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Why Warren Buffett Shouldn't Judge Bitcoin and Cryptocurrency

Earlier this week the 'Oracle of Omaha', Warren Buffett, declared that the recent craze surrounding Bitcoin and other cryptocurrencies "won't end well". While Buffett says he will not short Bitcoin futures or say when or how the bubble will burst, he did say "almost with certainty" that it will happen. 

Buffett's history on Wall Street is the equivalent of Michael Jordan to basketball, there are too many great moments to pick one, but there is no denying he is one of the very best to ever do it. So when Warren Buffett makes such a call, it's no surprise that many panic. After all, Bitcoin is often called the future and a fraud in the same sentence. 

That said, neither I nor any reasonable investor would ever bet against a stock that Warren Buffett buys. However, it is worth noting that the closest Warren Buffett gets to investing in "new tech" is the likes of Apple Inc (NASDAQ:AAPL) and IBM. 

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Historically, Warren Buffett invests in industry leaders when times are perceived bad. Back in 2011 Buffett spent $5 billion on Bank of America (NYSE:BAC) stock at $7 and change, fresh of the financial crisis with Greek debt fears sending waves through the banking industry. Then, Warren Buffett accumulated Apple Inc (NASDAQ:AAPL) stock in the low 100s until 2.5% of the company belonged to Buffett & Co. 

Beyond his recent picks, Warren Buffett is a massive investor in companies like Wells Fargo, American Express, Coca-Cola, IBM, and Phillips 66 among others. The billionaire investor likes big businesses that can stand the test of time, that pay dividends with strong balance sheets. Call it boring if you must, but it works for Warren Buffett and value investors alike. 

All things considered, you won't see Warren Buffett buying Netflix, Amazon.com, Tesla, or Facebook anytime soon. It's just not his style to invest in hyper-growth companies with disruptive business models where the valuation is undeniably stretched, but may ultimately prove cheap long-term.

In retrospect, that's what Bitcoin and cryptocurrency is. Yes, it is overvalued, and there is most certainly mania surrounding the industry. Yet, the same could be said about Netflix, Amazon, Tesla, and Facebook at various points in their business cycle, and ironically, each of these companies have seen significant and abrupt valuation depreciation at some point or another, before later recovering. 

The bottom line: Warren Buffett may be the greatest investor ever, but when it comes to momentum stocks, he stays away. Therefore, he is probably not the best to judge Bitcoin and cryptocurrency, which as a whole are the equivalent of a momentum stock.