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Monday, February 6, 2023

Warren Buffett invests $1B in Bitcoin-friendly neobank, ditches Visa and Mastercard stocks.

Berkshire Hathaway dumped a portion of its Visa and Mastercard holdings and increased its exposure to Nubank, Brazil’s largest fintech bank that’s also popular among the country’s Bitcoin investors.

In a securities filing late Feb. 14, the industrial conglomerate revealed that it had acquired $1 billion worth of Nubank Class A stock during Q4/2021. On the other hand, it sold $1.8 billion and $1.3 billion worth of Visa and Mastercard stock, respectively, signaling a shift away from credit companies to gain exposure to fintech companies.

The so-called “Oracle of Omaha,” Buffett is known for his cautious approach to investing, particularly in the market’s hottest sectors, such as fintech. The veteran investor also slammed emerging decentralized financing solutions like Bitcoin (BTC), calling it an asset that “doesn’t create anything.”

Buffett has softened his stance on fintech with Berkshire’s new stake in Nubank. A $500 million investment was made in the startup by the firm in July 2021. The return on the investment amounted to $150 million in December 2021 after Nubank went public on the New York Stock Exchange (NYSE).

So far, Buffett has not shown any intention to sell his position in Nubank.

The Buffett-Bitcoin connection

With his additional investment into Nubank, Buffett shows his appreciation for the underlying theme of the fintech sector, the digitization of financial services, and his willingness to work with cryptocurrency companies.

Since June 2021, Easynvest, a trading platform acquired by Nubank in September 2020, has offered a Bitcoin exchange-traded fund (ETF). QBTC11, the ETF is backed by QR Asset Management and listed on the B3 stock exchange, Brazil’s second-oldest bourse.

Therefore, Nubank, which remains exposed to the emerging crypto sector via Easynvest, could leverage the additional revenue opportunities to benefit its top shareholder, Warren Buffett, despite his view that Bitcoin is a “rat poison squared.”

In 2021, crypto-related investment products will be a major contributor to that growth. According to Bloomberg Intelligence data, their numbers more than doubled from 35 to 80, while the assets they held were valued at $63 billion, up from $24 billion at the start of 2021.

Cash flowing into crypto funds doubled in 2021. Source: Bloomberg Intelligence

As Bitcoin investment vehicles become more mainstream, Emily Portney, chief financial officer at Bank of New York Mellon Corp. – another firm in Buffett’s investment portfolio – noted that digital assets could become a “meaningful source of revenue” for investment banking firms.

Similarly, Leah Wald, chief executive of crypto-asset manager Valkyrie Investments, predicted an increase in capital flow into crypto-related investment vehicles, saying they have become a “phenomenon that’s taking off,” before saying:

“If you look at inflows from a volume perspective, not only has it been steady even with the price corrections that Bitcoin is notoriously famous for, but you’re seeing a lot of institutions jump in.”

Buffett’s portfolio full of crypto-loving companies

Companies in Buffett’s portfolio are foraying into the crypto sector indirectly, which means that Buffett is already exposed to cryptocurrencies indirectly.

As an example, in October 2021, just a month before bitcoin hit its all-time high of $69,000, the fifth-largest U.S. bank U.S. Bancorp announced that it was offering cryptocurrency custody services to institutional investors after experiencing an increase in demand from their “fund services clients” in recent years.

A similar initiative was launched by Bank of America in October 2021, citing “growing institutional interest.”

BNY Mellon announced months ago that it will hold, transfer, and issue Bitcoin and similar cryptocurrencies for its asset-management clients.

According to Greg Waisman, co-founder and chief operating officer of crypto wallet service Mercuryo, “Buffett’s Nubank investment is his way of indirectly supporting the fintech/crypto world without apologizing for the past.” Buffett is thereby indirectly supporting the “digital currency ecosystem,” he said.

“Even an indirect exposure is bound to increase the positive sentiment that may push more investors into the space.”

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