Noelle Acheson is a veteran of company analysis and a member of CoinDesk’s product team. The opinions expressed in this article are the author’s own.
The following article originally appeared in Institutional Crypto by CoinDesk, a free newsletter for institutional investors interested in cryptoassets, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.
Justin Sun, founder of the Tron blockchain, has paid $4.75 million for the privilege of having lunch with legendary investor Warren Buffett.
News outlets around the world picked up this news, trumpeting it as yet another example of how ridiculous the crypto sector can be.
The gesture is attention-grabbing, true, and not just because $4.75 million is a lot to pay for a meal and a couple of hours of someone’s time. It’s also worthy of a jaw drop given Buffett’s public opinion of bitcoin: “probably rat poison squared” is one of his more colourful descriptions.
However, the real event here is being overlooked. Thanks to Sun’s largesse, two extremes of the current investment landscape will sit at the same table and talk to each other. This is more significant than most of us realise.
A rich buffet
First, let’s look at the extremes that these two ambassadors represent.
Warren Buffett is CEO of Berkshire Hathaway, a U.S.-based conglomerate with over $700 billion in assets, including a handful of large enterprises in insurance, transport and consumer goods, a portfolio of minority holdings in household names such as Coca Cola and Wells Fargo, a sizeable equity portfolio, and over $110 billion of cash equivalents.
One of the richest men in the world, Buffett made his fortune investing in solid companies with definable markets and tangible profits. He has often said that he doesn’t invest in businesses he doesn’t understand, and it wasn’t until 2011 that he took his first stake in a tech company, IBM, a position that did not do well. In 2017, he bought shares in Apple, which now accounts for the largest position in his equity portfolio. And last month, he revealed a small holding in Amazon.
At the other end of the table, we have Justin Sun, an experienced entrepreneur and former Ripple representative, who has built a large ecosystem around a global entertainment platform based on a distributed storage blockchain. Not exactly in Buffett’s wheelhouse, especially since the main use case so far seems to be for gambling, something Buffett has spoken out against in the past.
Tron has been criticized for its outlandish publicity stunts, questionable governance and even plagiarism. In spite of that, however, the network’s token TRX has amassed a liquid market cap of over $2 billion, placing it in the top 10 of crypto assets.
Can you think of two more different lunch partners?
Now let’s pick our jaws up off the floor and look at what this meeting represents.
On the one hand, it’s a master publicity stunt for Tron and could well end up being cheap at the price. Sun’s name has since graced headlines in mainstream press around the world. While the tone of the reporting may be of incredulity and perhaps even scorn, his name has appeared in the same sentence as Buffett’s in every single article. The two are now associated in the minds of not just investors who read the financial press, but also of a good part of the world’s population.
On the other hand, it’s also good publicity for Buffett, not that he needs it. Affectionately referred to in many outlets as “America’s favorite capitalist,” Buffett has come under criticism recently for his underperformance of the S&P500 over the past 10 years, in spite of handsome outperformance for the previous 30, and for having totally missed the tech boom.
With this lunch, the proceeds of which will go to charity, Buffett has shown himself to be gracious and generous. Several well-known commentators tut-tutted that they wouldn’t want to be in his shoes, but Buffett issued a public statement through a spokesperson saying that he was looking forward to the opportunity. Buffett is far from stupid and may well be intrigued by the chance to hear about a totally foreign concept from one of its most high-profile promoters.
This brings us to where this meeting might lead.
No-one expects Buffett to emerge from the meal a converted crypto evangelist. If he has struggled to understand tech companies (as he puts it) and their focus on revenue growth at the expense of profits, then it’s very unlikely he will appreciate the value in a new type of asset that has no tangible backing, no defined governance and no established income streams.
Nor will it produce a Buffett-backed investment in crypto, even as an experiment. Berkshire Hathaway is a public company and its annual general meeting is a massive event, with over 40,000 people travelling from far and wide to question the board on their investment decisions. Imagine them having to justify putting shareholders’ money into “magic internet beans.”
What’s more, Buffett has in the past highlighted how hard it is to find viable investments with so much money on hand. The number of listed equities in which he could feasibly invest is limited to around 100, simply because of liquidity concerns and operational considerations.
With over $700 billion of assets under management and over $100 billion of “dry powder” (cash that needs to find a profitable home), even a $1 billion investment that produces a 500% return in one year won’t be enough to “move the needle” on the portfolio’s overall performance. Smaller investments, no matter how enticing, are not worth the hassle. And a larger investment in even the most liquid of crypto assets would send the market reeling – not something a smart investor would do.
Leave a tip
The ideal outcome of the lunch is actually the most likely: that Buffett is less dismissive of the concept of crypto assets than before.
This is likely because Buffett recognizes that he has made mistakes in dismissing entire sectors before. “We blew it,” is how he explained his lack of tech investments so far. Given his personal emphasis on lifelong education, we can expect him to at least listen to Sun.
And it won’t just be to Sun. The entrepreneur’s bold statements, confusing business strategy and apparent lack of concern for regulatory issues (see the interview our editor-in-chief Pete Rizzo did with him on the main stage at Consensus 2019) will most likely mean that Buffett won’t take him very seriously. But Sun is allowed to invite seven other guests and will hopefully choose ones that can explain crypto assets’ role in the evolution of finance with clarity and sobriety. Virtually all of Crypto Twitter has been jostling for position.
Sun is likely to choose well, since association with leading crypto thinkers is part of the stunt. While the rest of us will fantasize about being a fly on that wall, we can be fairly confident that the conversation will be both dense and conceptual.
We can also marvel at the genius of the idea. Whatever you may think of Sun, Tron and the outlook for decentralized entertainment, there is no way that this move doesn’t help the crypto sector. Worst case, Buffett is unmoved and continues to think bitcoin is a “delusion.” From what I gather, his opinion could not go lower than it already is.
Best case, Buffett emerges with an acknowledgement, however reluctant, that maybe there’s more to this than he realized. That would send a strong signal to institutional investors everywhere that dismissal without at least some investigation is short-sighted and foolish.
Total victory would be for Warren Buffett to publicly recognize that he doesn’t understand enough about cryptocurrency to have an informed opinion… yet.
Warren Buffett image via Krista Kennell / Shutterstock.com