returns significantly.

The following article dives into Buffett's opinions of BTC in developing countries, and explores the broader implications of the world's most famous cryptocurrency.


Is the Oracle wrong?

Warren Buffett may not be a fan of Bitcoin, but data from market analyst Alpha Zeta shows that since 2014, adding just 2.5% of Bitcoin to the infamous "rat poison portfolio" annually has enhanced profits by almost 20% while lowering risks. The portfolio's returns (Without bitcoin) are now hovering around 16%.

The surprising finding in this data is how little Bitcoin's price correlates with that of Berkshire Hathaway, Microsoft, Apple JPMorgan, and BlackRock, despite its well-known price volatility. In other words, Bitcoin has the potential to counterbalance losses brought on by declines in the stocks mentioned above, making it a useful hedging method to counteract prospective losses.

The truth is that since its start, BTC has surpassed Berkshire Hathaway by an astounding 320,000%.

This performance can be attributed to both Bitcoin's deflationary nature over time and its increasing scarcity due to its fixed supply of 21 million BTC.

More and more people are using Bitcoin as a hedge against the devaluation of fiat currencies as central banks continue to print money, as shown by the rise in non-zero Bitcoin addresses from 2,500 in 2009 to over 45 million in 2023..


Buffett’s thoughts don’t matter in Developing Countries

Although Warren Buffett's views on investments have been highly regarded in the West, developing nations like those in Africa and Asia may not find his viewpoint on Bitcoin to be as valuable.

Because of its practicality and ability to address financial and banking issues that conventional institutions have been unable to handle, Bitcoin is being accepted and adopted in several areas of Asia, Africa and South America.



For instance, with an average fee of 8.5% (They can reach 15%) per transaction, remittance expenses in sub-Saharan Africa continue to be the highest in the world. Millions of people will have greater access to cross-border payments as a result of the huge costs that Bitcoin and other cryptocurrencies can significantly lower.

Additionally, Bitcoin offers underbanked or unbanked individuals a substitute, enabling them to access financial and banking services that were previously out of their reach.


Bitcoin: The Golden ticket

Think of Bitcoin as a golden ticket, similar to the one from Roald Dahl's "Charlie and the Chocolate Factory."

This golden ticket may open the door to a world of financial independence and unimaginable chances for the lay person. Investors can achieve new heights of growth and low risk by integrating a tiny percentage of this Bitcoin into a conventional investing portfolio.

Consider Warren Buffett's viewpoint on Bitcoin as that of a critical father who doesn't comprehend their kid's love of video games.

The parent's point of view may be wise, but that does not take away from the potential advantages that a youngster may derive from gaming, such as enhanced problem-solving abilities, hand-eye coordination, and social connection. The unique benefits that Bitcoin offers to investors and citizens globally, particularly in underdeveloped countries, are independent of Buffett's criticism; they are facts based on mathematics and peer-to-peer distributed ledgers.


In summary: embrace 'Rat Poison' for a Brighter Financial independence

The statistics suggests that Bitcoin is not "rat poison squared," despite Warren Buffett's opinion. The "rat poison free portfolio" may have seen significant returns and diversified risks if Bitcoin had been included.

Furthermore, Buffett's viewpoint on Bitcoin might not be as influential in developing nations and Less Developed Countries (LDCs) where the masses are adopting the cryptocurrency because of its potential to address financial issues that conventional institutions such as banks have been unable to resolve.




Finally, it's critical to recognize how rapidly both the financial and technological worlds are evolving. Regardless of the views of well-known individuals like Warren Buffett, investors and ordinary people alike should be open to investigating the advantages that cryptocurrencies like Bitcoin can bring as the cryptocurrency environment continues to change and disrupt the legacy system.

We can help pave the way for a more equitable and sustainable global financial future by incorporating Bitcoin into investing plans, portfolios and utilizing its potential to alleviate financial difficulties in the unbanked world.

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