Warren Buffett, the legendary investor, has famously called Bitcoin “rat poison squared” and has been a vocal critic of the cryptocurrency. However, recent data suggests that adding Bitcoin to an equally weighted portfolio of Berkshire Hathaway, Microsoft, JPMorgan, and BlackRock stocks, known as the “Rat Poison Portfolio,” would have significantly increased returns for Buffett’s investment portfolio.
According to independent market analyst Alpha Zeta, since 2014, allocating only 2.5% of the portfolio to Bitcoin yearly would have increased returns by nearly 20% with reduced risks. The portfolio’s returns currently stand at around 16%. Despite Bitcoin’s notorious price volatility, Alpha Zeta noted that BTC’s correlation with the stocks of Berkshire Hathaway, Microsoft, JP Morgan, and BlackRock is very low, meaning that allocating a small portion of Bitcoin to the Rat Poison Portfolio has proven to be a reasonable hedging strategy to offset potential negative returns.
During the 2021-2023 bear market, allocating Bitcoin to the Rat Poison Portfolio could have negated losses by around 10%. In other words, BTC typically negates losses imposed by the downside movements in the said stocks. Therefore, adding Bitcoin to the portfolio has proven to be a smart strategy to offset potential negative returns.
Bitcoin’s proponents have projected it as an alternative to traditional safe-haven assets like gold, given the scarcity that comes with its fixed 21 million BTC supply and increasing deflation over time. This has attracted many people to buy Bitcoin as a way of offsetting fiat debasement and excessive money printing of central banks around the world. For instance, the number of non-zero Bitcoin addresses has grown from around 2,500 in 2009 to over 45 million in 2023, per Glassnode.
Nonetheless, Buffett believes Bitcoin is a gambling token, noting that “it doesn’t have any intrinsic value […], but that doesn’t stop people from wanting to play the roulette wheel.” However, the veteran investor continues to have exposure in the broader crypto market through his popular investments, such as Nubank, which offers crypto-related services in Latin America.
As of April 2023, Bitcoin is down nearly 60% from its record high of $69,000 in November 2021, but is up 100% so far this year. Since its market debut on Jan. 9, 2019, Bitcoin has outperformed Berkshire Hathaway’s portfolio by over 320,000%.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
