Warren Buffett and Berkshire Hathaway substantially cut their position on Wells Fargo, selling 100 million shares. The Oracle of Omaha is continuing to trim his position in bank stocks, buoying the bull case for gold and Bitcoin (BTC).
Berkshire reportedly held $32 billion in equity in Wells Fargo at one point, Fox Business reported on Sep. 5. The investment conglomerate now owns 3.3% in equity of the lender, worth just $3.36 billion.
Why did Buffett cut Wells Fargo and how could it benefit Bitcoin?
Throughout his career, Buffett emphasized the importance of value investing and cash flow. The investor typically prefers businesses with predictable and stable operations that result in consistent profitability.
In July, Wells Fargo posted a $2.4 billion loss, recording its first loss since the 2008 housing crisis. Following the disappointing quarterly report, the company said it would cut its dividend to 10 cents per share.
This month, Moody’s cut its rating from stable to negative, citing the slow process to overhaul its governance. Allen Tischler, a Moody’s analyst said:
“The outlook change reflects Wells Fargo’s slower-than-anticipated pace in resolving its legacy governance, oversight, compliance, and operational risk management deficiencies. The slow pace weighs on its expense base, further undermining its earnings potential against the backdrop of challenging operating conditions.”
The confluence of the quarterly loss, the dividend cut, and the downgraded outlook likely led Buffett to trim his position.
But the persistent theme in Berkshire’s portfolio reshuffle in recent months is its investment in Barrick Gold. While decreasing its exposure to the U.S. banking sector, Buffett invested in gold and Japanese trading companies.
The decision shows that Buffett is seeking safety in terms of cash flow and a hedge against inflation. The Barrick Gold investment fuels the bull case of Bitcoin because the perception of BTC as a store of value is improving, especially given the tight correlation between the two since the March 2020 crash.
Bitcoin vs gold price. Source: Skew
BTC would “cannibalize” gold in the future, says Winklevoss
Other notable investors, including the Winklevoss twins, believe Bitcoin as “digital gold” would compete against gold over the long term. Specifically, its immense upside potential makes it an attractive investment since BTC market capitalization is still roughly only 1.5% of gold.
Cameron Winkelvoss, the co-founder of Gemini, said Bitcoin already made significant ground on gold. He said:
“Bitcoin has made significant ground on gold — going from white paper to over $200 billion in market capitalization in under a decade. It will continue to cannibalize gold dramatically over the next decade.”
The growing institutional activity in the Bitcoin market has reflected the positive sentiment of Winklevoss around BTC.
As Cointelegraph previously reported, MicroStrategy purchased $250 million in Bitcoin as a hedge against inflation. Grayscale, a major U.S. cryptocurrency investment firm, saw its assets under management (AUM) surge to a new record high.
On Sep. 2, Grayscale CEO Barry Silbert said Grayscale’s AUM reached a new high of $6.3 billion, as the Grayscale Bitcoin Trust exceeded $5 billion.