In recent times, the US has seen an explosive proliferation of privately issued cryptocurrencies, both big and small. Without a shred of governmental oversight, these once-private entities have transitioned into publicly traded entities with no prior approval for disclosure requirements.
The problem with crypto
Here lies the problem, according to Charlie Munger, Berkshire Hathaway‘s Vice Chairman.
Primarily, cryptocurrency defies categorization – it’s not money, not a physical good, and not a financial investment.
“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,” Munger said. “Obviously the U.S. should now enact a new federal law that prevents this from happening.” Munger went on to say, in Wednesday’s Wall Street Journal.
Further, Warren Buffett, Munger’s business ally, shares the same sentiment; both have long been dubious of cryptocurrencies. They believe they lack substance and productive value and have a huge gap in regulation.
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Granted, sometimes a large amount of cryptocurrency is sold cheaply to a promoter. Later, the public buys it for a higher price without realizing the promoter got a head start by diluting their share.
Proof to support his claims
In his interview with the WSJ, he emphasized that the absence of proper regulations has led to disastrous consequences and encouraged a dangerous, gambling-like mindset.
Last year, the cryptocurrency market saw a staggering $2 trillion drop in value.
The largest cryptocurrency, Bitcoin, experienced a 65% decline in 2022 and has since bounced back with a 40% increase, currently trading at around $23,824.
Regardless of the recent surge in Bitcoin, Munger didn’t shy away from citing the challenges facing the crypto world. Including failed ventures and a cash flow crisis, worsened by the collapse of FTX, formerly a top global exchange.
Not his first public outcry against crypto
This isn’t the first time that billionaire Munger has publicly expressed his disapproval of cryptocurrencies and called for more stringent regulations. His latest opinion piece only adds to the chorus.
After the fall of crypto exchange FTX in November 2022, Munger slammed Bitcoin (BTC) and deemed it a “very, very bad thing.” Additionally, he also stated that the US does not require a currency that caters to kidnappers and the like.
“There are people who think they’ve got to be on every deal that’s hot. And they don’t care whether it’s child prostitution or Bitcoin. I think that’s totally crazy. Reputation is very helpful in financial life,” the veteran investor said at the time.
Munger’s brave suggestions to the US government
To drive his point home
- First, China has taken a hardline stance and banned any services related to virtual currency trading, ordering, token issuance, and derivatives.
- Second, in the early 1700s, the English Parliament put a stop to all public trading of new common stocks and kept the ban in place for a century.
1) #Bitcoin been alive for 14 yrs not 12.
2) Can't have a "stable currency" and "not fiat" simultaneously: they're mutually exclusive.
3) Being uncorrelated with anything is a good thing, not bad.
4) Over 20,000 attempts to make what he has described have failed. #BTC remains.
— Luke Broyles (@luke_broyles) February 2, 2023
“What should the U.S. do after a ban of cryptocurrencies is in place? Well, one more action might make sense: Thank the Chinese communist leader for his splendid example of uncommon sense,” Munger said.