The investment logic behind Warren Buffet´skepticism on cryptoassets

Warren Buffett has expressed skepticism about Bitcoin, considering it a “delusion,” while recognizing the importance of blockchain technology. He views Bitcoin as lacking unique value, as it doesn’t produce anything and sees the cryptocurrency as overhyped. However, his appreciation for blockchain, the underlying technology, suggests he acknowledges its potential significance in the tech world.

Bitcoin's market value has now surpassed Meta's, rising three places to rank ninth in global asset market value, with a market value of approximately US$856.73 billion, up 11.07% in 7 days. Meta's market value is approximately US$855.12 billion, up 2.44% in 7 days.

The total market value of the cryptocurrency market has increased by 110% since the beginning of the year, exceeding $870 billion. The market is up 55% so far in the fourth quarter, reaching $596 billion. Stablecoin supply is showing positive growth for the first time since the first quarter of 2022. NFT transaction volume increased by 200% month-on-month in November, and Bitcoin became the most popular chain. NFT transaction volume exceeded US$375 million, exceeding Ethereum's US$348 million.

The fees of the top 20 crypto projects increased by 84% in November, the total locked-up value of DeFi increased, and the market share increased by 18% month-on-month.

The Bitcoin rally in 2023 is divided into five stages: first, the response to the inflationary trend, secondly, the response to the banking crisis, then the surge brought about by the declaration of BlackRock ETF, the boost brought by the change of the Federal Reserve policy, Finally, there is the development of the U.S. SEC’s regulation of Bitcoin ETFs. Bitcoin does not move randomly, a mix of crowd psychology and macro factors are key drivers, and liquidity and market structure considerations help understand short-term trends.

Top 10 Bitcoin holders in the world:

1. Satoshi Nakamoto: 1.1 million 

2. Grayscale: 643,572

3. Binance: 498,147 4. 

4. Bitfinex: 192,508 5. 

5. U.S. Government: 175,000 

6. Microstrategy: 152,800 7. 

7. Block dot one: 140,000 

8. OKX: 118,334 

9. Robinhood: 118,300 

10. Winklevoss Twins: 70,000

Let me explain why I think the "correct investment" we learned in the past as Warren Buffet did is no longer applicable to the next era, and whether we should look at "cash flow" when investing now. "Cash flow" is what all "value investors" are most obsessed with. The logic is simple: you invest in this project and how much profit it can generate every month/quarter/year. You can clearly see and feel it, so it's easy. Prove that your investments are "healthy" and sustainable. But in bubble times, this concept needs to change.

In the beginning, before the rise of financial markets, many investors' love for "cash flow" was reflected in the difference between "buying a house" and "buying a store." Because "you can buy a store and rent it to others", many people choose to buy a store instead of a house. As a result, it is indeed comfortable for shops to collect rent, but the return rate is much lower than the price of housing. There are many such examples.

Also after the advent of the Internet era, many investors who believe in value feel uncomfortable with companies like Amazon that have made little profit for many years. This is a very twisted feeling. "I know this is the future, but I don't pay dividends when I buy a stock. I just hold it and wait for it to rise before selling it? What's the difference between this and me buying other stocks for speculation?"

The next one that stood out was Tesla. Everyone knew that electric cars were the future and that Tesla was the leader, but it was losing money every year, so much so that you thought it was going to go bankrupt. It didn’t start making money until 2018, and it wasn’t until it turned a profit. It looks good, and it has increased hundreds of times. Applying the logic of value investing to invest in it at this time is a bit like "the last leg of a relay race." Of course, this is certainly not to say that Tesla is not worth investing in.

So, in fact, since the dot-com era, core metrics that rely on company revenue, such as cash flow and price-to-earnings ratios, have actually started to become less useful. Then in the era of cryptocurrency, there is no concept of cash flow.

The biggest reason why Warren Buffett doesn’t like cryptocurrencies is that they believe that cryptocurrencies do not generate cash flow or continuous profits, so they think it is an unsustainable investment and a bubble.

After DEFI in 2021, many people began to "mining", that is, buying a coin to see if they can be "mined" out. Buying a coin and putting it in their wallets made them very uncomfortable. This is actually the cash flow concept of the traditional value investment school, and it is this concept that prevents many people from "embracing" popular cryptocurrencies, such as public chains, NFTs, gamefi, etc. Going back to NFT, there is no so-called cash flow in the picture, but the value is rising like crazy.

In the bubble era, the flow of hot spots was faster, and the birth and hot-selling cycle of new things was shorter. Many times it is no longer possible for you to have a stable income, and many "annual unsustainable" projects continue to appear. Your project that can generate income now may not be popular in five or even three years. And new projects are constantly being "born". These projects don't have the patience to wait for expectations to arrive, they just want to embrace them faster.

Therefore, a good project, a project that people like, and an opportunity that can be implemented are the hot spots of this era. Once missed, you will miss it forever, because opportunities are time-sensitive, and the "timeliness" of this era is constantly shrinking. , from the previous choice to reversal, once you hesitate, you will lose the opportunity forever and can only regret it.

In fact, what I want to say is that this logic is very simple. It is "value investment" in our traditional sense. It mainly relies on the fundamentals of the company, which is the most acceptable logic. "Invest in the company, do business, make money and share dividends", such a sustainable state. For example, Buffett's favorite Coca-Cola is the most perfect incarnation of this logic.

In the era before the Internet, people liked a certain drink, a certain car, a certain consumer product, a certain furniture, a certain product. As long as there were no major problems, they would use it for many years, which was the so-called "loyal consumer". For example, if you drink Coca-Cola today, you may drink Coca-Cola frequently; if you buy General Motors this year, you may buy General Motors next year; if you drink Budweiser beer today, you may drink Budweiser beer next year.

So you can extrapolate what they'll be like in the next ten years based on how they performed in the past ten years, because they don't "change" as easily.

But in the current Internet era, people have discovered something very wrong. Unlike the "products" of the traditional era, which require a long manufacturing cycle to be presented to you, it is not so easy for people to change their habits. Manufacturers want to make Products are not that easy either.

In the era of hot rotation, people's preferences will change faster because there is almost no cost to switch. From traditional manufacturing to the Internet era to the blockchain era, the time people spend making "products" has been greatly compressed. As the speed of information circulation accelerates, people's preferences become faster and iteration becomes faster. For example, everyone's favorite typical example-Nokia.

Therefore, the future world must be faster than the outside world imagines, and using traditional past corporate achievements to drive future cash flow and valuation will be a fundamental problem.

So, what do you think about investing in this new era? One is to embrace core assets, the other is to embrace change.

Core assets, assets that can appreciate over time, are necessary. For example, the core asset in the cryptocurrency era is obviously a native Internet asset like Bitcoin. As more and more people enter the cryptocurrency market, Bitcoin's audience will grow and it will naturally continue to appreciate in value.

Embrace change goes without saying. I think the biggest opportunity for everyone comes from change. It is clear at a glance that no one monopolizes any industry, there is no standard, and there is no fixed model. Everything in the world is changing rapidly, and it is the world that is most conducive to investors.

I would also like to say something special here. I don’t know why many investors, especially those in their 30s to 50s, are very afraid of change, especially of this kind of big opportunity to change their destiny. It seems to others that there will never be a place for them to participate in internal fighting.

We must give up the habitual thinking we have grown up with, that is, "stability is correct." We have been taught since childhood that we need to have a stable job. The best path is called "solving questions". There are often correct answers. That is, as long as you follow the designed path, work harder and be more correct than others, you can obtain a stable future. .

But obviously, this is no longer suitable in today's market environment.

The world is changing all the time. What many people find difficult to accept is that the "knowledge" they have learned after more than ten years of reading is actually of little use in society, and the world is changing rapidly. We have to adapt to change and not be wedded to the rules and distribution patterns set a generation ago. As investors, we are a group of people standing at the forefront of changes in the world. We should embrace changes. Almost all changes are beneficial to investors.

Many investors are not confident. When they see a popular field, their first reaction is to "read a few books first." Behind this is actually an extreme reliance on "other people's experience". They don't believe that they are the ones who create the new world. They don't believe in themselves. Standing at the door of the new world. The door to the new world. Is there anything worth reading about the cryptocurrency market over the past decade or so? There seems to be none. How many people have read the Bitcoin white paper?

When it comes to investing, many people make the mistake of focusing too much on stability and correctness, fearing "going wrong", "cryptocurrencies are unstable," and "cryptocurrencies are unsustainable."

The fear of unstable large fluctuations and unclear expectations has caused many people to give up on entering the cryptocurrency market, but they did not know that this was their opportunity. But in fact the current situation of the cryptocurrency market is more stable than the stock market

If you think about it seriously, you will find that what you are pursuing is definitely not a life dominated by a weekly salary or a bi-weekly salary that can see the end, but why are people still crazy about pursuing this kind of life? The legacy of the subconscious and parental consciousness is very scary. Many people are so busy running around every day that they have no time to stop and think about what they are doing. Why do they have so little time left to think about how to make money?

Likewise, the fear of risk is also formed subconsciously. Just like when talking about Bitcoin, many people's first reaction is "many countries don't recognize it." Yes, why is a project that is not recognized by other countries not a good project? Compared with successful investors, what many investors lack most is this sentence. Why? Now most countries are accelerating the advancement of cryptocurrency regulatory bills, and they are afraid of being abandoned by the times.

When you see something new, you should see opportunity, not risk. You can then consider whether you have the ability to control it and what its success rate is.

The future is destined to be unstable and turbulent. Do you think your stability is really stable? Obviously not. So, for an uncertain future, are those of us at the forefront, constantly using our brains, more afraid of uncertainty, or are those of us struggling in politics more afraid? The answer is both obvious and twisted.

I hope you recognize what you are and what you want, and don't be bound by old thinking. Are you an investor, everything is changing, maybe the cryptocurrency we are doing now suddenly becomes the technological and financial innovation that the country needs most in the future?

In fact, the progress of cryptocurrency applications has reached incredible speed

Embrace change, keep letting yourself change, maintain your desire for survival, stay ambitious, and don't seek stability, because there is no stability in the world.

That’s it for today. We are at the beginning of the 21st century, not the end of the 20th century. Every era must have its dominant melody. In just a few decades, humans have used electric lights, computers, and cell phones to travel from one side of the world to the other in just a few days. In the past, these were myths, but now they are the most normal thing. Times are changing, and so are investments. If you cannot keep up with the tide of the times, you will only be left behind.