Warren Buffet is no doubt one of the world’s most successful investors. He also happens to be a vocal critique of cryptocurrencies. Recently, he is has termed bitcoin as ‘rat poison squared.’ However, even with all his success, it may not be a good idea to take his advice on cryptocurrencies. Here are 3 reasons why his advice on cryptos might be counterproductive to your long-term growth.
- The global economy is changing
Warren Buffet has always maintained that he doesn’t invest in tech companies. However, if you look at the global economy, it is clear that tech is restructuring how the global economy works. The kinds of companies that you would invest in by following Buffet’s perspective are being displaced by technology corporations. We have seen Uber disrupt what was otherwise considered a stable industry (the tax hailing industry). We have also seen a company like Amazon use technology to disrupt the entire retail industry.
Amazon has killed globally renowned retail giants, to become a near monopoly in retail. Blockchain technologies and cryptocurrencies are on the verge of disrupting the banking sector. We recently saw a $99 million transaction get sent in Litecoin, at a cost of $0.40 and in about 2 and half minutes. No bank in existence today can match that. The point here is that the global economy is changing and what made people like Warren Buffet wealthy might no longer work in the new economy. Entire industries are being killed by start-up tech companies. As such, by listening to people like Buffet, you might get left behind as digital economy redefines how wealth is made.
- He too has missed out on many opportunities
While Buffet has made investment decisions that have made him incredible wealthy, it is important to remember that he has missed out on some investments that would have made him even wealthier. For instance, had he invested in companies like Google, Facebook and Amazon, he would have made more than what he made, in some of the companies that he invested in, in the same period.
As such, by following his advice on bitcoin and cryptocurrencies, you too might end up missing out on an opportunity that has the potential to change your life. Just to give you context on this, imagine someone who followed Buffet’s advice and passed on cryptos in January 2017. Such a person would have missed out on some major gains at a time when bitcoin rose from $1000 to $20,000. No stock would have given you such a return.
- Buffet has the advantage of scale
Let’s face it, part of the reason why Buffet is so wealthy is because he invests in billions. If you have $10 billion to invest, just a one percent move in the market will have you sitting on some serious cash. The same cannot be said of someone who puts $10,000 in the stock markets. The potential returns cannot sustain your life in any meaningful way. You would be better off investing in higher risk investment such as cryptocurrencies, but with the potential to change your life for good. It is easier to turn $10,000 into a million dollars with cryptos than in investing in stocks.