First Mover: Amid Economic Meltdown, Bitcoin Is Winning as ‘No Value’ Buffett Eats Crow

Billionaire investor Warren Buffett says he’s having a hard time finding attractive investments as the coronavirus ravages the global economy.

Maybe he should take advice from professional crypto investors like Pantera Capital’s Dan Morehead – and reconsider bitcoin.

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Bitcoin, the cryptocurrency the 89-year-old Buffett described in February as having “no value,” is up 23% this year to about $8,870. The Standard & Poor’s 500 Index of large U.S. stocks, which Buffett routinely endorses for amateur investors, is down 12%. Shares of Berkshire Hathaway, Buffett’s insurance-to-utilities conglomerate and investment vehicle, are down 21% in 2020.

Morehead, a former Goldman Sachs mortgage-bond trader who later oversaw foreign-exchange options at Deutsche Bank in London and headed macro trading at the renowned hedge fund Tiger Management, started Pantera in 2013 as a bitcoin investment firm.

In a monthly letter last week, he echoed Buffett’s sentiment that there’s little visibility right now on the global outlook: “This is a really distressing, massively confusing time,” Morehead wrote. 

What’s clear already, according to Morehead, is the pandemic’s devastating toll on the economy and the likelihood things won’t get much better anytime soon. That means big government deficits are coming, accompanied by unbounded money printing.

All that bodes well for bitcoin, according to Morehead – especially with the additional kicker coming next week from its underlying blockchain’s quadrennial “halving,” where the pace of new supply gets cut in half. Bitcoin is seen by many crypto investors as a bulwark against inflation.

“Like hydrostatic pressure, that flood of new money will float all boats,” Morehead wrote. “I strongly believe it’s close to inevitable that this will be very positive for cryptocurrency prices.”

The economic gloom is pretty stark. According to The Wall Street Journal, a report due Friday from the U.S. government could show the unemployment rate rose to 16% in April, which would represent a record high in data going back to 1948. According to Politico, some estimates put the jobless rate rising to 22%, approaching the Great Depression high of 24.9%.

The U.S. Treasury Department said Monday it will borrow a record $3 trillion this quarter, a six-fold increase over first-quarter levels, to help fund coronavirus-related emergency spending.

Even Buffett warned, at his company’s annual shareholder meeting on Saturday, of the potential “extreme consequences” of the Federal Reserve’s moves to prop up corporate debt, according to CNBC.

“We’re doing things that we really don’t know the ultimate outcome to,” Buffett said.

According to The New York Times, Buffett is neither optimistic nor pessimistic, but “realistic.”

These days, though, it’s the crypto investors who seem more in touch with reality: “Record monetary and fiscal stimulus” are now driving the economy and markets, as Arca Funds, a cryptocurrency-focused investment firm, put it Monday in a newsletter. So far in 2020, the markets are on their side.

“If your entire investment thesis for owning stocks and bonds requires this much intervention just to survive, shouldn’t every debt and equity investor at least be willing to listen to alternative thought processes?” Arca wrote.

To be fair, Buffett says he’s looking to spend $30 billion to $50 billion on a special investment, so it might be hard to put that much into bitcoin without driving the price a lot higher; after all, the cryptocurrency’s entire outstanding market value currently stands at about $163 billion.

Buffett told CNBC interviewer Becky Quick in February that he didn’t own any cryptocurrency and “never will.”

He might be missing the boat: There’s a growing body of investors who see bitcoin as a promising investment for such depressing times. According to The Block, the Wall Street firm Jefferies recommended last week that investors buy bitcoin. And a newsletter sent Monday by the London-based crypto investment firm ID Theory included a chart showing how dramatically money managers turned last week in their bets on bitcoin futures:

Pantera’s Morehead wrote in his letter last week that bitcoin prices could climb as high $115,000 by next year, a 13-fold increase over current levels. Buffett’s shareholders might drool over such returns.

“If you can find something that goes up in the biggest crisis in a century, you should have some of that in your portfolio,” Morehead wrote. “I think this is only the beginning.”

At the meeting on Saturday, Buffett “left investors with a sliver of hope,” according to The New York Times.

“The American miracle, the American magic has always prevailed and it will do so again,” he said.

Based on the prognostications of crypto investors who this year have proven more oracular than Buffett, that magic might come from entrepreneurs working to develop alternatives to the current financial and monetary system – and their inventions, including bitcoin.

Tweet of the Day

Bitcoin watch

Price: $8,885 (BPI) | 24-Hr High: $9,112 | 24-Hr Low: $8,616

Trend: Bitcoin has again failed to keep gains above $9,000 and remains stuck in a six-day narrowing price range. The cryptocurrency is trading near $8,880 at press time, down 0.07% on the day, according to CoinDesk’s Bitcoin Price Index.

The analyst community remains optimistic about prospects of prices rising to $10,000 ahead of next Tuesday’s mining reward halving.

However, the weekly MACD histogram, an indicator used to gauge trend strength and trend reversals, has crossed above zero, confirming a bullish reversal. That indicator, it’s worth noting, is based on moving averages and tends to lag prices.

Bitcoin has already rallied by over 35% in the last two weeks. Further, it is up nearly 130% from the low of $3,867 reached on March 13. Such strong bullish moves are usually followed by corrections. The multiple rejections above $9,000 are indicative of buyer exhaustion.

As a result, a range breakdown on the 4-hour chart looks likely. That will likely cause some buyers to exit the market, leading to a deeper drop, perhaps to the 200-day average at $8,000.

If the range is breached to the higher side, it would imply a continuation of the rally from lows near $6,500 observed on April 16. Stronger evidence of bullish revival would be a violation of resistance around $9,250 – a trendline falling from the June 2019 and February 2020 highs. Bitcoin failed to absorb selling pressure around that resistance last week.