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Charlie Munger is not a fan of cryptocurrencies. As vice chairman of the nearly $700 billion conglomerate Berkshire Hathaway, Munger has been Warren for investors since 1978 by taking a rigorous, fundamentally-driven approach to acquiring “quality business.” You’ve helped Buffett make billions of dollars.
And he believes cryptocurrencies represent the opposite strategy, arguing that the industry as a whole is “partly fraudulent and partly delusional.” In 2021, Munger famously called Bitcoin, the world’s leading digital asset, “rat poison” and likened other cryptocurrencies to a kind of “venereal disease.” Now, he says the federal government should step in and ban the entire industry.
“Cryptocurrencies are not currencies, commodities or securities,” Munger asserted Wednesday. wall street journal Editorial. “Instead, it’s a gambling contract with an edge of almost 100% of the house…Clearly, the United States needs to enact new federal legislation to prevent this from happening.”
Munge said cryptocurrency investors are being used by promoters and founders, noting that new cryptocurrency creators often receive coins that are “almost nothing”.
“The public then buys at a much higher price without fully understanding the pre-dilution in favor of promoters,” he argues, calling it an example of “wild and hairy capitalism.” is.
Munger said the U.S. should follow the example of China, which famously banned cryptocurrencies in 2021, by passing laws banning both cryptocurrency trading and the formation of new cryptocurrencies.
“What should the US do after the cryptocurrency ban is implemented?” Munger continued. “Well, one more action might make sense. Thank you to the leader of the Communist Party of China for a wonderful example of his extraordinary senses.”
Munger argues that China’s actions, which it claims were taken because Chinese authorities concluded that cryptocurrencies “would do more harm than good,” provide evidence of the potential benefits of banning cryptocurrencies. said it was one of the three important precedents. But for a man who amassed a net worth of $2.3 billion primarily through public-market investor Berkshire Hathaway, the second precedent Munger provided was a strange one.
As an example of the benefits of cracking down on risky speculation from investors, Munger pointed to Britain’s ban on public trading of new common stock after the South Sea bubble burst in 1720. Dubbed “the world’s first financial crisis,” the South Sea Bubble began in 1711 when the South Sea Company was created by an Act of Parliament as a public-private partnership to help reduce the cost of British government bonds.
The shares were sold to the public at an interest rate of 6%, but the company’s enslavement and trading did not yield the profits originally promised. Despite the lack of earnings, the company’s stock bubbled as investors rushed to profit from high dividends. King George he took office as company leader in 1718. By 1720, however, the Nankai Company stock had collapsed, losing more than 80% of his value.
Munger noted that a “horrible recession” ensued and the government reacted quickly.
“When this crazy promotion exploded, what the British Parliament did in its anguish was direct and simple: it banned all public trading in new ordinary shares and maintained this ban for almost 100 years. I did,” he said. “And in her 100 years, England so powerfully led both the Enlightenment and the Industrial Revolution, and produced the promising little nation of America, it was by far the greatest national resource for the progress of civilization. I made a contribution.”
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