Warren Buffett does not like Bitcoin. The legendary veteran investor called the cryptocurrency “rat poison squared” in 2018. And more recently, his tone towards Bitcoin was full of warnings, one of them stating it will end badly.
But one of Mr. Buffett’s recent comments on the global economy—literally—turned out to be a pro-Bitcoin billboard.
The Berkshire Hathaway CEO said in his annual letter to investors that they should avoid bond markets, calling them dead. Instead, he favored an equity-heavy investment if one wants to avoid a “bleak-future” in fixed-income, pension funds, and insurance sectors.
Mr. Buffett cited the yields on the 10-year US Treasury note, which, despite surging to its pre-pandemic high of 1.614 percent this February, offered very little interest rate to its holders compared to 15.8% yield in 1981. Bitcoin didn’t.
No 60/40 Culture
What’s troubling, nonetheless, is that the ongoing sell-off in the US bond market coincides with similar moves on Wall Street whose stocks remain plagued by overvaluations.
That totally negates the age-old concept of managing risks for any portfolio: the 60/40 allocation between stocks and bonds that gives investors enough thrill from equity markets alongside a sense of safety from boring Treasuries—all at the same time.
But what Mr. Buffett suggests investors now is to go all-in on riskier markets despite the market’s overvaluation concerns. He does not expect the yields to always go higher, given the Federal Reserve’s intervention policies that prompt them to keep the interest rates lower via “unlimited bond-buying.” By investing in bonds, investors are directly challenging the US central bank and his chairman Jerome Powell.
“For yields, we want to see them continue to rise since it’ll force the FED to respond,” noted Ben Lilly, the author of the crypto-based weekly newsletter ChainPulse. “They’ll likely respond through treasury purchases at the 10, 20, or 30-year bond since those rates can hurt corporations the most.
“And in the mid to long-term, this is great for bitcoin… At the expense of some short-term pain,” he added.
A low-yielding debt market has proven beneficial for Bitcoin.
The cryptocurrency rose to prominence among retail and institutional investors alike for its ability to behave as an alternative to traditional safe-havens. As a result, its prices rose by more than 1,200 percent since March at one point in time, hitting a record high above $58,000 while the bond yields remained meager.
Bitcoin rose because of its safe-haven alternative. Investors appeared to have grown a liking for its gold-like scarce properties. Meanwhile, the fact that it is non-fungible, easily divisible, and can be transacted anywhere across the globe without a centralized confirmation made it more attractive than gold, and even the US dollar, whose value fell by more than 12 percent in the same period.
The Fed wants to run its dovish program until it achieves maximum employment and inflation rate above 2 percent. Their relentless strategy to secure the bond markets has allowed many corporates to look at Bitcoin as their alternative safe-haven. They include Tesla, Square, MicroStrategy, and many others.
What Mr. Buffett noted about Treasurys serves as a bullish case for Bitcoin as the cryptocurrency grows as a hedge against overall market risks, even stocks.