Old Man Yells at Bitcoin

February 3rd, 2023

Good day everyone,

I hope you are all well and having a great day, welcome to CryptoGod-1's blog on all things crypto. Today I will be looking at the recent news and announcement of a certain Vice Chairman of Berkshire Hathaway (BRK), also known as Charlie Munger or in my opinion 'the latest old man yelling at crypto.'

Who is this Old Man?

Charlie Munger is the Vice Chairman of Berkshire Hathaway, a veteran of the investing space and often referred to as Warren Buffett’s right-hand man. Berkshire Hathaway is an an American multinational conglomerate holding company which is headquartered in Nebraska, United States. Its primary function of business and source of capital is through insurance, from which it invests the float (the retained premiums) in a broad portfolio of subsidiaries, equity positions and other securities. The company has been overseen since 1965 by its chairman and CEO Warren Buffett, with Charlie Munger becoming the Vice Chairman in 1978. Under their stewardship the company has outdone the S&P500 index by about 10% over the same time period, and has seen the company employing large amounts of capital and minimal debt. Amazingly, Munger was born on January 1st, 1924, and is currently 99 years old. His partner in crime, Warren Buffet, is 92 years old for comparison.

Warren Buffett (left) and Charlie Munger (right) — https://images.mktw.net/im-461638?width=1280&size=1.33333333

What’s he Yelling About?

Basically in a recent article released in the Wall Street Journal, titled Why America Should Ban Crypto, the veteran investor doubled down on his bitcoin scepticism by announcing he believed all cryptocurrencies should be banned in the United States of America. He has claimed the rise of cryptocurrencies are due to a gap in regulation which in his opinion means crypto are not currencies at all, and neither are they commodities or securities. He likens crypto more to gambling, and refers to investing in crypto as purchasing a gambling contract.

"A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s 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. Obviously the U.S. should now enact a new federal law that prevents this from happening."

Its an interesting stance from the 99 year old, who in 2021 labelled Bitcoin's success as disgusting and used by criminals, kidnappers, and extortionists, also referring to Bitcoin as “rat poison” and likened crypto trading to “trading turds.” In 2022 he referred to Bitcoin as an "investment in nothing." There is a clear disdain from Munger towards cryptocurrencies, enhanced by the fact he once stated he wished that 'crypto had never been invented.'

Munger has gone on to urge the U.S. government to consider an outright ban on crypto, meaning no citizen within the nation, or even possibly any U.S. citizen abroad, would be legally entitled to purchase or own cryptocurrencies. Munger references two precedents to back up his claim and which provide insight into how a ban might work, and what impact it could have. The first of these referenced the ban on cryptocurrencies by the Chinese Government:

"The communist government of China recently banned cryptocurrencies because it wisely concluded that they would provide more harm than benefit."

In the second instance, Munger looked at a scenario from the past when he referenced England in the 1700's. At this time England was in a severe depression after a speculative trading scheme had failed. To counteract this, the parliament banned the public from trading in new common stocks for 100 years.

"England reacted to a horrible depression that followed the blow up of a promotional plan to get vast profits by using slow-moving sailing ships to trade with very poor people halfway around the world. What the English Parliament did in its anguish when this crazy promotion blew up, was direct and simple: It banned all public trading in new common stocks and kept this ban in place for about 100 years. And, in that 100 years, England made by far the biggest national contribution to the march of civilization as it led strongly in both the Enlightenment and the Industrial Revolution and, to boot, spawned off a promising little country called the United States."

His second example is possibly there more interesting of the two given, as Munger himself recently claimed private companies had issued thousands of new cryptocurrencies which became publicly traded without any governmental preapproval of disclosures. Some were sold to a promoter from a minimal amount, which was then 'shilled' to the public for much higher prices and substantial profits. This was done without the public understand the “pre-dilution in favour of the promoter.” according to Munger.

He concludes his article with a statement on what the U.S. should do once a ban on cryptocurrencies was in place, stating that one more action might make sense: "Thank the Chinese communist leader for his splendid example of uncommon sense."

Crypto Ban in China - https://www.privatebankerinternational.com/wp-content/uploads/sites/5/2021/10/shutterstock_1014478309.jpg

Should we Listen?

This article by Munger follows on from the collapse of the crypto industry in 2022, which saw the cryptocurrency market lose more than $2 Trillion in value. Bitcoin alone plunged by 65%, and much was accredited to the exacerbated problems which arose around the action of Sam Bankman-Fried and FTX in particular. However, 2023 has already seen a surge for Bitcoin and crypto, with Bitcoin rising by 39.6% alone in January 2023. So far the signs are positive and like all assets, the market cycle must go on.

Now some of you might just claim this to be an old man who is not able to keep up with the modern times and is merely afraid of the new technology. Some of you might be right. Both Buffett and Munger have been considered long-time cryptocurrency sceptics, contending they are not tangible or productive assets. There is some truth behind this statement when we consider some things such as meme-coins, but on the other hand the value of an asset is what value people give it. Think of furniture, antiques, art, etc, and how their value is often determined by what a buyer who consider it to be worth.

When it comes to cryptocurrencies however, we should be applying more caution, although an outright ban seems excessive. The Biden administration published a roadmap on the 27th of January 2023 which urges Congress to accelerate its efforts in terms of crypto enforcement. They noted within this roadmap, titled “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks,” that 2022 had been a difficult year for cryptocurrencies and they were identifying the risks of crypto.

The main point of their roadmap focused on “continuing to ensure that cryptocurrencies cannot undermine financial stability, protecting investors, and holding bad actors accountable.” This was a cross-departmental effort and drafted by four senior federal officials in the Biden administration.

However, the White House’s Office of Science and Technology Policy (OSTP) is separately asking for the public’s help in identifying key areas to prioritize within the crypto industry for further research and development. Clearly the White House is on a different course in terms of its view on how crypto can be used compared with Munger.

The general public should welcome this viewpoint, safe in the knowledge that those in charge are not looking towards an outright ban. There are reservations of course, as the White House has warned against "deepening ties between cryptocurrencies and the broader financial system,” noting it would be a grave mistake. Due to the lack of safeguards against the fraudsters and bad actors in the space, Biden officials do not feel that American consumers can be efficiently protected. However, this should not have an impact on societies interests and decisions on investing in cryptocurrencies. It is a clear contrast between the public and private sectors, as regulators need to minimise the risks by regulating and policing of the digital asset ecosystem, especially the crypto companies.

“Congress needs to step up its efforts,” stated the White House’s latest crypto roadmap, with administration officials adding that, “Congress should expand regulators’ powers to prevent misuses of customers’ assets.”

If faith can be put in those regulating the space, while in turn taking the publics concerns and opinions onboard, then the criticism from the likes of Buffett and Munger will be less relevant. The White House’s Office of Science and Technology Policy (OSTP) is looking to address this, by asking for the public’s help in identifying key areas to prioritize within the crypto industry for further research and development. The outcome of this consultation will likely have a large impact on the direction of crypto regulations down the line.

Biden Administration on Cryptocurrencies - https://imageio.forbes.com/specials-images/imageserve/61f56e3548d8df2d2c64d940/Biden-cartoon/960x0.jpg?height=470&width=711&fit=bounds

For now, the old timers in Buffett and Munger can continue spouting their dislike for crypto and its levels of pure chaos at times. Of course a lot of what they consider is correct, but similarly the opinion of a total ban is just wrong. It feels like those who make money from a loophole and then try close the loophole to block anybody else profiting in the same way. Everyone deserve the freedom and right to invest, whether its in stocks and commodities, or in cryptocurrencies. The Biden Administration is looking to regulate the space, and as long as this is done in the best interest of citizens and not just to prevent people accessing crypto, then it is the correct direction to take. Hopefully they will make decisions in everyone's best interest and not just their own.

Have a great day.

Peace. CryptoGod-1.