Thread by @hugohanoi

A friend, who's a seasoned CFA analyst, cited Buffett's criticism of Bitcoin that it's a nonproductive asset and most successful Bitcoin investors were "lucky", i.e. investing based on sentiment not skill (like valuing stocks based on DCF).

Of course I need to play defense 🙂 1/

First of all, I’ve always been a fan of Buffett. Love his autobiography “Snowball” and I take his compounding interest lesson to heart. In investing and everything else in life: everything compounds. Knowledge, friendship, etc. 2/

I also love his humility, most successful people have a lot of luck on their side, whether they know it or not. There’s no such thing as a self-made man (Ovarian Lottery theory). 3/

The fact that you were born in the US already gave you a huge leg up over everyone else around the world.

Not sure if this remains true going forward, but this was certainly the case in the past ~100 years. 4/

I grew up in the embargoed, war-torn, poverty-stricken country of Vietnam, but I was still lucky than many many others because I gotta study in the US later.

I often think of my much smarter classmates who never had such an opportunity. 5/

The fact that you were 30-50 year-old when Bitcoin launched in 2009 also gave you a huge leg up vs. other generations: somehow you’re squeezed perfectly in that tiny BTC initiation window, while simultaneously having access to the information AND the savings to invest in it. 6/

So yes investing in BTC requires a certain degree of luck. Age, financial situation, etc.

But when it comes to bashing Bitcoin, you gotta realize Buffett is talking his books: Buffett is by far the biggest beneficiary of the dollar / fiat system created after Bretton Woods. 7/

Not only a big chunk (~600%) of stock value appreciation during the 1970-2020 period came from money-printing, Buffett is also deeply plugged into system: he is close friends with the biggest hotshots in central banking, including all the past and current chairmen of the Fed. 8/

If you don't think Buffett is aware of the Fed's future monetary policies ahead of almost everybody, or that they don't solicit his advice when intervening in the market, you're being naive.

Buffett is as "central" bank as you can get. 9/

As his partner Munger used to say:

"Show me the incentive and I'll show you the outcome".

That rule applies to them too - of cos the man who benefited the most from fiat bashes Bitcoin and gold (for similar reasons). 🙂 10/

On using DCF as a valuation framework: I made the same mistake when looking at Bitcoin for the 1st time in 2011. At the time I was hooked on value investing & turned away from Bitcoin because I couldn't value it using that framework.

But this is the wrong way to look at it. 11/

Using DCF to value money == square peg, round hole. The costliest mistake of my life. 12/

Money is not stock. You cannot value them the same way. You need to dig deep and goes back thousands of years in history to understand what makes good money based on selection pressure (read @NickSzabo4's)... 13/

... and why Bitcoin is a game-changer, that the post-Bretton Woods fiat system is actually an anomaly and not sustainable. 14/

Then of course you need to understand the inner-workings of Bitcoin itself to make sure this thing has legs and does not fizzle out like past electronic monies. 15/

And this can get tricky because all this Proof-of-Work, cryptography, networking and software engineering stuff are relatively new, no one can have a perfect understanding.

So you should buffer your understanding with some margin of error / future uncertainty. 16/

What you end up with is a new asset with limited downside, but still a crazy amount of upside. A no-brainer bet once you've worked it out. 17/

Even if you think Bitcoin only has 50% chance of becoming moderately useful and going 10x, that’s a bet you need to take every day.

It’s just weighted outcome math. 18/

When your level of understanding of Bitcoin goes up, that success probability might go up to 70-80%, making it exuberantly irrational not to invest in Bitcoin. 19/

Still, you must combine this understanding with the discipline to hold such an incredibly volatile asset - one that has lost ~90% of its value several times in its short history.

I don't think it's fair to call long term Bitcoin investors just "lucky". 20/

In fact, I've found that Bitcoiners with the strongest conviction study history deeper than most analysts you can find on Wall Street. I have finance friends who don’t give 2 shits about the history of money. Knowledge makes iron hands. 21/

On the argument that Bitcoin is a non-productive asset.

Money has never been intended to be a productive asset, and no one is saying people should stop investing in stocks or stop building companies. They are 2 different worlds and not mutually exclusive. 22/

You need good companies for the world to progress, you also need good money to oil the economic machine and distribute rewards fairly. 23/

Bad money causes inflation and inflation is silent theft - why do you think wealth inequality is the worst it's been in history going back to the age of Kings & Queens? You can thank central banking for that. 24/

In summary: we need both good money and good companies to push mankind forward. We need Tesla(s) and SpaceX(s), but we also need Bitcoin. FIN.