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Warren Buffett is undeniably one the most successful investors of our time. He bought his first stock at the tender age of 11. A move that has afforded him many, many years of compound interest on his investments, and exponential growth on his portfolio. He’s a classic example of a contrarian investor and invests with long-term goals in mind. But in a recent interview. Buffett made a statement that signals a move that could have far-reaching ramifications for traditional financial institutions.
While discussing the growing trend of economic powerhouses such as the US, Europe and Japan with low to negative interest rates, Buffett admitted that this may force him to reconsider what to do about his sizable balance of investments.
“There could be a point where you'd really want to start withdrawing currency. If currency in a bank is worth less than currency in your hands that could produce something in the way of behaviour,” said Buffett. “If you have a lot of money in euros, as we [Berkshire Hathaway] do, you’re better off putting it under your mattress than in a bank,” he proclaimed.
"We have close to $60 billion that's out invested at about a quarter of percent or less," the Berkshire chairman and CEO said. "One point on $60 billion is $600 million a year. If we were getting 3 or 4 percent on that money, that's a couple billion to us. You notice it."
So what if Buffett decides to withdraw his fortunes from the banks which hold them?
Considering his vast fortune, this act would create a run on the banks, forcing them to cash out funds that aren’t necessarily readily available. Because banks operate under fractional banking, they don’t physically carry the balance of deposits as hard cash. At the end of the day, bank balances are simply an accounting entry in a computer. This kind of withdrawal would force the bank to dip into funds that aren’t strictly theirs in an effort to settle the amount with the withdrawer. Can you guess whose money that is? Yes. Yours!
Imagine you decide the day after Warren Buffett draws his money as cash (from the same bank you have an account with) that you’d like to close your account and withdraw your balance. You walk up to the teller and ask her for your available balance as cash – and she says, “I’m sorry, we have no cash.” Money that is technically yours, not available to you when you want it. It’s a slightly outrageous scenario, but this could quite easily become a reality should enough wealthy investors share Buffett’s sentiment and decide to take their lump sums out of their respective banks.
How is this a boost for Bitcoin?
Bitcoin is decentralised, which means that it’s not subject to the same economic and political forces that fiat currency is. And the more uncertainty and loss in confidence in fiat currency, the more evident the benefits of bitcoin become.
Essentially Buffett is expressing his concerns of a looming financial period not seen since the Great Depression. Monetary policies implemented for quick wins and with the intention of market stimulation only work for a short period of time before the scales tip and the weight, and burden, of those decisions rest with the citizens of the country - and more specifically their money. (Just ask the Greeks how that worked out for them!)
When these traditional markets collapse, people flock to alternatives in an effort to safeguard their wealth from deteriorating value and potential seizure by authorities. For many, this meant investing in precious metals such as gold. And while gold is still a great commodity, the digital, 2.0 version addresses its drawbacks and supercharges its benefits. That version is Bitcoin - and it’s time to take it seriously!
Photo credit: Fortune Live Media