Bitcoin
What Berkshire Holdings Can Tell Us About Bitcoin’s Future Price
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Billionaire investor Warren Buffett, known as the “Oracle of Omaha,” famously expressed his dislike for Bitcoin by referring to it as “rat poison squared” in 2018. Buffett emphasized that Bitcoin lacks intrinsic value, comparing its fascination with playing roulette.
Berkshire Hathaway Vice Chairman Charlie Munger recently advocated for the US to follow China’s example and ban it, characterizing Bitcoin as a gambling contract heavily skewed in favor of the house.
With Berkshire Hathaway achieving its highest annual profit last year, it currently holds crypto assets. Does this mean a big change in the way institutional investors perceive digital assets? As noted by cryptocurrency advocate Anthony Scaramucci:
Value investing
Berkshire Hathaway, led by Warren Buffett, stands out as one of the largest stocks in the S&P 500 by market value, placing it close to the technology titans in terms of market capitalization.
Despite Berkshire’s impressive stock gains, its diversified business portfolio and strong insurance performance elicited positive sentiment from analysts.
|
Sector |
2023 (in millions) |
2022 |
|
Insurance underwriting |
$5,428 |
$(30) |
|
Insurance investment income |
$9,567 |
$6,484 |
|
Railroad |
$5,087 |
$5,946 |
|
Utilities and energy |
$2,331 |
$3,904 |
|
Other businesses and miscellaneous items |
$14,937 |
$14,549 |
|
Operating profit |
$37,350 |
$30,853 |
However, Berkshire’s substantial size presents challenges in pursuing significant acquisitions, as Buffett acknowledged in his letter to shareholders. The conglomerate’s record cash reserves reflect its struggle to find compelling deals at favorable valuations. Buffett tempered expectations, indicating that Berkshire may not deliver a “surprising performance” in the short term.
Berkshire’s best year
Berkshire Hathaway recorded its biggest annual profit ever last year. The company reported net profit of US$97.1 billion last year, a sharp drop from the US$22 billion loss in 2022 due to a drop in investment.
Last week, Berkshire Hathaway Inc. saw its shares retreat after hitting a record, bringing its market value closer to $1 trillion. Despite briefly surpassing $925 billion in market capitalization, shares closed down 1.9% after a brief 3.1% gain earlier in the day, marking their biggest one-day jump since August.
Berkshire previously reported higher operating profits of $8.48 billion in the fourth quarter, up from $6.63 billion a year earlier. This increase was attributed to improved insurance underwriting income and investment income, supported by higher interest rates and milder weather conditions.
Despite its impressive performance, Berkshire’s valuation contrasts with that of the tech giants that dominate today’s market, with its shares trading in two classes, including high-priced Class A shares.
Recently, Berkshire reported net income of $12.7 billion in the first quarter, a 64% decrease from $35.5 billion the previous year. Despite this, the company earned almost $7 billion from its portfolio last year. Berkshire shares are up 11% in 2024, outperforming the S&P 500’s 8% total return.
Nubank
Nu Holdings do Brasil has launched innovative products like Nucripto, allowing users to trade cryptocurrencies like Bitcoin and Ethereum. In June 2021, Buffett’s Berkshire Hathaway invested US$500 million in Nubank, later adding another US$250 million during its IPO, bringing the total investment to US$1 billion in 2021.
In 2023, Nu Holdings saw a price increase of over 100%, surpassing Buffett’s other holdings such as Amazon, Apple, Coca-Cola, Bank of America and making it the most profitable investment in Berkshire Hathaway’s portfolio for the year past. Despite Buffett’s traditional aversion to crypto, his continued holding in Nu Holdings suggests an optimistic outlook on the stock’s future.
Nubank offers digital financial services, including access to a Bitcoin ETF through its investment unit, NuInvest. Its goal is to capitalize on this market by offering innovative financial services and addressing customer dissatisfaction with high fees and poor experiences.
Although cryptocurrencies are not aligned with Buffett’s investment principles, their substantial gains, such as Bitcoin’s 150% increase in 2023, could influence Berkshire’s future investment decisions. Berkshire’s investment in Nubank suggests a strategic move into the digital finance sector, despite personal reservations about crypto.
Profiting
Berkshire’s cash reserves Reached a record $189 billion in the first quarter of 2024, as the conglomerate continued to divest shares, including a significant portion of its holdings in Apple.
The company revealed that it sold almost $20 billion worth of shares in the first three months of the year, while purchasing just $2.7 billion, reducing the value of its stock portfolio from $354 billion at the end of 2023 to 336 billion dollars.
Bitcoin ETF Effect
With the successful launch of spot Bitcoin ETFs earlier this year, investment firms are looking closely at digital assets and crypto businesses. BlackRock CEO Larry Fink, once a skeptic, now expresses strong belief in Bitcoin as an asset class, comparing its role to that of gold in protecting wealth.
Similarly, Fidelity, known for its efforts in developing a crypto ecosystem spanning trading, ETFs, and custody services, promotes resources to help individuals “trade cryptocurrencies with clarity,” signaling the growing acceptance and interest in cryptocurrency among traditional financial institutions.
Wall Street’s next big foray into digital assets will likely come in May. This is when the SEC faces a deadline to approve or deny the first ETFs to hold Ether, the second largest cryptocurrency, with a market value of US$393 billion.
Companies such as Fidelity, BlackRock and Invesco have signed up to launch Ether ETFs. A Bernstein Research report in February said the products were almost certain to gain approval next year.
About the author
Dan Burgin
Dan is an editor and news writer with 12 years of experience in finance and emerging technologies, with a strong focus on cryptography. Covering a wide spectrum of topics from fintech startups to AI, it provides an in-depth overview of the current state of the crypto market along with insights into its potential for future disruption.