What Warren Buffett and Other Bitcoin Haters Still Fail To Get About Bitcoin

Clarifying the meaning of Bitcoin institutionalization and the reality of Bitcoin’s value.

And God said, let there be light! — And there was light. Photo by Riccardo Annandale on Unsplash

You know this story, perhaps by heart.

Almost two thousand years ago, a Jew was crucified by the Romans. He died on the cross and was resurrected three days later.

His name was Jesus, and today he is known as the Son of God by Christians all around the world. The church that was built on this story has survived 2000 years.

From small followership of 12 disciples (according to the Bible), Christianity has grown into a 2.38 billion member-strong global community united in one belief.

Yet, we still do not have incontrovertible scientific proof for the existence of God, nor the reality of the Resurrection.

Ultimately, it has to be taken based on faith.

This is not a theological debate on whether Jesus really rose from the dead or not.

It’s irrelevant.

What is relevant is this: Christianity is real. The Bible can be read. The history of Christianity exists. As do priests, churches, and many other tangible artifacts and accoutrements of Christianity.

The belief in God is real.

People have gone to wars in the name of God. Built grand architecture and created beautiful music, in the name of God. Even the paper money of a particular country in the world has the words “In God We Trust” printed on it. As if to say that all money is based on faith.

What has any of this got to do with Bitcoin, you say?

The Belief in Bitcoin Makes Bitcoin Real

In the same way, our global society’s belief in Bitcoin gives it tremendous value. No one knows if Satoshi Nakamoto is a group or a person. No one has ever “seen” a bitcoin.

Legendary investor Warren Buffett has spoken out against Bitcoin many times. In 2019, he was reported to have said:

“It’s ingenious and blockchain is important but Bitcoin has no unique value at all, it doesn’t produce anything. You can stare at it all day and no little Bitcoins come out or anything like that. It’s a delusion basically.”

— CNBC, February 2019

I’m sorry, Mr. Buffett. Bitcoin is as real as religion is real.

Or as real as university degrees are real (ironically, look at what happens when universities “print” too many degrees!) Or legal contracts. Or marriage (which is also a kind of legal contract).

None of these concepts exist outside of culture and the institutions that create them.

And so it is with Bitcoin.

That so many people, including myself, are writing and asking questions about it — debating its promises, fallacies, and problems — is proof of it.

Institutionalization does not only refer to “institutional adoption.”

It’s much deeper than that.

Our very debates are helping to embed Bitcoin into our collective consciousness. Turning Bitcoin into a reality. Giving it form and substance where there was previously none.

Proof of Trust and Cultural Embeddedness

It’s a bit of a circular argument, but please bear with me. Bitcoin has value because it has earned a certain level of trust. The more trust it earns, the more value it has, and the more it becomes trusted, in a positive feedback loop.

I’m not going to bore you with numbers and make the technical bullish case for Bitcoin. This has been covered by many other people who are much more knowledgeable than me. Like this brilliant 41-minute story that first came out in 2018: The Bullish Case for Bitcoin by Vijay Boyapati (It’s even been published into a book, but you get to read it for free on this platform!)

Retail demand for Bitcoin skyrocketed in 2021, pushing the price up to new all-time highs. According to Grayscale Investment’s 2021 Bitcoin Investment Report, 26% of Americans have bought Bitcoin, and 55% of all Bitcoin holders bought their first Bitcoin in 2021.

This trust is visibly embedded in our culture.

Bitcoin is well known as the first cryptocurrency. There are many other copies like it, which can all be created out of thin air — but none exactly like it. This “founding myth” and the deity-like image of its creator gives Bitcoin a very special unique status and legitimacy not found in any other cryptocurrencies.
Bitcoin is relatively liquid. There are Bitcoin/government currency trading pairs. Bitcoin enjoys good liquidity (most of the time). Liquidity provides trust. It stabilizes expectations — that you can trade your Bitcoin for dollars or Euros or vice-versa during normal market situations.
The price of Bitcoin is now regularly tracked. On financial news, it appears alongside the S&P500 or the Dow Jones Indices, or crude oil. And no one thinks anything odd about it.

Key market indices. (Screenshot from Markets Business Insider by author, 6 Jan 2022, UTC 14:11)

Governments cannot ignore Bitcoin. The Chinese government put forth a blanket ban on all cryptocurrencies in 2021. Many other countries have banned it as well. Singapore wants to become a cryptocurrency hub. The Ukrainian government is in support of it to rebrand the country’s image. Laos has approved a trial to mine Bitcoin so the government can pay back debts. El Salvador wants to accumulate it. The US government taxes cryptocurrency profits. If governments around the world are indeed watching, it lends even more legitimacy to it — the message is that Bitcoin is very real indeed!
Mainstream news cannot avoid reporting on it. Just look at the number of articles talking about Bitcoin coming out from the likes of Forbes, Financial Times, BBC, and other mainstream media.
Fed rates are thought to move Bitcoin. Hike interest rates — and Bitcoin and cryptocurrencies drop! Bitcoin is integrated into the traditional financial system, or at least perceived by investors as such. How do I know this? Thanks to the mainstream news that I talked about. See an example of an article here: Major Cryptocurrencies — Including Bitcoin, Ethereum — Plummet After Fed Minutes Signal Looming Interest Rate Hikes (forbes.com)
Banks provide access to Bitcoin and cryptocurrencies to their clients. Although one can be cynical — “banks do that only because their clients demand it and not because they believe in it” — it matters not the same. Banks providing access to Bitcoin lends an aura of legitimacy to Bitcoin via social proof.
On a personal note: I trust that the Bitcoin network works. I know because I have verified it. I can receive Bitcoin from any Bitcoin address. I also trust that I can liquidate it immediately. I can also send it anywhere in the world, 24/7. Why wouldn’t I? It’s got more than a decade of history. And a decade in the world of tech is a long time.
Don’t underestimate the power of word of mouth.

The real-ness of Bitcoin’s value doesn’t mean that Bitcoin won’t crash, or that it won’t grow to zero. Due to its small market cap, volatility is to be expected.

It’s also very unlikely for it to go to zero, despite all the naysayers. Every time Bitcoin has dropped low enough (80–90%!), buyers have always stepped in to support the price. We have 13-years of history to prove that and according to the Lindy effect, we can expect that Bitcoin buyers will continue to behave this way.

It also doesn’t mean that the current environmental impact of Bitcoin mining isn’t real. This has been well-reported. But, this doesn’t change the fact that it’s near impossible to stop Bitcoin — precisely because of its diffused nature, both as a technology and as a cultural belief.

Of course, probability is not certainty. Never say never, of course — but to take Bitcoin down would take a black swan event like a 51% attack that destroys the trust that Bitcoin has built over its 13-year history. Or something that takes down the entire Internet.

All Value is Culturally Embedded

When Marco Polo traveled to Yuan China in the 13th century, which was then ruled by the Mongols, he was amazed by paper money.

He could not imagine money other than in the form of gold and silver. He was so amazed and astounded that he titled his chapter, “How the Great Kaan Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over his Country.”

The difference vs. Bitcoin?

This paper money was based on “hard power” — central authority and pain of death.

Bitcoin is based on “soft power” — diffused power without a central authority.

To deny the reality of either kind of power would be foolish.

Looking at the never-ending debates over Bitcoin and cryptocurrency, I cannot help but feel like every one of us is seeing what Marco Polo must have experienced, in this brave new world.

Disclaimer: This is not financial advice to buy or sell any asset, digital or otherwise. Please do your due diligence before trading or investing in any digital or non-digital assets. At the time of writing, the author does not hold any Bitcoin.

The author writes on a variety of topics. His key topics are Japan, society, culture, modern work, and cryptocurrency, with the occasional fictional story, creative piece, or reflective essay. Discover his most-read stories here.

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