Cryptocurrency: Gerontocracy Fires Its Last Salvo

[grarpamp]

Goods, services, ventures, projects, and various structures will
live as usual, however the legacy GovBank system will die, hard...

"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

Fleeting salvos against futures long since foregone,
though perhaps heroic, have always been recorded
by history as being ultimately futile...


The Gerontocracy Strikes Back
Buffett and Munger Pillory Bitcoin at annual Berkshire AGM

https://bombthrower.com/articles/the-gerontocracy-strikes-back/
https://www.youtube.com/watch?v=ko6K82pXcPA
https://bombthrower.com/articles/the-war-on-wokeness-has-begun/
https://seekingalpha.com/article/4407207-why-buffett-is-wrong-about-barrick-gold
https://www.catalign.in/2009/09/letting-wave-pass-by-story-of-warren.html
https://www.youtube.com/watch?v=BbIe0DJJFhk
https://twitter.com/saylor/status/1521481182382366721

There is nothing sadder than watching those who inspired you during
your education in contrarianism degenerate into mummified shills for a
morally bankrupt status quo.

The Berkshire-Hathaway AGM was this past Saturday, and Warren Buffett
and Charlie Munger didn’t sugarcoat their animus toward Bitcoin,
saying

    “Whether it goes up or down in the next year, or five or 10 years,
I don’t know. But the one thing I’m pretty sure of is that it doesn’t
produce anything,”

Munger went further, calling it evil, ultimately headed for zero and a
problem “because it undermines The Fed”.

Obviously, Buffett and Munger are hitting back at the hordes of
laser-eyed barbarians for being labeled part of The Gerontocracy by
Peter Thiel at his keynote address to Bitcoin2022 in Miami (I was
there, it was epic).

The AGM happened after I had already sent the month-end Crypto
Capitalist Letter to the editors so it was too late to cover it there.

It does warrant some comment, because there’s arguably some cognitive
dissonance: The Crypto Capitalist covers publicly traded crypto
companies. We don’t do technical analysis, we don’t do charting or
Elliott Waves anything like that. I got into crypto stocks as a value
investor. For reals.
Discovering the Crypto Value Play

The year was 2020, the world had completely lost its shit overreacting
to a not-cataclysmic COVID pandemic, our brilliant (unelected)
technocrats imposed lockdowns across the entire world and so, like
many people, I decided to use my time as productively as possible,
deciding to double-down on my investment education. Loading up on
books like The Joy of Compounding, The Book of Value and listening to
endless Value After Hours podcasts (love that show), I  started
combing through nanocap and microcaps looking for value plays.

I’d always been value oriented. I’ve got the Warren Buffett
shareholder letters, dog-eared and underlined from several
passthroughs. I’ve got two copies of Bevelin’s “Seeking Wisdom from
Darwin to Munger” because one of them is signed by Munger and I wanted
another copy to mark up and underline. Despite everything I’m about to
say about Buffett and Munger, I’m still currently reading Adam J
Mead’s Complete Financial History of Berkshire Hathaway. It’s
fascinating stuff.

Over the course of immersing myself in the craft of value investing
during lockdowns it turned out I kept finding it in a peculiar place:
crypto stocks. With Bitcoin hitting all time highs, you would expect
all the crypto stocks to be screaming higher at expanding multiples to
nosebleed levels even more extreme than the underlying cryptos
themselves. You see this in gold bull markets, in fact gold stocks
typically lead the metal (both on the way up and the on the way down).

Not so in cryptos. At least not in the latter half of 2020. With
Bitcoin, Ethereum and everything else ripping higher to fresh all-time
highs, I was finding Bitcoin miners who were trading for less than the
value of the Bitcoin on their balance sheet, with no debt. That would
make them honest-to-God Ben Graham style net/nets.

It just seemed very asymmetric so I started loading up on names like
Hut8, Hive, Bitfarms, Fortress Technologies (now Cathedra), Neptune
Digital and this tiny little crypto-conglomerate nobody was paying
attention to called Galaxy Digital.  There were a couple of stinkers
in there too, but overall it didn’t really make a difference. I was
finding genuine value in an entirely new and ascendent asset class.
Buffett would be proud! Wouldn’t he?

Buffett and Munger loathe Bitcoin. If Bitcoin is “digital gold” (it
is), Buffett has never liked gold either. There was a lot of
excitement in goldbug circles when a Berkshire-Hathaway 13-F revealed
they had bought a chunk of Barrick. The BRK-fanboys dissected the
trade religiously and wondered out loud if that was an actual Buffet
trade or one of the inner-circle who were being groomed for
succession.

It didn’t matter, because barely a year later, Berkshire had exited
the trade anyway.

Buffett and Munger eschew monetary assets – like cash, or gold,
because they are unproductive. They don’t generate any yield and when
you can own a business that does generate returns, it doesn’t make any
sense to keep anything on the sidelines. Especially when you can pick
’em the way Buffet and Munger can.

Yet they have also been known historically for steering clear of tech
in general (despite now holding numerous tech investments which they
entered far later in the respective companie’s lifespans).
Buy it now, or buy it later

Back in the dotcom boom, Buffett famously avoided tech stocks because
he deemed them outside his circle of competence. He was ridiculed at
the time as being out of touch, but he was eventually vindicated when
the dotCom bubble imploded. Still, he could have bought Apple for a
song in the wreckage, at (split adjusted ) prices ranging from under
$1 to $2.50 or so up until mid-2006. It wasn’t until 2016 that
Berkshire Hathaway backed up the truck and loaded up around the
$100/share mark (pre 2020 split). By the end of 2021 nearly 40% of
Berkshire’s portfolio was Apple!

But Apple wasn’t by any means the first transformative tech company
Buffett eschewed at first. In 1968 Bob Noyce, was leaving Fairfield
Semiconductor to start a new company Integrated Electronics and was
raising an initial $2.5M seed round. Both Buffett and Noyce were
trustees for Grinnell College’s endowment fund. Buffet signed off on
an investment for the college, but declined to put any of Buffett
Partnership’s capital into “Intel”. He wouldn’t be invested in the
behemoth until 2011, and even then, he was out within a year.

Despite the general aversion to the tech sector, Buffett never called
integrated circuits, personal computing or the internet “rat poison”.

I believe the reason for the visceral hatred toward monetary assets,
like gold or Bitcoin is because on some subconscious level, Buffet
knows that one of the major tailwinds of his stellar investment career
has been the destruction of the monetary base layer and The Cantillon
Effect.
Uncle Warren, Poor Charlie and Cantillion Mercantilism

Buffett and Munger’s belief is that the only reason for owning gold
(or now Bitcoin) is in the hope of selling it to somebody at a higher
price in the future. Yet, in Buffet’s own words, he likes to own
businesses he understands when he

    “like[s] the price at which they’re selling relative to their
future prospects, and thinks 10 years from now that they’ll be worth
more money”

There is a strange kind of tunnel vision here. All investment seeks to
either preserve or accumulate wealth, and everybody does a variation
of the same thing: deploying capital where they feel will hold or gain
value in the future.

Buffett, who’s “favourite holding time is ‘forever'” should perhaps
think more deeply around why he would rather hold his wealth in
productive businesses rather than unproductive gold, or even the
ostensibly risk-free asset that is cash.

John Maynard Keynes once said of inflation:

    “By this means the government may secretly and unobserved,
confiscate the wealth of the people, and not one man in a million will
detect the theft.”

Buffett is of those men, saying:

    “Inflation swindles the bond investor … it swindles the person who
keeps their cash under their mattress, it swindles almost everybody,”

The most important word in this sentence is “almost”. Inflation
swindles (steals, defrauds) almost everybody. But there are a few
people whom inflation doesn’t rob, but actually enriches. Those people
are Cantillionaires. Buffett and Munger, as skilled as they may be in
investing,  belong to the Cantillionaire class.

Richard Cantillion, the British entrepreneur who wrote one of the
earliest economic treatise was the first to formalize how expanding
the money supply is experienced in two different ways within an
economy:

The elites who have direct proximity to the new money experience it as
rising asset prices, making them wealthier, and giving them the
ability to further compound their wealth by buying up even more of
society’s assets.

Everybody else, the plebes, the rabble, the permanent underclass, they
don’t experience it as rising asset prices, because they can’t afford
to acquire any assets. They live on a permanent treadmill that keeps
accelerating while the incline constantly increases… Euphemistically
characterized by policy makers as “inflation”.

When you see the picture that lays out how the dynamics of Cantillon
Mercantilism works, it makes more sense why the uber-wealthy like
Munger and Buffett might rationalize hard money assets such as gold as
“unproductive” and Bitcoin as “rat poison”. It’s because that magic
money printer at the center of their world can’t print hard assets.

But it can and does print cash which even though they know it decays,
and the more the machine prints the faster it decays, they also know
that they’re first in line to get it.  That means they can use it to
inflate the value of their own assets before it hits the outer fringes
society where it inflates the cost of staying alive.

In the 2008 Global Financial Crisis: Berkshire-Hathaway didn’t receive
bailouts directly, but at least four of their holdings did, to the
tune of nearly $100 Billion USD (Wells Fargo, American Express, Bank
of America, and Goldman Sachs).

During the COVID Panic: The Fed directly purchased Berkshire-Hathaway
bonds (along with those of numerous other companies, all of whom were
worth over $100 Billion USD).
Bitcoin Fixes This

Bitcoin, when widely adapted as money and a store of value puts an end
to the Cantillon Effect. Because it is an inelastic, deflationary and
asset based money, it gains purchasing power over time (volatility
aside, which I expect to smooth out over the coming years).

For those who feel running an economy on deflationary, inelastic money
is impossible I would suggest reading, Nik Bhatia’s Layered Money,
Saifedean Ammous’ The Bitcoin Standard, or Detlev Schlichter’s Paper
Money Collapse first edition of which came out before Bitcoin was
barely on anybody’s radar (2011).

There is no barrier to entry for asset accumulation with Bitcoin,
because you can start with a microscopic amount and watch it gain
purchasing power over time. It enables savings and capital formation.

Ordinarily, enlightened capitalists like Buffett and Munger should be
on board with this. But they instead recoil from it with every fibre
of their being. Perhaps, without being consciously aware of it, they
understand on a subconscious level that  Bitcoin presents a direct
assault on Cantillion Mercantilism.

Munger and Buffett bring living example to the famous Updike quote:
“It is impossible to get a man to understand something whose
livelihood depends on them not understanding it”

What compounds dissonance about their posture toward crypto-currencies
is that this is one of the few sectors of genuine value in the
equities markets right now. In other words, right now, in Q2 2022,
crypto stocks are value stocks. Granted, it’s been widely acknowledged
that Buffet (and Berkshire) ceased being value investors a long time
ago, optimizing more for “growth at a reasonable price”. It’s hard to
find value at the scale BRK operates at.

Were Buffet to retrench to his value roots he could buy up Galaxy
Digital ($4.6B), Silvergate Bank ($4B) and Coinbase ($30B) and still
not really move the needle. This shows just how early it still is in
the Bitcoin and crypto story.

Size matters, and sometimes not in a good way: BRK’s outperformance
has been in secular decline for decades….

It would be fair play should the likes of Buffett and Munger simply
dismiss crypto-currencies as outside their circle of competence thus
uninvestable for them. They’ve done that continually throughout their
career and it has served them well and been a great lesson in
discipline for all aspiring investors.

But the venom with which they demonize Bitcoin smacks of “methinks
doth protest too much”

    People who understand #bitcoin buy it. People who don't understand
#bitcoin talk about it.
    — Michael Saylor⚡️ (@saylor) May 3, 2022

Maybe, on the other hand they understand it all too well.