What if Buffett were to trade cryptocurrencies?

Don’t get me wrong, I know Buffett doesn’t trade crypto, he not only dislikes Bitcoin but also gold, tech stocks, and anything whose future cash flows can’t be estimated.

But that’s within Buffett’s circle of competence and preferences, and doesn’t represent everyone else. Yet many of his investment philosophies are universal.

Everyone knows Buffett holds a lot of cash, and then I have a bunch of people saying the U.S. stock market is going to crash, stocks are too high, the tech bubble, AI bubble about to burst, because they believe that this old fox Buffett must have sniffed out something, knows something we don’t, and then ask me what I think?

Wait, do you even know what Buffett is doing? If you blindly imitate without knowing what Buffett is up to, how can you tell if it’s worth imitating?

Buffett holding cash is never about predicting that a particular market will crash tomorrow, or even next year. It’s about buying an option.

What does that mean? I hold cash, which might be eroded by inflation when inflation is high, but whether inflation is 3% or 4%, this cash is an insurance policy I buy for future markets — if there’s no crash in the next year, I’ve just paid a 3% premium and I don’t exercise; but if there’s a crash and many assets are wrongly sold off, I can exercise, and the profit from bottom-fishing isn’t 3%, but 300%.

Even if no major crash happens in five years, I might lose at most 15%, but if it does, the profit could be hundreds of percent or more — he’s betting that a black swan will happen, just not knowing when or in what form.

So why does he still hold so many stocks instead of all cash? It’s a balance. He prepares for every possibility — first, holding a portfolio of assets that can survive cycles, ensuring that even if wrongly sold, they will rebound; and if no risk materializes and the market bubbles up, he can hold until their P/E ratios become extremely high and then sell for profit. Second, if a huge risk occurs in the meantime, he still has half his cash to exercise options and bottom-fish, just patiently waiting for good assets’ prices to return.

That’s why Buffett’s high cash ratio isn’t about predicting the U.S. stock market will crash soon, or even next year or the year after. He’s just using half of his money to buy an “extreme event” option that might happen someday in the future, and is willing to pay the premium or option fee for it. To hedge this premium, he doesn’t keep all that money in pure cash but in near-cash assets like short-term U.S. Treasuries — earning interest and flexible to liquidate.

This Buffett approach can be applied anywhere, even in crypto. For example, you can estimate a valuation range for Bitcoin at each peak, use various indicators to assess, and leave a large safety margin. For instance, before Bitcoin enters an overvalued zone, set aside half of your holdings into yield-max or similar platforms, leaving only half of your Bitcoin assets to continue appreciating; then, when Bitcoin drops more than 50% from its high, move that money out of yield-max, buy the dip in stages, and the cash flow generated from yield-max can be used to chase some small altcoins for alpha opportunities.

What are the prerequisites?

1. You must stay within your circle of competence, be very sure that Bitcoin is a good asset that can survive cycles;

2. The place where you earn interest must be stable, with good liquidity, and accessible at any time.

Although rough, this approach is enough for most people, and you can consider yourself a semi-Bitcoin Buffett. From there, just let time do its work. #稳定币叙事之战