Why Charlie Munger Hates Bitcoin

It's almost as bad as trading "freshly harvested baby brains."

Editor’s Note: I own Bitcoin, but I stopped buying it once I listened to Charlie Munger’s perspective on the value, or lack thereof, of cryptocurrency as an asset.

Charlie Munger thinks Bitcoin is rat poison

Charlie Munger famously said he believes Bitcoin is “rat poison.” Years later, when the price of Bitcoin was much higher than it was when he first made this statement, Munger doubled-down:

“It’s more expensive rat poison.”

This post is not intended to say Bitcoin is bad. I actually own some. However, I want to lay out the core pieces of Charlie Munger’s argument about Bitcoin for us all to discuss. After all, he is probably the most rational person on the planet, so his argument is worth hearing.

The quotes come from a February 2019 interview with Yahoo! Finance. I’ve included the full interview at the end of this post.

Charlie doesn’t think Bitcoin is all bad

Anyone who follows @charliemungerquotes knows how much value Munger sees in continuous learning and keeping an open mind (“intellectual humility”). So, it should be no surprise that Charlie Munger understands Bitcoin and is able to see that it is not all bad.

“The computer science that's behind Bitcoin is a great triumph for the human mind. That's what captivates all these people. They’ve actually created a product that's hard to create more of, but not impossible. Now that is very peculiar but they've managed to do it. So a lot of the computer science people love it just because it's such an extreme achievement of computer science.”

This is an intelligent observation, one that would require you to take the time to understand Bitcoin and the computer science behind it.

Bitcoin is anti-social, stupid, and immoral

But then Munger goes on to say the following:

“…I see an artificial speculative medium that people are buying just because they think they can sell to somebody else at a higher price even though it inherently has no intrinsic value. And so I regard the whole business as anti-social, stupid, [and] immoral.”

At this point, the interviewer stops Charlie to follow-up on what he means by immoral. Never unwilling to make his thought-process clear, Munger responds:

“Suppose you could make a lot of money trading freshly harvested baby brains. Would you do it or would you say that's immoral? You wouldn't trade them, would you? It's too awful a concept. Well, to me, Bitcoin is almost as bad. It's not having any desirable social purpose.”

Bitcoin is not a practical payment system or gold substitute

What if you don’t care about making money by trading it, but think it is the payment system of the future? According to Munger, we don’t need a new payment system, so there is no purpose for Bitcoin.

“We've got debit cards. It isn't like we don't have a payment system. We've got WeChat in China, an incredibly efficient payment system. China doesn't need Bitcoin. And if you have a WeChat, why would you do it in a medium where the value changes enormously? Nobody in his right mind would want a payment system where the very thing you were using went up and down by 20% each day.”

He’s not done!

“Now I regard the thing as a combination of dementia and immorality, and I think the people that are pushing it are a disgrace. There’s got to be some things that are beneath you, that you just don't do, and this is one. We did not need a gold substitute like this.”

Reviewing Munger’s rationale about Bitcoin

Bitcoin is an amazing accomplishment by computer scientists — a novel invention. However, since the world is not in need of an improved payment system or a gold substitute, Bitcoin is nothing more than a novel invention.

To make matters worse, Bitcoin has been positioned as an alternative investment, and charismatic promoters have convinced hard-working Americans to pour money into buying it. The excitement about Bitcoin has created a new wave of ‘get rich quick’ stories — amplified by the media — that lure more people to buy cryptocurrency as an investment despite it not having the characteristics of a sound investment.

While one might counter that it is no different than buying an IPO, Munger would say that Bitcoin investing is worse than speculative stock investing because unlike stocks, which are pieces of cash-generating businesses, Bitcoin has no intrinsic value. Therefore, Bitcoin does nothing to contribute to the good of society (see “no desirable social purpose”). If it doesn’t help society, it hurts society.

What are your thoughts? Leave a comment below.