Buffett invests in encryption banks and earns over $200 million

Mentioning the encryption opponents in the industry, the renowned Warren Buffett is undoubtedly one of them.

From start to finish, Warren Buffett, who adheres to the value investment methodology, has always shown a clear aversion to the elusive digital currency. Well-known quotes abound, and at the 2018 Berkshire Hathaway annual shareholder meeting, Buffett referred to Bitcoin and digital currency as the “square of rat poison”.

In an interview with CNBC in 2018, he made it clear that, “as far as encryption currencies are concerned, overall, I can almost certainly say that their outcome will be very bad. We do not hold any encryption currencies, nor do we short any encryption currencies, and we will never hold any encryption currencies.”

Even at the 2022 shareholders meeting, Buffett’s attitude has not changed at all. He still said, ‘If you told me you owned all the bitcoins in the world and sold them to me for $25, I wouldn’t accept it because what would I do with it? I would have to figure out how to sell it to you. It wouldn’t do anything.’

But it is also because of this that his various measures for encryption are being scrutinized by the market with a magnifying glass. At the beginning of last year, there were rumors that he invested in an encryption bank, claiming that the stock god Buffett finally recognized the value of Bitcoin and invested a total of $700 million in a bank called New Bank.

Despite subsequent decisive denial, in fact, Berkshire Hathaway did have encryption-related investments and made billions of dollars in revenue from it, and the company in question is the parent company of the Brazilian encryption bank Nubank - Nu Holdings.

Only looking at bank stocks, Nu Holdings, founded in 2013, is relatively new in the banking sector, but it has targeted emerging markets such as Brazil, Mexico, and Colombia, and has achieved rapid expansion in the digital financial market. To date, Nu Holdings has accumulated a significant market share, especially in its home market Brazil. The company has also expanded into Mexico and Colombia, two other potentially huge markets, with approximately 9 million customers in Mexico as of the third quarter of 2024. In Colombia, the total number of customers this quarter exceeded 2 million.

Among them, Nubank, its flagship product, deserves credit. The company currently has 109.7 million global customers, surpassing 89.1 million in the same period 23 years ago. In the third quarter of 2024, it added 5.2 million new customers, achieving a 25% monthly average income growth per active customer and a 56% year-on-year increase in total revenue, reaching an impressive $2.9 billion.

Nubank is closely related to encryption. The bank launched Nubank Cripto, an encryption currency platform, in 2022. The platform initially only supported Bitcoin BTC/USD, Ethereum ETH/USD, and Polygon MATIC/USD, and later expanded to include Uniswap UNI/USD and Chainlink LINK/USD, allowing users to send, receive, and convert stablecoins such as USDC. In September of that year, Nubank also created the Nucoin token on the Polygon blockchain.

Since then, Nubank has been furthering its strategic path in digital assets. In November last year, Nubank also launched an encryption currency exchange tool in its application. This feature allows for the exchange of Bitcoin (BTC), Ethereum (ETH), Solana (SOL), or Uniswap (UNI) into USDC at a lower cost. Despite the failure of Nucoin, recently Nubank has extended the incentive function for digital dollar USDC holders to all Nubank Cripto users in Brazil. This extension allows for a daily return of 4% fixed interest rate per year from a minimum balance of 10 USDC in the wallet.

It can be seen that Nubank still has encryption factors, and Berkshire Hathaway invested in Nu Holdings, thus entering the encryption-related field. In terms of investment amount, Berkshire initially invested $500 million in Nu Holdings in the G round financing in June 2021, and then added $250 million after the Nu Holdings IPO in December, holding a total of approximately 107 million shares of the company. According to the documents of the U.S. Securities and Exchange Commission, Berkshire Hathaway increased its stake in Nu from 0.1% in the fourth quarter ending December 31, 2022 to 0.4% in the third quarter of the 2024 fiscal year, showing a positive attitude towards the prospects of this company.

However, it is worth mentioning that in terms of the total number of shares, Berkshire Hathaway is reducing its position in the company. Last year, it sold some of its stocks, and according to its 13F filing, as of the end of the third quarter, Berkshire Hathaway’s total number of shares held decreased from 107 million shares to 86.4 million shares, a decrease of nearly 20%.

This investment did not disappoint Buffett. In terms of stock price, although the stock price had a decline period of up to six months after the IPO, the stock price of Nu Holdings has been rising since July 22, 2022, from a low of $3.26 to a high of $16.145, and then gradually declined. It is currently reported at $11.99. From this year’s perspective, Nu Holdings’ stock price has risen by nearly 34% compared to the same period last year. With a price of $11.99 and a calculation based on 86.4 million shares, Buffett’s total value of holding shares has also reached $1.035 billion. Compared to his original investment of $750 million, he has made a profit of over $285 million, which can be considered as indirectly benefiting from encryption.

**But at its core, it’s clear that Buffett is not deliberately investing in the encryption field. The most direct point is that Berkshire Hathaway invested in Nu in 2021, but Nu Bank announced its entry into the encryption field, launching Nubank Cripto, in May 2022, with a time difference.

Of course, even if Nu Bank enters the encryption field early, it doesn’t mean that Buffett won’t invest. From an investment perspective, Nu Bank is still a potential investment product. First, it has a broad service area. Nu Bank targets the large and continuously growing Latin American emerging market for financial services. Second, it has a clear strategic positioning. Its strategy of using digital banking as the infrastructure aligns perfectly with the characteristics of the Latin American market, especially the well-known high fees, poor service, and outdated infrastructure in the Brazilian financial service industry. Third, the founder has outstanding abilities. Nu Bank was founded by David Velez, a venture capitalist who previously worked at Sequoia Capital, and he has a relatively strong insight into the financial market and innovative products.

Due to the above reasons, before Buffett, many well-known capital investors have invested in Nu Bank, including Yuri Milner’s DST Global, Peter Thiel’s Founders Fund, Chase Coleman’s Tiger Global and Sequoia Capital. In October 2018, Tencent also invested $180 million in Nubank at a valuation of $4 billion. Tencent has since followed up with multiple investments.

Even if we disregard the strategy, analyzing Nu Bank’s financial report, we can see that it is still a relatively traditional financial enterprise in terms of income. Most of its income still comes from traditional financial products such as credit cards, insurance policies, and traditional investment accounts, rather than a purely encryption bank. As of September 30, 2024, Nu’s interest-earning investment portfolio (IEP) was $11.2 billion, with a year-on-year growth of 81% for FXN. The loan portfolio grew by $5.7 billion, and credit card receivables increased by 33% year-on-year, reaching $15.2 billion on a forex-neutral basis, which is the main driver of growth.

Therefore, if it is believed that Buffett’s investment in Nu Bank indicates a change in attitude, there may be some imagination involved. As Buffett mentioned in 2018, “What I think I know has gotten me into enough trouble. Why should I go long or short on something I know nothing about?” This is indeed the case, as of the end of 2024, Berkshire Hathaway holds over $325 billion in cash and equivalents, but most of it is in U.S. Treasury Bills. Cash is king, avoiding large investments in hot stocks, and selecting value targets with productive potential that are well understood is the combination of knowledge and action that has enabled Buffett and Berkshire Hathaway to stand strong.

**But it has to be admitted that Berkshire Hathaway is now making investments related to cryptocurrency, so the stock god may need to rephrase the previous statement, that is - cryptocurrency will not have any impact, after all, encryption has also brought benefits to Buffett to a greater or lesser extent.

With Bitcoin surpassing $100,000, even the staunchest opponents seem to have softened their stance. For example, Jamie Dimon, CEO of JPMorgan, a well-known encryption opponent, even went so far as to call it a “fraud” and a “Ponzi scheme,” and boasted that if he were in charge of the government, he would shut it down completely. On January 13th, during an interview with CBS News, he once again criticized Bitcoin, stating that it has no intrinsic value and is often abused by bad actors.

Interestingly, JPMorgan Chase purchased a large amount of encryption ETFs last year. According to the filing submitted to the U.S. Securities and Exchange Commission (SEC) on May 10, 2024, JPMorgan Chase holds approximately $760,000 worth of ProShares BITO, BlackRock IBIT, Fidelity FBTC, Grayscale GBTC, and Bitwise BITB. In addition, the bank also holds 25,021 shares of Bitcoin Depot, a Bitcoin ATM supplier, worth approximately $47,000.

Microsoft has also had similar operations. Founder Bill Gates stated in 2018 that cryptocurrencies and NFTs are scams based 100% on the ‘greater fool theory’, but the company’s political legacy recently attempted to vote on adding Bitcoin to its investment portfolio.

Although the opposition is beyond words, the profit-oriented business world often does not make decisions based on attitude. For the vast majority of enterprises, it seems to confirm the old saying that no matter if a cat is black or white, as long as it catches mice, it is a good cat.