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What Berkshire’s holdings can tell us about the future price of Bitcoin
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Billionaire investor Warren Buffett, known as the “Oracle of Omaha,” has expressed his dislike of Bitcoin, calling it “rat poison squared” in 2018. Buffett pointed out that Bitcoin has no intrinsic value, likening its appeal to gambling. roulette wheel.
Berkshire Hathaway Vice Chairman Charlie Munger recently called for the US to follow China’s lead and ban it, calling Bitcoin a gambling contract heavily biased in favor of the house.
Berkshire Hathaway, which achieved its highest-ever annual profit last year, currently holds crypto assets. Does this mean a big shift in how institutional investors perceive digital assets? As noted by cryptocurrency advocate Anthony Scaramucci:
Investing in value
Berkshire Hathaway, led by Warren Buffett, stands out as one of the S&P 500’s largest stocks by market value, ranking close to the tech titans in terms of market capitalization.
Despite Berkshire’s impressive stock gains, its diversified business portfolio and strong insurance performance have garnered positive sentiment from analysts.
|
Sector |
2023 (in millions) |
2022 |
|
Insurance underwriting |
$5,428 |
$(30) |
|
Income from insurance investments |
$9,567 |
$6,484 |
|
Railroad |
$5,087 |
$5,946 |
|
Utility and energy |
$2,331 |
$3,904 |
|
Other activities and miscellaneous items |
$14,937 |
$14,549 |
|
Operating profit |
$37,350 |
$30,853 |
However, Berkshire’s considerable size presents a challenge in pursuing significant acquisitions, as Buffett acknowledged in his letter to shareholders. The conglomerate’s record liquidity reflects its difficulty finding attractive deals at favorable valuations. Buffett moderated expectations, indicating that Berkshire may not deliver “breakthrough performance” in the near term.
Berkshire’s best year
Berkshire Hathaway registered last year it posted its highest annual profit ever. The company reported net earnings of $97.1 billion last year, up sharply from a loss of $22 billion in 2022 due to declining investment.
Last week, Berkshire Hathaway Inc. saw its shares retreat after hitting a record high, bringing its market value close to $1 trillion. Despite briefly topping the $925 billion market cap, the stock closed 1.9% lower after a brief 3.1% gain earlier in the day, marking its biggest daily jump since August.
Berkshire previously reported higher operating earnings of $8.48 billion for the fourth quarter, compared to $6.63 billion a year earlier. This increase was attributed to improving insurance underwriting profits and investment income, supported by higher interest rates and warmer weather.
Despite its impressive performance, Berkshire’s valuation stands in contrast to the tech giants that dominate today’s market, with its shares trading in two classes, including high-priced Class A shares.
Berkshire recently reported net income of $12.7 billion for the first quarter, a 64% decline from $35.5 billion a year earlier. Despite this, the company has earned nearly $7 billion from its portfolio over the past year. Berkshire shares rose 11% in 2024, outpacing the S&P 500’s 8% total return.
Nubank
Brazil’s Nu Holdings has introduced innovative products such as Nucripto, allowing users to trade cryptocurrencies such as Bitcoin and Ethereum. In June 2021, Buffett’s Berkshire Hathaway invested $500 million in Nubank, later adding another $250 million during its IPO, bringing the total investment to $1 billion in 2021.
In 2023, Nu Holdings saw a price increase of more than 100%, outperforming Buffett’s other holdings such as Amazon, Apple, Coca-Cola and Bank of America and making it the most profitable investment in Berkshire Hathaway’s portfolio last year . Despite Buffett’s traditional aversion to cryptocurrencies, his continued ownership of Nu Holdings suggests a bullish outlook on the stock’s future.
Nubank offers digital financial services, including access to a Bitcoin ETF through its investment unit, NuInvest. It aims to capitalize on this market by offering innovative financial services and addressing customer dissatisfaction with high fees and negative experiences.
Although cryptocurrencies do not align with Buffett’s investment principles, their substantial gains, such as Bitcoin’s 150% surge in 2023, could influence Berkshire’s future investment decisions. Berkshire’s investment in Nubank suggests a strategic move into digital finance, despite personal reservations about cryptocurrencies.
Cash out
Berkshire’s cash reserves reached up a record $189 billion in the first quarter of 2024, as the conglomerate continued to divest shares, including a significant portion of its Apple holdings.
The company said it sold nearly $20 billion worth of shares in the first three months of the year, buying just $2.7 billion, reducing the value of its $354 billion stock portfolio at the end of 2023 to 336 billion dollars.
Effect of the Bitcoin ETF
With the successful launch of Bitcoin spot ETFs earlier this year, investment firms are taking a hard look at digital assets and cryptocurrency-related businesses. BlackRock CEO Larry Fink, once a skeptic, now expresses strong confidence in Bitcoin as an asset class, likening its role to that of gold in protecting wealth.
Likewise, Fidelity, known for its efforts in developing a crypto ecosystem encompassing trading, ETFs and custodial services, promotes resources to help people “trade cryptocurrencies with clarity,” signaling growing acceptance and interest in cryptocurrency among traditional financial institutions.
Wall Street’s next big foray into digital assets will likely happen in May. This is as the SEC faces a deadline to approve or deny the first ETFs holding Ether, the second-largest cryptocurrency, with a market value of $393 billion.
Companies including Fidelity, BlackRock and Invesco have applied to launch Ether ETFs. A Bernstein Research report in February said it was almost certain the products would win approval in the next year.
About the author
Dan Burgin
Dan is a news editor and writer with 12 years of experience in finance and emerging technologies, with a strong focus on cryptocurrencies. Covering a broad spectrum of topics, from fintech startups to artificial intelligence, he provides an in-depth overview of the current state of the cryptocurrency market, along with insights into its potential for future disruption.