Cryptocurrency may not be a poison rat after all. The legendary investor Warren Buffet seems to have realised it when he made a turnaround and invested $1 billion worth of stock in Nubank, one of Brazil’s largest financial institutions, with an eye on cryptocurrencies.
The investment made through the investor’s Berkshire Hathaway is not the first in this bank. In December 2021, the firm was reported to have acquired over 30 million Nubank shares for a whopping $250 million. At the time of the first investment, Nubank was valued at $41.5 billion. Earlier in June of the same year, Berkshire had bought a stake worth $500 million from the bank.
Over the years, Buffet has earned the nickname “the Sage of Omaha” for his funny and sometimes controversial predictions about various investments. He has also been speaking ill of the cryptocurrency and, at some point, called it “rat poison.”
In an interview with Yahoo Finance, Buffet stated that buying cryptocurrency like Bitcoin does not produce anything; you just wait and hope that the next guy will pay more for the coin. The guy will also buy it if he thinks that the next guy will pay even more. He added that Bitcoin should be banned just like China was already doing.
In addition, his partner and the vice-chairman of the Berkshire firm, Charlie Munger, was also critical of cryptocurrency, especially Bitcoin. At some point, he once said that Bitcoin was very disgusting and was contrary to the interests of any civilisation.
Yet, despite all these harsh words, the investor had the guts to invest in a bank that was actively promoting cryptocurrency investments. It remains to be seen how the investor will react to the new development by his fund.
While the NuBank policies do not allow active cryptocurrency trading on its main banking products, it runs an investment arm called NuInvest, which allows its customers to invest in and trade in Bitcoin exchange-traded funds (ETF). According to its prospectus, the bank has over 48 million customers across Brazil, Mexico and Colombia.
In the recent past, the bank has claimed that it has issued some 5 million credits and extended financial services to several of the unbanked population. The number of the unbanked has decreased tremendously from 45% of the entire population to just 20% by the year 2020.
The investment location and focus of the bank have created a growth potential that Berkshire is keen to tap into. The firm is betting on growth in terms of expanding services in the countries where it has a presence and increasing the number of services it offers to its current customers. This became clear in a filing that the investment fund made with the U.S. Securities and Exchange Commission a while back.
On the other hand, some industry pundits are questioning the crypto-friendliness of the bank, and with good reason. Nubank acquired the Bitcoin-investment arm in 2021 when it purchased Easynvest firm in Brazil. This is the firm that changed its name to NuInvest. However, the prospectus does not mention any revenues or other products that the company built in the cryptocurrency business.
Nubank is yet to make a profit and has only been listing revenues from card fees, transaction fees and other financial instrument investments such as the high-liquidity bonds floated by the government. It is also worth noting that the company says that it will keep pace with the technological advancements in the financial industry, including cryptocurrencies and virtual coins. However, this comes with a caveat.
The firm states that blockchain technology could limit the ability to track the movement of funds from one party to the other, which is a risk to the bank as it may prevent the bank from performing due diligence on cases of fraud and money laundering.
Berkshire has also started to warm to cryptocurrencies and the general fintech industry. Many of its investments in traditional banks have increased in the recent past, even as many of these financial institutions entered into the fintech industry. This means that Buffet and his business partner Munger did not avoid taking the rat poison and diseases, as they claimed the digital investments were. It will be interesting to see what their next investment moves are in this sector.
References:
- https://fortune.com/2022/02/16/warren-buffett-invested-1-billion-crypto-bank/
- https://www.cnbctv18.com/cryptocurrency/warren-buffetts-berkshire-invests-1-billion-in-crypto-friendly-nubank-12533352.htm
- https://finance.yahoo.com/news/even-berkshire-hathaway-sunk-1-062602320.html
