Warren Buffett Got it Wrong: Adding Bitcoin to a ‘Rat Poison Portfolio’ Produces Higher Returns, Data Shows

In the Brief:

  • Buffett's portfolio would have done better with Bitcoin; adding 2.5% increases returns by 20% and reduces risks
  • Bitcoin's low correlation with stocks makes it valuable for investors
  • Its deflationary characteristic makes it a viable hedge against fiat debasement

3 - 5 minute read

Warren Buffett is widely regarded as one of the most successful investors of all time. However, it is no secret that he has long been skeptical of Bitcoin, infamously calling it “rat poison squared.” But new data shows that the investment guru, who heads Berkshire Hathaway, might be wrong about his stance on the cryptocurrency. In fact, adding Bitcoin to a “Rat Poison Portfolio,” an equally weighted portfolio comprising stocks of major companies such as Microsoft and JPMorgan, would have produced much better returns for Buffett since 2014.

Blockchain analyst Alpha Zeta found that allocating just 2.5% Bitcoin to the portfolio every year would have increased returns by nearly 20% with reduced risks. While the portfolio currently has returns around 16%, it could have certainly benefitted from exposure to Bitcoin, according to the research firm.

Although Bitcoin has a notorious reputation for price volatility, the cryptocurrency’s correlation with the stocks in the portfolio is extremely low, making it a potentially valuable investment. For instance, during the bear market of 2021 and 2022, adding Bitcoin to the portfolio could have negated losses by around 10%, according to Alpha Zeta. The data indicates that allocating a small portion of Bitcoin to the portfolio can act as a hedge against negative returns.

Buffett has called Bitcoin a “gambling token” and has criticized it for its lack of intrinsic value. However, despite his reservations about Bitcoin, the billionaire investor has some exposure to the broader cryptocurrency market through his investments in companies such as the Latin American digital bank Nubank.

In recent trends, Bitcoin has emerged as a preferred alternative to traditional safe-haven assets such as gold due to its increasing scarcity and deflation over time. This feature has attracted many investors who see it as a viable hedge against fiat debasement and excessive money printing by central banks worldwide.

Despite the current dip in crypto prices, Bitcoin is up 100% so far this year, and since its market debut on Jan. 9, 2019, it has outperformed Berkshire Hathaway’s portfolio by over 320,000%.

Traders looking to optimize their portfolios can consider adding Bitcoin, despite Buffett’s skepticism. The low correlation between Bitcoin and major stocks makes it a potentially valuable investment to reduce risks and increase returns. However, as with any investment, it is essential to conduct thorough research and be aware of the risks involved.

The Bottom Line

Adding just 2.5% Bitcoin to a “Rat Poison Portfolio” could have increased returns by 20% since 2014, while reducing risks, according to new data. While Warren Buffett has been unwilling to add Bitcoin to his portfolio, the cryptocurrency’s low correlation with major stocks and potential as a hedge against negative returns make it a valuable investment to consider. Traders should exercise caution and conduct thorough research before investing in Bitcoin or any other cryptocurrency.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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