That’s what Charlie Munger told folks on Saturday at the annual shareholder meeting of Berkshire Hathaway (BRK.A).
It’s the $640 billion investing conglomerate he runs along with the world’s most celebrated investor, Warren Buffett.
Buffett is also a bitcoin hater. He’s repeatedly attacked it over the years.
Most famously, in 2018, he called it “rat poison squared.”
But over the weekend, Munger topped that level of vitriol. When asked about bitcoin’s now $2 trillion market cap, he fired back…
Of course I hate the bitcoin success. And I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth. Nor do I like shuffling out a few extra billions and billions of dollars to somebody who just invented a new financial product out of thin air.
I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization.
Today, I (Chris Lowe) will show you why Munger and Buffett are wrong on bitcoin… and why a lot of their criticism of the crypto is just sour grapes.
Despite what they say, bitcoin is still one of the top moneymaking opportunities in the world right now.
Criminals have long used banks and large-domination banknotes to store their ill-gotten gains.
Take Colombian drug lord Pablo Escobar.
In the late 1980s, at the peak of his blood-soaked career, Forbes ranked him as the seventh-richest person in the world.
It’s easy to see why. Over the decade, Escobar’s cartel supplied about 80% of the global supply of cocaine.
By one estimate, his drug smuggling operation brought in as much as $60 million a day.
Colombian banks refused to touch him. So he stashed some of his gains in Swiss bank accounts.
But he stored far more of his wealth in huge stacks of $100 bills. He shrink-wrapped them and buried them in plastic barrels or metal boxes.
According to a report in British newspaper The Daily Mirror, this led to one-fifth of all $100 bills in existence being buried in Colombia.
Did this criminal use of U.S. dollars stop Buffett and Munger from using the currency? Did they speak out against the government-issued cash?
Of course not.
They continued to earn and spend U.S. dollars even though it was the go-to currency of one of the world’s most murderous criminals.
Criminals also use cars to get away from banks they’ve robbed, private jets to smuggle drugs, and cell phones to coordinate their crimes.
But no serious person goes on a tirade against cars, private jets, or cell phones.
Heck, one of the technologies kidnappers use most often is duct tape. But you can still buy duct tape at any hardware store.
We get that these things may be valuable to bad actors. But we also see them as valuable to the rest of society.
Looks as though Munger didn’t research this much.
If he did, he wouldn’t have gotten in such a twist about kidnappers and extortionists.
Chainalysis is a leading blockchain analysis firm. Each year, it releases a Crypto Crime Report.
And for 2020, it reported that the criminal share of all cryptocurrency transactions was just 0.34%.
That’s roughly $10 billion in transaction volume.
And about half that illicit activity was related to crypto scams… not drug smuggling or violent crimes.
Take it from Jennifer Fowler.
From 2013 to 2018, she was Deputy Assistant Secretary at the Office of Terrorist Financing and Financial Crimes at the U.S. Department of the Treasury.
If anyone has a handle on the use of bitcoin and other cryptos for illicit purposes, it’s Fowler.
But in 2017, she told the Senate Judiciary Committee the currency of choice for bad guys was the U.S. dollar. Fowler…
Although virtual currencies are used for illicit transactions, the volume is small compared to the volume of illicit activity through traditional financial services.
How much smaller is the volume of illicit activity in crypto versus mainstream financial services?
One way of measuring this looks at bitcoins spent on the dark web. This corner of the internet consists of networks criminals and hackers choose because of the anonymity it affords them.
The United Nations Drugs and Crime Office and Chainalysis say that for every dollar spent in bitcoin on the dark web, at least $800 was laundered via good, old-fashioned government cash.
That’s because it’s not anonymous, like physical cash.
All bitcoin transactions are stored on the bitcoin blockchain. It’s a database that contains all past bitcoin transactions. And it’s open for the public to see.
With the help of blockchain forensics, it’s relatively easy for law enforcement to catch folks who use bitcoin for illegal activities.
Here’s how colleague and world-renowned crypto investing expert Teeka Tiwari explained it to me…
One thing that makes bitcoin different from the banking system is it makes it possible to send and receive bitcoins pseudonymously. But it’s relatively easy for an outfit such as the FBI to trace those transactions back to you.
I’ve sat down with federal prosecutors at cryptocurrency events. They’ve confided in me and said, “Look, we think bitcoin’s amazing. Anyone who’s dumb enough to use it to commit crimes is making our lives so much easier.”
Like with anything, you’ve got to look behind the sensational headlines and at the underlying technology. When you do that, you quickly realize bitcoin is not good for what criminals want to do.
So Munger’s comments over the weekend are not just logically flawed. They’re also way off base.
They have impressive long-term track records in traditional financial markets.
Over the 56 years since Buffett took over Berkshire Hathaway, its shareholders have enjoyed a compounded annual gain of 20%. That’s double the gain of the S&P 500, including dividends.
And although Munger is best known as Buffett’s right-hand man, from 1962 to 1975, he ran his own investment partnership.
Over that time, it generated compound annual returns of 19.8%. That compares with a 5.1% growth rate for the S&P 500, including dividends.
These returns don’t mean Munger and Buffett don’t have blind spots – especially when it comes to new technologies.
In 2017, Buffett told CNBC’s Squawk Box they made a mistake passing on Google (GOOG) shares before the company went public in 2004.
“That’s cost people a lot of money at Berkshire,” he admitted.
He also conceded that he should have invested in another tech stock, Amazon.com (AMZN).
“I was too dumb to realize,” he told CNBC. “I did not think [Amazon CEO Jeff Bezos] could succeed on the scale he has.”
He even admitted he and Munger “miss a lot of things, and we’ll keep doing it.”
Too bad they don’t apply that thinking to their big miss on bitcoin.
Over the past 12 months, bitcoin is up 544%. That’s more than 10x the 53% rise in Berkshire Hathaway’s share price over the same period.
Neither he nor Buffett has any expertise in bitcoin.
As I mentioned up top, there’s an element of sour grapes here. As two stock market investors, Munger and Buffett don’t love that roughly $2 trillion in investor capital has wound up in crypto and not in stocks.
Keep your focus on the big picture instead. And tune in to someone who’s been right about bitcoin, not someone who’s been wrong about it.
As regular readers will know, Teeka first recommended bitcoin in April 2016 at $428 a coin. And he’s been bullish on it ever since – including through every big dip along the way.
At today’s price of $57,864, that’s a 13,420% gain for readers who acted on his initial recommendation. That’s enough to turn every $1,000 investment into $135,200.
And as Teeka has been pounding the drum on, those gains aren’t over.
As he explained in more detail here, he sees bitcoin going up 10x from here… and other cryptos doing even better.
Regards,
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Chris Lowe
May 3, 2021
Barcelona, Spain