During an interview on CNBC's Squawk Box on Wednesday, Social Capital CEO Chamath Palihapitiya was asked to respond to recent criticisms of Bitcoin by Bill Bates, Warrant Buffett, and Charlie Munger. Palihapitiya argued that they are all wrong in their assessment of the world’s most well-known digital currency, and then explained why:
“Well, look – not everybody is right all the time, and I think that we all have to acknowledge that we all have biases. I’m a disciple of Buffett and Munger, and one of the things that they have said for years – which I believe – is you define a circle of competence and you stay within it. And I think it’s been clear in his entire investing career that technology is not in his circle of competence.”
Palihapitiya agreed with Buffett’s view that Bitcoin is an asset and said that he “believes that it is a replacement to gold.” He was, however, adamant that cryptocurrency investors and traditional investors are two different types of people.
“I’ve been in the Bitcoin market since 2012 and I feel like I’m in two different universes. I need a passport to go between the Bitcoin world and my regular world. These are not the same people. And what I would tell you is the people who owned Bitcoin in 2012 all the way up to now, the majority of those people view it as a hedge to the traditional financial structure. Whether that’s true or not is unclear, but that’s how we’ve all viewed it. “
He then defended his earlier assertion that Bitcoin is important precisely because it has no correlation with those other markets by noting how markets reacted to the last major financial crisis.
“The reality is that all of these financial assets in the traditional markets are fundamentally correlated. We saw that in 2007. Everything broke down. Things that we thought were hedges went away. And so, I think it’s really important to not forget what happened there. So, in 2018 or 19, heaven forbid we go through another cataclysmic financial event, we are going to see the same fundamental correlation. And so again I ask, why would it not make sense to have a non-correlated hedge?”
Palihapitiya praised Buffett, Gates, and Munger, and said that he thinks that they’re all exceptional – “at what they do.” However, he suggested that their prior success does not mean that they're right about an industry that they may not fully understand: “The reality is, things change.”