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Warren Buffett Was Spot On with Views on Bitcoin

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Dec. 18 2018, Updated 10:30 a.m. ET

Bitcoin

Berkshire Hathaway (BRK-B) chair Warren Buffett hasn’t been an admirer of cryptocurrencies. On the contrary, he had called bitcoin “rat poison squared” earlier this year. Buffett also said that “in terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.” He added, “If I could buy a five-year put on every one of the cryptocurrencies, I’d be glad to do it but I would never short a dime’s worth.” Given the sharp decline in bitcoin, Buffett seems to have had the last laugh.

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2018 crash

Along with the trade spat between the United States (SPY) and China, the crash in cryptocurrencies like bitcoin was a key highlight of 2018. The prices of bitcoin, the most popular and well-known cryptocurrency, have fallen to almost $3,000. About a year back, prices were near $20,000.

To be sure, the big bitcoin crash was coming. Like in any bubble, we saw market valuation soar for little-known firms on the mere announcement of cryptocurrency mining. However, the fear of missing out on an investment that was surging exponentially was among the factors driving people to cryptocurrencies. Semiconductor stocks (INTC) including Advanced Micro Devices (AMD) and NVIDIA (NVDA) were expected to benefit from rising demand for blockchain technology.

Meanwhile, bitcoin’s crash is possibly best explained in Warren Buffett’s remark: “You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more.”

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