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Veteran Investor Cautions Against Buying Crypto, But Why?

    In February 2023, veteran investor Charlie Munger spoke out regarding his scepticism for cryptocurrencies. Munger, who is Vice Chairman of the American insurance conglomerate Berkshire Hathaway (BRK), wrote an opinion piece for the Wall Street Journal in which he proposed that the US should follow China’s lead in imposing a complete ban on cryptocurrencies.

    One of Munger’s chief criticisms was the lack of regulation in the crypto space, noting that cryptocurrencies cannot be counted as commodities, currencies or securities. Rather, he compared cryptocurrency trading to “a gambling contract with a nearly 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity.” His conclusion was that “the US should now enact a new federal law that prevents this from happening.”

    It is not the first time that Charlie Munger has publicly criticised crypto, and his business partner Warren Buffett (the chairman of Berkshire Hathaway, who in February was tipped to be the fifth-wealthiest person in the world, with a net worth in excess of $108 billion) shares a similar (and similarly vocal) position on crypto. Buffet recently spoke on the subject, saying that he wished cryptocurrencies had “never been invented.”

    However, despite what the critics may say, cryptocurrency has continued to be a tried-and-tested tool that can be used to combat inflation and make a return on investment. But its volatility always needs to be taken into account.

    Some of the best advice you’ll hear is to never invest more than you can afford to lose – and always do your own research into the various cryptocurrencies, wallets, and exchanges on offer, before you go investing your hard-earned cash. In regard to finding a solid platform or exchange, a range of leading crypto industry experts have recently advised new and experienced investors alike to check out the likes of Bitcoin Up and take advantage of the range of useful trading tools offered by such platforms.

    Charlie Munger’s Anti-Crypto Stance

    Crypto Stance

    Previously, in 2021, Charlie Munger had labelled the success of Bitcoin as “disgusting,” and his criticism focussed in particular on how the relative anonymity of cryptocurrencies made them a useful tool in conducting crimes such as extortion or kidnapping. Now, at the age of 99 years old, the investor has once again decried cryptocurrency as an “investment in nothing.” 

    In his article for the Wall Street Journal, published 1 February 2023, Munger notes how thousands of new cryptocurrencies have been issued in a matter of years, by privately owned companies in the US; and that these currencies are then publicly traded without the government’s vetting or approval. Prices are inflated and artificial, he says, with the public buyers rarely understanding how the profit margins work. He describes the result as “wild and wooly capitalism,” and compares it to a quote usually associated with the writer Mark Twain: proposing that “a mine is a hole in the ground with a liar on top.”

    The “wretched excess” of crypto, Munger goes on, is allowed to exist purely due to the shortcomings of regulation. He suggests that the only obvious solution is for the US now to follow the example of Xi Jinping in China, by passing a law to outlaw cryptocurrencies altogether.

    Munger cites what he views as a historic parallel – in the early 1700s, he says, England experienced a period of economic depression resulting from a series of bad trade decisions, and when these backfired the parliament took the measure of banning all public trading in any new common stocks. This ban remained in place for roughly a century and had the effect, writes Munger, of revitalising and boosting the country’s economy through the Enlightenment period, and into the Industrial Revolution. Munger believes that a similar effort of re-centralising regulated US trade and investment, by outlawing the growing economy of crypto, would have a similar effect of strengthening the US economy in the long-run.

    In closing, Munger makes an eyebrow-raising comment as he praises the leader of China’s communist party for leading the way, with his “splendid example of uncommon sense.”

    Answering the Call for a Cryptocurrency Ban


    Cryptocurrency Ban

    The responses to Charlie Munger’s opinion piece, particularly from within the crypto community, have been swift and scathing. Some highlighted the irony of an American capitalist praising the reasoning and actions of a Chinese communist leader, as well as pointing out that China’s widely publicised “crypto ban” had in fact been somewhat ineffective – seeing as how even after they imposed the ban in 2021, by 2022 China was still ranked as the world’s second-largest Bitcoin miner, while allegedly, possessing cryptocurrencies is still technically legal in China.

    Other criticisms of Munger’s article pointed to the science of cryptocurrencies and blockchains – explaining that calls for a “crypto ban” revealed an essential misunderstanding of how the new technology works. “It’s math and can’t be banned,” responded one user on Twitter, before adding: “Old age deteriorates critical thinking skills.”

    Moreover, the reactions to the Wall Street Journal article reveal a certain sense of cultural and intergenerational tension – exposing something of an ideological divide between the worlds of old money, and (would-be) new money. 

    There is an old adage that states: You don’t get rich by being generous. Or as Alexandria Ocasio-Cortez put it during a Martin Luther King, Jr. Day event in New York, in January 2020: “No one ever makes a billion dollars. You take a billion dollars.” Going by this logic (and putting the question whether or not Munger really understands the technology of cryptocurrencies to one side), it might be questioned whether the advice offered to the public by extraordinarily wealthy investors such as Charlie Munger and Warren Buffett is truly intended to benefit the wallet of the listener; or rather, perhaps, to maintain what has been up until now, for them and their colleagues, a very profitable status quo.

    The New Economy of Crypto


    Those who benefit from established systems tend to fear change the most. And cryptocurrencies, for better or worse, carry with them the potential to completely revolutionise the way the global economy works. The decentralised and unregulated nature of (many) crypto transactions might, as Munger points out, make them a useful tool in the hands of criminal elements such as kidnappers or extortionists; but then, the same could be said for cash transactions. Crypto adds nothing particularly new in that regard. 

    Furthermore, there are many in this world who believe that their own governments and regulated banks are guilty of criminal misconduct themselves. For example, in some developing countries, where citizens might live behind the firewall of corrupt states and rotten financial systems, cryptocurrencies actually offer them an opportunity to bypass these agencies and connect with an unregulated global economic market instead. The key principle here, which Charlie Munger misses is that regulation is only a positive thing so long as you implicitly trust the regulators. 

    Another quality of cryptocurrency trading is that it has a certain effect of levelling the economic playing field. Since the adoption of crypto, a great many new millionaires have been made, who didn’t necessarily play by the “old money” rules to get there. Vast sums of money can change hands, discreetly, and across borders, without governments and banks being able to regulate or control it. Of course, there is potential for a criminal element to benefit from such systems, but there is also a terrific potential for it to energise new industries and new ways of doing business. 

    The result is a libertarian’s dream come true – though it is quite understandable that the same concept may terrify a centenarian, traditionalist investor.

    Final Thoughts: Getting Started with Cryptocurrencies

    No one rushes into cryptocurrencies and immediately makes a million overnight. Munger might call it a “wild and wooly capitalism,” but it does have rules – just like traditional economic systems, the crypto world is underpinned by science and mathematics, meaning that it pays to do some solid research before you invest. 

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