Famed investor and Berkshire Hathaway chairman Warren Buffett celebrated his 93rd birthday on August 30. Throughout his long career, he has steadfastly adhered to a value investing strategy that bears some resemblance to what is commonly thought of as a “buy and hold” approach. cryptocurrency.

Buffett’s focus, however, is on assets with strong earning potential and investing in companies and industries where he and his team have a deep understanding of the associated risks, competition, and advantages.

The question is whether this laser strategy can outperform Bitcoin (BTC) in the long run. Additionally, investors should question why one of the greatest stock pickers of all time currently holds cash and short-term bonds as the second-largest position in his portfolio.

An interesting example of this approach is Berkshire Hathaway’s largest holding, Apple Inc. (AAPL). The company originally acquired the shares in early 2016, when the company was valued at more than $500 billion, so they were far from early investors. Notably, Berkshire Hathaway continues to increase its exposure to AAPL in 2022, even though the stock has rallied more than 500% since its initial purchase. This speaks to Buffett’s commitment to a long-term investing strategy, regardless of recent price action.

Buffett downplays unproductive commodities as store of value

In a February 2012 shareholder letter, Berkshire Hathaway expressed concerns about the devaluation of paper money and discussed the limitations of gold as a store of value. They argue that gold lacks real utility, demand for industrial and jewelry uses is lower than production, and its price is largely driven by fear-driven sentiment, which will only lead to temporary price increases. In contrast, investments in productive companies yield handsome dividends and returns.

Berkshire Hathaway also points out that people will always be willing to trade a portion of their income in exchange for goods and services, whether the currency of the future is based on gold, seashells, or paper.

Much to Buffett’s dismay, Bitcoin’s price soared 683% in the 12 months since his criticism of the viability of an unproductive commodity as a store of value. Additionally, Bitcoin has gained a staggering 9,014% over a 4-year period.

In order to compare the performance of stocks held by Berkshire Hathaway with Bitcoin, considering that Buffett focuses on income and yield, which are fundamentally different from the characteristics of commodities such as gold or Bitcoin, we use factor 3 to simulate Leveraged positions to calculate Berkshire Hathaway’s stock performance.

Berkshire (BBRK.B) is 3x the BTC/USD index (orange). Source: TradingView

If an individual invested $1,000 in Bitcoin (spot) in early 2019 and took a leveraged long position in Berkshire Hathaway stock, they would have observed a return of $7,020 for BTC and a return of $7,020 for Buffett Holdings $5,623.

Berkshire (BBRK.B) is 3x the BTC/USD index (orange). Source: TradingView

Likewise, for an investment started in 2017, the price of Bitcoin would reach $3,798, while a leveraged long strategy using Berkshire Hathaway stock would fetch $1,998.

Apparent Inconsistency in Buffett’s Strategy Is Good for Bitcoin

It’s worth noting a potential hole in Buffett’s investing thesis: Berkshire Hathaway currently maintains a record $147 billion in cash equivalents and short-term investments, representing 18.5% of the company’s total market capitalization. This raises questions about whether they are waiting for a better entry point in a particular stock, or whether they find a 5.25% return on fixed income investments satisfactory.

The situation underscores how even the most accomplished stock market investors can be wary of deploying cash. It also raises questions about whether some funds currently on the sidelines, including a $5.6 billion money market fund, might seek alternative forms of protection if inflation picks up again.

Bitcoin may not be a perfect store of value, and its volatility has been a topic of concern. However, it must be admitted that Bitcoin has not yet faced a global recession, so it is too early to make a definite judgment.

Additionally, Bitcoin’s price has continued to outperform Berkshire Hathaway’s stock, suggesting investors are increasingly viewing it as a viable alternative store of value.

With that in mind, Berkshire Hathaway’s large cash position is a potential red flag for bitcoin skeptics. The total market capitalization of Bitcoin currently stands at $500 billion, which shows that Bitcoin has huge, untapped potential in the financial field.