Key Words: Crypto is a ‘gambling contract’ not a currency and should be banned, says Charlie Munger
““A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity.””
— Charlie Munger, Vice Chair of Berkshire Hathaway
That was Charlie Munger, vice chairman of Berkshire Hathaway, speaking in an op-ed in the Wall Street Journal on Wednesday, about the rise of cryptocurrency in the U.S. in recent years has led to a gambling mindset.
Munger slammed the “wretched excess” of numerous cryptocurrencies set up by private companies which become publicly traded with no government pre-approval of disclosures.
Sometimes, he says, large chunks of cryptocurrency are sold to a promoter for an extremely low price and inflated when the public buys in “without fully understanding the pre-dilution in favor of the promoter.”
The root of this “wild and wooly capitalism” Munger says is a gap in regulation.
“Obviously the U.S. should now enact a new federal law that prevents this from happening,” he wrote.
Munger joins his business partner Warren Buffett as a long time skeptic of cryptocurrencies. He recently said the industry was “partly fraud and partly delusion” while Buffett has previously said he wouldn’t buy all of the bitcoin in the world for $25.
He noted two precedents to consider in the U.S.: one is the recent ban of cryptocurrencies by the Chinese government because “it wisely concluded that they would provide more harm than benefit.”
The second example is from 1700s England, when Parliament banned all public trading in new common stocks and kept this ban in place for about 100 years, Munger wrote.
“In that 100 years, England made by far the biggest national contribution to the march of civilization as it led strongly in both the Enlightenment and the Industrial Revolution and, to boot, spawned off a promising little country called the United States,” he added.
“What should the U.S. do after a ban of cryptocurrencies is in place? Well, one more action might make sense: Thank the Chinese communist leader for his splendid example of uncommon sense,” he concluded.