Bitcoin | SEC, Warren Buffett, Bill Gates and Jamie Dimon on Bitcoin ⎮ Critic on Buffett & Jamie
Critical review on the statements of SEC, Warren Buffett, Bill Gates and Jamie Dimon on Bitcoin.
In an interview with CNBC (March 2014), Warren Buffett denounced Bitcoin as a mirage, he said “Stay away from it. It’s a mirage, basically,”
“It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money? Are money orders? You can transmit money by money orders. People do it. I hope bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways and it will be. The idea that it has some huge intrinsic value is just a joke in my view.”
Venture Capitalist Marc Andreessen criticized Warren Buffett that he is commenting on a technology he doesn’t understand.
Blockchain technology is not just about sending money efficiently, it is about being free from the central banking system.
In another interview with CNBC, he stated:
“it’s not a currency I mean it does not mean to test it for currency it I wouldn’t be surprised if it’s not around in 10 or 20 years why does it not meet the definition of the currency because people say well I’ll show you goods in bitcoins but they change the price of those every time the price of the dollar changes in relations because their pricing off the dollar they could say well I’ll sell it to you in barrels of oil but if they check every time the price of oil chases they change the number of barrels you have to have that’s not your oil is not the currency”
He asserts Bitcoin is not a currency and if it would be a currency than a barrel of oil could be also a currency. Let’s examine whether Bitcoin is a currency:
A medium of exchange:
I can convert Bitcoin to USD or EURO in a few minutes. I can also convert a barrel of oil but if someone has one barrel of crude oil and wants to convert it to USD, I wish him good luck with that.
I can hardly buy things with bitcoin but I can not also pay with USD either when I am, for example, in Europe. So, is USD not a currency in Europe? Of course, USD is a currency everywhere in the whole World because you can convert it almost everywhere but you have to visit a bank.
Technically, Bitcoin with its blockchain technology has the ability to function as an effective payment method. The problem is lack of adaptation in the mainstream economy. The question is not whether Bitcoin can be used to buy things or to pay for goods or services without converting it to fiat currencies, but will people, in the future, accept bitcoin as a direct payment? People who invest in bitcoin bet on the acceptance by mainstream economy. If there is someone who tries to make a barrel of crude oil as a payment medium, I wish him good luck with that.
Only one thing remains in our examination: the ability to contain a value, you can read this topic in detail here: Investing in CryptoCurrencies: Bitcoin vs. Gold vs. Fiat Money
One can ask why is he skeptical about Bitcoin? A possible reason is that the Companies he has in his portfolio, for example, Wells Fargo, Visa, American Express, Bank of America etc., have counseled him against cryptocurrencies. Warren Buffett is not a tech-savvy person but bought a big stake in IBM after taking advice from his companies using IBM’s services:
Bill Gates, on the contrary, finds Bitcoin very efficient to transfer the money, especially in developing countries, but he points out the volatility of Bitcoin as a disadvantage, compared to traditional currencies (in a bloomberg interview):
“There’s a lot that Bitcoin or variants can do to make moving money between countries easier and getting fees down pretty dramatically. But Bitcoin won’t be the dominant system. When you talk about a domestic economy, [you must have] the idea of attributed transactions, where if you sent it to the wrong person you could actually get the transaction reversed. [And a traditional system] doesn’t have this huge fluctuation where the value of your account is going up and down by a factor of two. We need things that draw on the revolution of Bitcoin, but Bitcoin alone is not good enough.”
“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than the currency in that you don’t have to be physically in the same place and of course for large transactions currency can get pretty inconvenient. The customers we’re talking about aren’t trying to be anonymous. You know they’re willing to be known, so the Bitcoin technology is key, and you could add to it. Or you could build a similar technology where there’s enough attribution that people feel comfortable this is nothing to do with terrorism or any money laundering.”
“being nothing to do with terrorism or any money laundering” means being under control and regulation of government -IRS.
The high volatility of cryptocurrencies is temporary, the increasing volume and adaptation in the mainstream economy will calm the wild fluctuations. And yes, cryptocurrencies will eventually dominate and replace the fiat currencies.
“I could care less about bitcoin. I don’t know why I said anything about it. The blockchain is a technology which is a good technology. We actually use it. It will be useful in a lot of different things. Gold bless the blockchain. Cryptocurrencies, digital currencies, I think are also fine. JPMorgan moves $6 trillion around the world every day, and we don’t do it in cash, it’s done digitally. If it can be done digitally with the blockchain, so be it. But it will still be a dollar cryptocurrency. What I have an issue with is a non-fiat cryptocurrency. So crypto sterling, euro, yen, they are all fine. I don’t personally understand the value of something that has no actual value. You all can do whatever you want and I don’t care.”
How can he understand the Dollar when it has no actual value too?
And his comment above gives us the impression that a dollar-cryptocurrency is the same, technically, as Bitcoin. This is wrong, the digital dollar is not decentralized even if it uses a blockchain technology. A short and very simple example: a company can also use a blockchain technology to confirm the shared information but the management can always change the protocol, so it is not decentralized. Being decentralized is a huge difference. If the mining concentrates in the hands of few then Bitcoin can lose its advantage of having no authority.
“I could care less what bitcoin trades for, how it trades, why it trades, who trades it. If you’re stupid enough to buy it, you’ll pay the price for it one day. I’ve also told people that it can trade at $100,000 before it trades to zero. Tulip bulbs traded for $75,000 or something like that.”
“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed,”
The financial crisis in 2008 was worst than tulip bulbs and the people who trusted the monetary system and bought the shares and bonds of banksters actually lost their money. The taxpayer money rescued them and of course, without taxpayers’ consent!
“The only value of bitcoin is what the other guy’ll pay for it. Honestly I think there’s a good chance a lot of the buyers out there are out there jazzing it up every day so that maybe you’ll buy it too, and take them out.”
Ok., replace the word Bitcoin with USD.
“I quite mean that by the way. People are very good at manipulating the press these days and getting news out. Every day, you have CNBC, nonstop bitcoin — Who cares about bitcoin? The world economy’s so big, JPMorgan alone, $6 trillion, we move all this money, and bitcoin in total, all these currencies, $50 billion dollars, maybe a billion dollars trades a day.
Ok., bitcoin guys manipulating the press??? Who manipulate the press and Why?? Or bitcoin is an exciting popular topic and press just overexaggerate it? The same press gives Jamie a chance to speak his opinion too. People get information about Bitcoin mainly from the internet and social media which have a lot of content critical to cryptos and open to any critic.
And he finds $50 billion trade a day is not important and compares it with $6 trillion daily money transaction of JPM, to my opinion, he unknowingly makes an advertisement for Bitcoin because he shows that Bitcoin has a huge potential to grow further.
“The other thing I’ve always [said] about bitcoin, governments — and this is not a technological statement — governments are going to crush it one day. Governments like to know where the money is, who has it and what you’re doing with it, in case you haven’t noticed. Right?”
“And governments like to control their currency, like to control their own economy. So China’s already put curbs on it. Japan, they say Japan accepted bitcoin. No, they didn’t. What I gather Japan did was they call it J-coin. It’s a yen cryptocurrency. It’s not a non-fiat [digital currency].”
Governments also like to control the internet. They want to control everything but they can’t.
“People have said legitimately ok, it’s close to gold. Not really. Gold is limited, it’s been around for along time. [People also say bitcoin is] close to a fiat currency. Not really. A fiat currency is when a government says this is your legal tender, you have to give it and accept it.”
He compares Bitcoin with Gold, here is my opinion: Investing in CryptoCurrencies: Bitcoin vs. Gold vs. Fiat Money
“And a central bank — of course, they can misuse it. The central bank [can also] inflate it. So there is a use case for bitcoin. If you live in Venezuela, North Korea, if you’re a criminal, great product. I mean that. It’s better than cash or deposits in that country. Cuba.”
Suppose something is a great product for a criminal, can it be also a great product for a non-criminal? People have right to keep their wealth secret, and also some of their business operations. It is not only to protect it from criminals but also avoiding some side effects.
“It’s just not a real thing, eventually it will be closed,”
Is JPM’s daily transaction of $6 trillion digital USD a real thing?
“I’m not saying ‘go short bitcoin and sell $100,000 of bitcoin before it goes down,”
“It’s against our rules and they are stupid.”
An open source protocol to use a digital currency (like your daily $6 trill. transaction) with your “amazing” blockchain technology is a stupid idea?
“Currencies have legal support. It will blow up.”
This is not completely true because the crypto world is not completely out of the legal system, for example: if you want to buy bitcoin, above a limit, you have to identify yourself: Know Your Customer rules!. Exchanges are also subjected to the law.
“But this is the last time I’m ever going to answer questions about bitcoin because I really don’t care.”
“When I made that ‘stupid statement’ [calling bitcoin a] fraud, my daughter sent me an email saying, ‘Dad, I own two bitcoins.’ My formerly smart daughter.”
“I wouldn’t put this high on the category of important things in the world. But I’m not going to talk about bitcoin anymore,”
Jamie’s accusations that Bitcoin is a bubble and a fraud and the governments will ban bitcoin which will end it etc. are not new or people already know them. And maybe, he is right, Bitcoin is a bubble – not to my opinion. If he could bring strong arguments he would trigger tough discussions among the crypto community because the community which involves crypto investors, traders, and some crypto-nerds, is very akin to intellectual debates. Instead of that, he, as a banker, tried to criticize Bitcoin by defending fiat money.
Damon Silvers, Director of Policy and Special Counsel, AFL-CIO, a New Investor Advisory Committee Member of SEC, said to Adam Ludwin, CEO of blockchain startup Chain during his presentation:
“As somebody who’s been around financial bubbles a [long time], my ‘alarmo-meter’ is at DEFCON 5,”
“My sense is that most of the conversation that goes on around this is essentially designed to obscure. [It] uses big ideas and technical jargon to evade fundamental questions that should be asked in this institution about any investment product.”
“I’m deeply, deeply frustrated with a conversation that appears to be designed to evade the law in the context of what appears to be obviously a bubble.”
“Can I suggest something to you? People who come in suggesting that ‘everything is different’ while marketing investment contracts tend to end up looking rather badly.”
SEC Commissioner Kara Stein:
“These investments are seen as cutting-edge opportunities for individual investors, but these investments may not be suitable for all investors because they carry such significant risk,”
“Our purpose in the financial system is to serve the people whose savings are being put to work – not to gambling or to speculation or to losses – but to work.”
The statements above are about ICOs rather than Bitcoin itself and SEC has begun to regulate ICOs.
Brad Garlinghouse, CEO of digital currency company Ripple:
“Anyone who is surprised by this SEC investigation into ICOs either hasn’t been paying attention or has been entranced by greed which has made them oblivious to how the financial industry works. The name alone sounds like IPO – if it walks like a duck and sounds like a duck, it’s a duck.”
From the SEC’s report:
“The investigation raised questions regarding the application of the U.S. federal securities laws to the offer and sale of DAO Tokens, including the threshold question whether DAO Tokens are securities. Based on the investigation, and under the facts presented, the Commission has determined that DAO Tokens are securities under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). The Commission deems it appropriate and in the public interest to issue this report of investigation (“Report”) pursuant to Section 21(a) of the Exchange Act2 to advise those who would use a Decentralized Autonomous Organization (“DAO Entity”), or other distributed ledger or blockchain-enabled means for capital raising, to take appropriate steps to ensure compliance with the U.S. federal securities laws. All securities offered and sold in the United States must be registered with the Commission or must qualify for an exemption from the registration requirements. In addition, any entity or person engaging in the activities of an exchange must register as a national securities exchange or operate pursuant to an exemption from such registration.”
“This Report does not analyze the question whether The DAO was an “investment company,” as defined under Section 3(a) of the Investment Company Act of 1940 (“Investment Company Act”), in part, because The DAO never commenced its business operations funding projects. Those who would use virtual organizations should consider their obligations under the Investment Company Act.”
DAO token is not the same as Bitcoin:
“The DAO is one example of a Decentralized Autonomous Organization, which is a term used to describe a “virtual” organization embodied in computer code and executed on a distributed ledger or blockchain. The DAO was created by Slock.it and Slock.it’s co-founders, with the objective of operating as a for-profit entity that would create and hold a corpus of assets through the sale of DAO Tokens to investors, which assets would then be used to fund “projects.” The holders of DAO Tokens stood to share in the anticipated earnings from these projects as a return on their investment in DAO Tokens. In addition, DAO Token holders could monetize their investments in DAO Tokens by reselling DAO Tokens on a number of web-based platforms (“Platforms”) that supported secondary trading in the DAO Tokens.”
To my opinion, SEC is right about that DAO Tokens are securities and should be regulated. Although DAO failed, it is very likely that the idea will come back as another ICO.
SEC’s ruling cannot be applied to Bitcoin because Bitcoin is only an imaginary money, not a security – Is Bitcoin an asset, commodity or just money?.
In a discussion about segwit2x, Max Keiser once said:
“Dash is emerging as the crypto payment rail while Bitcoin asserts itself as Gold 2.0. I suggest those frustrated by the Bitcoin scaling debate to embrace Dash for payments and leave Bitcoin Core alone to continue working on Gold 2.0.”
I totally disagree with him.
First of all, the investors, not the traders, buy Bitcoin because they predict that Bitcoin, sooner or later, will replace the digital fiat money. That means we will be able to directly buy stuff with Bitcoin in our daily life. Bitcoin can replace fiat money only as a payment medium.
Once Bitcoin begin to be used in the mainstream economy, it would have a value like USD because of the network effect.
But Bitcoin cannot be a new Gold or Gold 2.0 because Gold has a physical existence providing a use as a jewelry and it is also a useful metal in industry whereas Bitcoin not only lacks any physical existence, it doesn’t exist at all: there is no Bitcoin (for more on this: Money and Monetary System | The Philosophy of Economics).
The concept of Bitcoin is very different from the phenomena Gold and the valuation have to be very different too: Investing in CryptoCurrencies: Bitcoin vs. Gold vs. Fiat Money.
The Cryptoworld is a game of “the winner takes all” which means there will always be a winner heavily dominating the market. But the crypto ecosystem is also very innovative and dynamic and an innovation, either through a fork or ICO can always replace the old “winner”. So, Bitcoin, the today’s winner, has to be a payment currency. Otherwise, it would be replaced by another crypto-currency that can be an efficient payment medium and also store value like Gold, i. g. Ethereum.
There would be always a demand for Gold whereby Bitcoin can be replaced and forgotten.
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