- Today, we're going to talk about
why Ethereum is on its way to $10,000
and why Warren Buffett and Charlie Munger are brilliant,
but they're totally wrong about crypto.
I've been an Ethereum fan going back
to the original presale in 2014
when it was just 30 cents.
With Ethereum over $2,000,
that's over a 6,000 x return
and I'm not selling, I'm buying more.
There are more reasons than ever to be bullish on Ethereum.
Let's get into it.
A couple of weeks ago, Warren Buffett
and Charlie Munger, two of the most legendary investors
of all time from Berkshire Hathaway
had some harsh words for Bitcoin.
- I don't welcome a currency that's so useful
to kidnappers and extortionists and so forth
nor do I like just shuffling out a few extra billions
and billions and billions of dollars
to somebody who just invented a new financial product
out of thin air.
So I think I should say modestly
that I think the whole damn development is disgusting
and contrary to the interest of civilization.
- Whoa!
Harsh.
They asked me about it on CNBC and here's what I said.
- I'm sure you heard Buffett and Munger's comments
on crypto over the weekend.
Munger hating on what he called the Bitcoin success
and calling it contrarion and disgusting
to the interests of civilization.
I'm sure you have some strong thoughts on this.
- You know, I mean--
- What are they missing?
- They are, incredible legends obviously Buffett and Munger,
and we have a ton to learn from them.
But one of the things that Buffett said he learned early
was to not do the one last puff sort of investment.
The end of its life value bet.
Now let's break down what Monger actually said
and why they're wrong.
First off, calling it the Bitcoin.. drop the the,
it's cleaner.
Next he says, "I don't welcome a currency
that's useful to kidnappers and extortionists."
Let's set the record straight.
Less than 1% of crypto has ever been used
in an illicit transaction.
Cash is actually how criminals transfer large sums of money
and if you're smart, you don't transfer large amounts
of illicit wealth in an open blockchain that's immutable.
You can never remove that record.
Everyone can see that transaction
and it's infinitely searchable.
99% of transactions in crypto are subject
to know your customer and anti- money laundering regulation.
And that's why on exchanges, you can't just buy Bitcoin
and send it right away.
They're holds and checks that make it
kind of inconvenient to do that.
And when you do, they know who you are.
Finally Munger says he thinks someone invented
a new financial product.
We'll get to that in a moment, but let's first jump back
to how Buffett and Munger got started.
Warren Buffett got his start as a value investor.
If you want to be as successful as him,
you've got to buy solid stocks that have a real moat
and long-term profit like Coca-Cola.
You just hold it forever.
The majority of Buffett's fortune happened exactly
in this way.
They bought real assets and then those things,
over a long period of time went up in value.
And that's one of the valid reasons Buffett has
for why he doesn't like Bitcoin.
He likes to own businesses that make money
and throw off dividends.
Then he can reinvest those dividends
and that means the money grows very consistently
with these businesses that are not going anywhere.
A moat is a way that that business continues
to win over the long-term.
Something that other competitors coming in can't just copy.
Coca-Cola's moat for instance, is its brand
but it's also in his bottling relationships
which means it has deep distribution.
Buffett first started buying shares of Coca-Cola
in 1988, not long after the famous
Black Monday stock market crash in 1987.
By the end of 1989, he purchased 23.35 million shares
of it worth 1.8 billion.
- Well, if I were in wall street,
I'd probably be a lot poorer.
You get overstimulated in Wall Street.
- From '89 through 1999, its earnings per share grew
at a compound rate of 12% a year.
That's some really decent growth.
Ethereum had an over 15,000% return, which is a far cry
from just 100% by the S&P 500 in the past five years.
So I've got to believe some of this is just shade.
If your best investments can only do 12%, I get it.
Let's get back to what Munger said about Bitcoin though.
He said he didn't like it
because it's just a financial product.
I don't think he really understands what crypto is
particularly Ethereum.
Ethereum is actually programmable money.
He's probably only thinking
of the first use case of Bitcoin and crypto.
Really just digital gold.
You can't do much with it except hold it.
What's more important for you to realize is
that Ethereum
is a global decentralized computer
that can now be used for a distributed form
of every type of financial instrument.
Lending, bonds, equity, derivatives, insurance, you name it,
it can be done using Ethereum.
And as you can see on this website DeFi Pulse,
over $82 billion is now locked into distributed finance
or DeFi for short.
This is up almost 80 X from last year when it was
under a billion dollars total.
82x, it's not every day you see something
that can grow that quickly.
Ethereum is settling about 30 billion transactions per day
more than double Bitcoin.
To put it in perspective, PayPal does about $2.5 billion
in transactions per day.
Ethereum does 2x more than Bitcoin
and 10x more than PayPal.
This programmable money idea is so powerful,
it's driving deep institutional adoption.
Here's what Raoul Pal said recently,
"Every single investor I have spoken to
is shifting allocation to ETH from BTC.
All our mutual friends
and that billionaire finance circle."
Institutions are increasing their exposure to Ethereum,
even over Bitcoin
because programmable money is much more versatile
than just digital gold.
Coinbase's institutional balance went from 40 billion
at the end of the last year to over 144 billion.
Software is eating all of money
and that money underpins all of society.
So why is Ethereum headed to $10,000?
Here's what I said at the end of my CNBC appearance.
I think that Ethereum is ultrasound money, I think
that there is a future here for both Bitcoin and Ethereum
and sort of the whole world of cryptocurrencies
because this is the continuation
of what we're talking about.
Big tech was sort of the first wave, crypto is the next.
Let's talk about those three things.
US dollars, Bitcoin and Ethereum.
US dollars are unsound money.
The fed can print as much of it as it wants,
it's inherently inflationary.
Keeping your assets in US dollars is the equivalent
of allowing the US government to change the amount
of value you own
just by creating more of what you already have.
That's unsound.
Bitcoin in contrast is sound money.
There will only ever be 21 million Bitcoin.
It is what got us to where we are now
in the crypto adoption curve.
Sound money doesn't lose its value.
And that's where Ethereum comes into play.
And here's why Ethereum might actually be ultrasound money.
There's a new proposal going into effect
in July called EIP 1559.
This will actually reduce the amount of Ethereum
and theoretically means that at most, there will only ever
be 120 million Ether
and that the supply will actually go down over time.
Hundreds of millions of dollars worth of Ether
will be burned per year.
This is why Ethereum will become ultrasound money.
Ultrasound money becomes more valuable over time
because it's more scarce.
And this is important.
It's one of the big reasons why Ethereum
is headed to $10,000.
Here's the creator of Ethereum Vitalik Buterin
on this whole meme of ultrasound money.
- An asset having a community that wants it
to be an ultra sound money is a good property
for an ultra sound money to have.
Like an asset is more effective as an ultra sound money,
if it has a big portion of its community talking
about how that asset is ultrasound money.
Because that community talking
about the ultrasound money meme itself basically makes it
be part of the social contract and makes it more
likely that things that are supportive of that asset
becoming ultra-sound money will be implemented.
And things that are opposed to that asset
being ultrasound money will not be implemented.
- What Vitalik points out is that the Ethereum community
via memes have chosen to remake Ethereum
into something that is more than what it started out as.
Some people say, they like a thing
because it stays the same like Bitcoin.
And I get that.
I'm still buying Bitcoin, I still hold Bitcoin.
But I also like a community that can steer
towards being better every single day.
That's what I look for in the founders
and startups that I fund.
And the reality is good decisions like that can compound.
But what about the environment?
Elon Musk posted this tweet
and it's been making waves ever since.
"What about the crazy energy usage that it takes
to keep Bitcoin running?"
He says Tesla has suspended vehicle purchases using Bitcoin
because of fossil fuel use.
You know what?
This is not unfounded.
Cryptocurrencies account for about 0.59%
of all energy usage in the world.
And Bitcoin alone took over 128 terawatt-hours per year
to secure using proof of work.
To put that in perspective, all
of Australia only consumed 192 terawatt-hours in 2019.
At the end of Elon's tweet, he does mention he's looking
at new, more sustainable cryptocurrencies.
That's good news for Ethereum.
Ethereum is switching over to proof of stake
with Ethereum 2.0 which is coming sometime
in the next 18 months.
When that happens, the IEEE expects energy consumption
by Ethereum to be reduced by 99%.
That's a lot.
It's going to make Ethereum far more green.
So in summary, Ethereum is programmable money
that is ultrasound.
And not only that, it's going to be very green.
Elon, if you're watching, forget Dogecoin, it's a scam.
Bitcoin, I still like you
but I don't think I'm going to buy that much more of you.
Ethereum though, for me, Ethereum is the future.
Warren Buffett talks about the things he owns in this way.
"We expect to hold these securities for a long time.
In fact, when we own portions
of outstanding businesses with outstanding management,
our favorite holding period is forever."
Thanks Warren, that's how I feel about Ethereum today.
So that's it.
Hold onto your hats everyone,
It's not really going to be that smooth a ride to $10,000.
And if you're thinking of buying, it's those dips
that will be the best time for you to get in.
As always don't buy more than you can afford to lose.
Practice some good computer hygiene
and stay safe out there.
At worst, think about dollar cost averaging.
Thanks for watching all the way to the end.
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