As Expected Crypto Scams are Multiplying

[Jim Koepke]

Warren Buffet is often quoted as only investing in things he understands so he can explain his mistakes.

Cryptocurrencies is one of those things that I do not understand. It sounds like some kind of strange scheme to me.

If $1,000 is stashed under my mattress, it remains $1,000 until it is removed. For some fantastic reasoning if $1,000 is stashed under an "electronic mattress in the cloud," people can get rich. It doesn't make sense to me.

Of course now the scammers have figured out ways to drain these magical electronic wallets.

One article > https://www.washingtonpost.com/technology/2022/04/04/crypto-scams-coinbase-liquidity-mining/

Short quote:

The scam that ensnared (name removed) unfolded on an app made by the cryptocurrency exchange Coinbase. It involved a niche crypto area known as “liquidity mining” and took the form of what activists have come to call “pig-butchering” — because the victim’s wallet is fattened before the slaughter.

A search on > cryptocurrency scams rampant < shows there are a lot of sources for information on the subject.

To me it makes more sense to buy old tools cheap, use them and then sell for a profit if a little cash is needed makes better sense. Besides, it is harder for someone to walk off with a ton of cast iron than it is an electronic wallet.

Another thing, thieves do not like work. Sitting at a computer screen in one's underwear is less work than trying to steal and sell a ton of tools.

jtk

[Lisa Starr]

Yep...I don't understand cryptocurrancies, and don't want to. I agree that most thieves are lazy. If it takes much work, they'll go elsewhere.

[mike stenson]

It's no different than any other speculation. People are just all into cryptocurrency currently because it's valuation has exploded in the past few years. To be honest, it's just as real.. as stocks are.

[Andrew More]

Crypto currencies are simple, they're the electronic equivalent of all the bank issued currencies of the 19th century in electronic form. As for their value, I've yet to hear a solid explanation for one value over another. Why should BTC be worth $5, $500, or $50,000? I don't know.

As for people "investing" in them, I think it's mostly speculation driven by understandable concerns about the way that money has been handled by the Fed and other central banks around the world. However for most people the line goes up, and that's enough.

I disagree with the assertion that another form of money has any relation to stocks. It's true that you can speculate with both, and people do, however stocks represent ownership of a real(er) thing, which is to say a company. This give the stockholder a claim on the growth and value of that company as it grows. It also provides a means of raising capital for businesses. When money goes into crypto, where does it go? It's a zero sum game in a way that investing in companies which can grow and generate a return is not.

Also I think we need to differentiate between blockchain, and crypto. Crypto currencies are one application of block chain. Block chain is an interesting solution to the problem of how to do you have a distributed ledger where you can't trust all the parties involved. I could definitely see some of the banking systems, like SWIFT moving to a block chain approach in the future, but that doesn't mean that crypto has any value.

Also it's important to understand that the most popular crypto currencies are deliberately deflationary, which creates an incentive to NOT spend them and NOT invest them.

One other important difference between crypto and stocks is the complete and utter lack of transparency or enforcement. While the SEC is mostly toothless, and fraud still occurs in the stock market, it is NOT as common or as easily perpetuated as it is in the unregulated and unreported crypto currency space. One of the results in that all the old, nasty cons that used to be done in stocks before the SEC are now being done in crypto.

[mike stenson]

Money, in general, only has the value that is attributed to it. Just like stocks. Don't believe me? Look at the value of the Mark during the Weimar Republic. It's the goods and services that have actual value.

[Edward Weber]

Is it a scam because I don't understand it
OR
I don't understand it because it's a scam?

I heard a comedian say the other day, "if I already have money, why do I need to turn it into a different kind of money"?

[Mel Fulks]

USA money is just paper ,redeemable only by more paper. The plastic crypto is much tougher and can be used to play checkers.

[Ron Citerone]

I'm sure crypto has made many rich and many poor with it's volitiity, I suppose I won't be rich and I hope I won't be poor, I am steering clear of it. I feel fairly confident that I will run out of time before money. All is well in Ronworld.

[Andrew More]

Money, in general, only has the value that is attributed to it. Just like stocks. It's the goods and services that have actual value.
Right I think there's a difference between the value of a stock and it's price, just like there's a difference between the value of a jointer, and what you might have paid for it on craigslist. I don't think there is such a claim for various tokens, particularly when the price of them fluctuates based on changes in the margins. You cannot make the same claim about stocks because they are a claim on the ownership of a company, which has real assets and the ability to produce things of value.


USA money is just paper ,redeemable only by more paper.
Not exactly. It's required that you have US Dollars to pay your taxes. Further that dollar has value in other places when people agree to repay loans in dollars. Finally dollars are exchangable for oil (and until recently that the the only way to pay for it).

[dennis thompson]

It's no different than any other speculation. People are just all into cryptocurrency currently because it's valuation has exploded in the past few years. To be honest, it's just as real.. as stocks are.
I can’t agree with that. With stocks you can look at balance sheets, income statements , cash flow, The products sold, market shares, I could go on but you get the picture. I don’t think there is any way of analyzing crypto currencies.

[Bill Dufour]

One problem with crypto is it does not exist so if it gets stolen the cops do not care. One account got robbed by a frauduelnt transaction. Rather then let him lose the money the bank took money from everyones account to repay him some of the loss. Like if your safe deposit box got robbed the bank will take some from each box to repay you wouldn't they?
Bill D.

[Edwin Santos]

I can’t agree with that. With stocks you can look at balance sheets, income statements , cash flow, The products sold, market shares, I could go on but you get the picture. I don’t think there is any way of analyzing crypto currencies.

Just one person's opinion here, but I think of crypto less like a stock, and more like a traded speculative commodity. Like gold, precious metals, collectibles, beanie babies. Crypto is traded in active markets making it more liquid than collectibles like Art. But I consider it a purely speculative item where what it is worth is based purely on what someone else will pay you for it. I've never understood why they call them crypto "currencies". It seems hard for me to imagine a day when you can use any of them as a medium of exchange for routine transactions, but the vision of the crypto believers is that such a day will come.
For now though, it's a speculative market, and there is no telling what any crypto token type will be worth on any day. I wouldn't be too quick to bash them as a scam because with a market cap of over $1 Trillion now, there is obviously a market that's here to stay

Warren Buffett's objection is completely understandable. He plays a different game entirely as a value investor with very traditional criteria. But then that outlook kept Buffett away from pretty much all tech stocks until only very recently which means he did not participate in the single biggest driver of US GDP of the past 20 years. He took positions in Apple and to a smaller degree Amazon, only in recent years and has done very well with both. Can you imagine what Buffett's record would be if he had been willing to be an early investor in say, Microsoft, Apple, Google, Amazon or Facebook? Yes his discipline has paid him well but there is an opportunity cost implicit in shunning emerging technology and concepts because you don't "understand" them. 20 years ago I would not have understood the world I live in today, but here I am.

FYI, one of the best investments over the past 2-3 years has been collectible sports cards. The returns have been staggering and the market has exploded. Real Sports on HBO did a fascinating segment about it. That's like crypto except on a much smaller scale. A sports card does not have a balance sheet, or any hard assets associated with it. Warren Buffett would never touch one as an investment. Yet there are people who actively trade in them and pay a lot of money to buy them and often times sell them for much much more.

Just some rambling $.02
or .00000023 BTC

[Mel Fulks]

Gold is wheeled around into different rooms of Fort Knox to settle debts. It’s heavy stuff …but they refuse to go to light weight , fashionable
paper !

[Andrew More]

Can you imagine what Buffett's record would be if he had been willing to be an early investor in say, Microsoft, Apple, Google, Amazon or Facebook?
I think Buffet's comment has always been more about understanding to the point of having an edge over other investors. I mean he could have invested in Amazon in '99 and had a decade (or two?) of terrible performance. Or he could have owned Intel or Cisco during that same period and never recovered his losses.

Since he has a decent relationship with Bill Gates his reluctance to invest in Microsoft is more puzzling to me, but MSFT has not been without it's challenging periods as well.

He's also had some bad ideas, including investing in airlines, despite knowing better.

[Kev Williams]

Want to REALLY not understand crypto? or Bitcoin at least? I saw this when it aired, and neither I nor Dr. Phil learned a thing ;)


https://www.youtube.com/watch?v=UihEYa2MgVs

[Edwin Santos]

I think Buffet's comment has always been more about understanding to the point of having an edge over other investors.

Based on what I read in The Snowball, and other writings about Buffett's investing methodology, his formula is as simple as it is ingenious. Basically he performs a balance sheet analysis using some conventional and some proprietary methods. The result is a modified book value of the company in question. If that book value is less than the market cap at the present stock price, it is a buying opportunity in his eyes. He is betting that eventually the market will recognize the book value that he has identified. He has mostly been right, but it has sometimes taken a long time. There are other factors that he considers too.

So hearing this, you can see why any tech or emerging technology company will never pass muster under Buffett's method. A balance sheet is always going to be a historical, backward looking measure. This is why you can look at the Berkshire portfolio and see that it is mainly comprised of very mature companies that have an established book value. It is also why you won't see young, emerging companies, and definitely not a non-productive speculative asset like crypto.

This is not to criticize Buffett, just to say his investing methodology is more narrowly limited that many people realize. If you happen to like tech or emerging companies, then he's not your man.
If you ask me the part that makes Buffett special among investors is his remarkable discipline.

[Andrew More]

So hearing this, you can see why any tech or emerging technology company will never pass muster under Buffett's method. A balance sheet is always going to be a historical, backward looking measure. This is why you can look at the Berkshire portfolio and see that it is mainly comprised of very mature companies that have an established book value. It is also why you won't see young, emerging companies, and definitely not a non-productive speculative asset like crypto.
Well... that's the official story anyway. The truth is more complicated as it often is in these matters. He has engaged in buying "non-productive assets" (https://markets.businessinsider.com/news/stocks/warren-buffett-bought-3500-tons-silver-made-thomas-kaplan-billionaire-2020-5-1029228443) when he bought silver. I suspect if he knew a way to value BTC, and thought he had an edge, he'd buy it. I don't entirely agree with people who want to proclaim that crypto has _no_ value, though I'll be darned if I could say what it is exactly.

He (or his team) also bought Snowflake (https://www.nasdaq.com/articles/is-it-too-late-to-buy-snowflake-stock), which is an emerging cloud company at it's IPO. In that case I'd guess the edge was being able to purchase before the IPO. There also a lot of speculation this was one of his team, though he supposedly okays all deals.

The other criteria you're missing, which forces him into mature companies is that it's just not possible for Berkshire to do well buying anything buy small companies. All stock prices are set on the margin, so any moves to acquire a piece large enough to make it worth Buffet's time is going to skew the price so heavily as to destroy any margin of safety. This is unfortunate, since it's likely that as you said a lot of promising companies are likely smaller cap companies potentially in emerging fields.

Also define "tech" or "technology" :) I'd argue that some of the current "tech" companies really aren't or weren't. Amazon is a good example, they're got issues, mostly with size, but doing Sears Roebuck and company over the web is hardly innovative. Facebook is similar to Amazon, they're a BBS or a message board on the internet. They've also got some issues with scale, but otherwise it's not a really amazing company, and honestly their product has often been lamblasted in tech circles for it's poor implementation.

Apple is in a similar boat, having always taken what others did, and just add some style to it. They're the Gucci of "tech" companies. And before any of the Apple fans get upset, if Apple is a "tech" company, why isn't Precision Castparts, or BNSF, or GEICO? They're all "innovating" at the same rate as Apple, maybe not as flashy, but still.

OTOH, there's IBM, which has been around for forever, as well as Oracle and Buffet could have probably bought either one, but didn't.

[mike stenson]

Well... that's the official story anyway. The truth is more complicated as it often is in these matters. He has engaged in buying "non-productive assets" (https://markets.businessinsider.com/news/stocks/warren-buffett-bought-3500-tons-silver-made-thomas-kaplan-billionaire-2020-5-1029228443) when he bought silver. I suspect if he knew a way to value BTC, and thought he had an edge, he'd buy it. I don't entirely agree with people who want to proclaim that crypto has _no_ value, though I'll be darned if I could say what it is exactly.

He (or his team) also bought Snowflake (https://www.nasdaq.com/articles/is-it-too-late-to-buy-snowflake-stock), which is an emerging cloud company at it's IPO. In that case I'd guess the edge was being able to purchase before the IPO. There also a lot of speculation this was one of his team, though he supposedly okays all deals.

The other criteria you're missing, which forces him into mature companies is that it's just not possible for Berkshire to do well buying anything buy small companies. All stock prices are set on the margin, so any moves to acquire a piece large enough to make it worth Buffet's time is going to skew the price so heavily as to destroy any margin of safety. This is unfortunate, since it's likely that as you said a lot of promising companies are likely smaller cap companies potentially in emerging fields.

Also define "tech" or "technology" :) I'd argue that some of the current "tech" companies really aren't or weren't. Amazon is a good example, they're got issues, mostly with size, but doing Sears Roebuck and company over the web is hardly innovative. Facebook is similar to Amazon, they're a BBS or a message board on the internet. They've also got some issues with scale, but otherwise it's not a really amazing company, and honestly their product has often been lamblasted in tech circles for it's poor implementation.

Apple is in a similar boat, having always taken what others did, and just add some style to it. They're the Gucci of "tech" companies. And before any of the Apple fans get upset, if Apple is a "tech" company, why isn't Precision Castparts, or BNSF, or GEICO? They're all "innovating" at the same rate as Apple, maybe not as flashy, but still.

OTOH, there's IBM, which has been around for forever, as well as Oracle and Buffet could have probably bought either one, but didn't.

I think you're not paying attention to a lot of what Amazon, Apple, etc are actually doing.

[Andrew More]

I think you're not paying attention to a lot of what Amazon, Apple, etc are actually doing.

Oh I am, I'm just not impressed with either company. I've got recruiters calling day and night from Amazon, which tells me they're bleeding engineers, probably because of the crappy working conditions and lack of interesting projects. Amazon's cloud is interesting, but hardly as bleeding edge as you might think. Like I said, both Amazon and Facebook (and Netflix) have interesting challenges dealing with things at scale, but going big isn't necessarily interesting, depending on how the problem has been solved. In Netflix's case they created the idea of microservices, for Amazon? It's hard to say if it was them or Google that started the cloud, which is more marketing that anything.

[Andrew More]

Interestingly enough it appears that Berkshire-Hathaway has just purchased 11% of HP. Not sure if HP is considered a tech company or not, but they were at one point, like a lot of other companies.

[Edwin Santos]

Interestingly enough it appears that Berkshire-Hathaway has just purchased 11% of HP. Not sure if HP is considered a tech company or not, but they were at one point, like a lot of other companies.

HP is absolutely a tech company IMO. Talk about maturity, it was founded in 1939. So despite being a tech company, balance sheet analysis would be a more reliable valuation metric than it would be for a young company. It was only when Apple reached a certain level of scale and maturity that it qualified for Buffett's criteria. As you say, he is also limited to the largest companies for the most part because of Berkshire's size.

[Jim Koepke]

One problem with crypto is it does not exist so if it gets stolen the cops do not care. One account got robbed by a frauduelnt transaction. Rather then let him lose the money the bank took money from everyones account to repay him some of the loss. Like if your safe deposit box got robbed the bank will take some from each box to repay you wouldn't they?
Bill D.

This sounds like tales from the world of fantasy. The FDIC insures depositors in the case of a bank failing. Safe deposit boxes only have the safety of being inside of a vault.


Just one person's opinion here, but I think of crypto less like a stock, and more like a traded speculative commodity. Like gold, precious metals, collectibles, beanie babies.

Yes, gold, collectibles and beanie babies can be traded on open markets. Many commodities can be traded on paper and electronic media. Precious metals can also be held in one's home or buried in the back yard. If everything comes tumbling down, if one has physical possession of a commodity they still have whatever comfort that may allow be it gold, baseball cards or a room full of beanie babies to keep them warm on a cold night.

My original post wasn't intended so much as to frame cryptocurrencies as a scam as it was to point out that people investing in cryptocurrencies are falling victim to scams draining their cryptocurrency accounts.

Yes, Warren Buffet could have multiplied his fortunes greatly by taking positions in investments with which he was uncomfortable. He still somehow managed to make more money than most of us will ever have by staying in his own comfort zone.

Apple has been a great investment. Though it almost went bust back in the early 1990s.

Buffet has made a lot of money off of buying established businesses from owners who wanted to get out of running thriving business. In many cases he kept the previous owners on as managers for a time.

After all, who doesn't like See's Candies? Berkshire Hathaway bought them back in 1972.

jtk