In addition to playing bridge together and providing business advice to each other, good friends Bill Gates and Warren Buffett share the same views on cryptocurrencies and bitcoin. Both generated headlines across the web this week after criticizing bitcoin and declaring that they were not averse to shorting bitcoin.

Buffett was first off the mark, when he called bitcoin “rat poison squared” in response to a question at the annual shareholder meeting for his company Berkshire Hathaway in Omaha, Nebraska. He also reiterated his prediction of a “bad ending” for cryptocurrencies in the future. Charlie Munger, Buffett’s business partner, was even more strident in his criticism of bitcoin and suggested that investors in the new asset were suffering from “just dementia”. Gates followed soon after in an appearance on CNBC’s Squawk Box. He called bitcoin one of the “crazier, speculative” things and said he would have shorted it if he knew of an “easy way” to do so.

The crux of their arguments rests on bitcoin’s utility. “It essentially doesn’t deliver anything besides scarcity,” Buffett said, referring to the cryptocurrency’s limit of 21 million coins. “It doesn’t produce anything.” Bitcoin’s proponents argue that it dramatically reduces money transfer costs using blockchain, its underlying technology. To that point, Buffett said the fact that bank checks are used to transfer money between two parties doesn’t necessarily mean that checks have an intrinsic value by themselves.

“The fact that it is clever computer science does not mean that it should be widely used and that respectable people should encourage other people to speculate on it,” Munger said. Gates produced a similar line of argument during his appearance on CNBC. “As an asset class, you’re not producing anything and so you shouldn’t expect it to go up. It’s kind of a pure ‘greater fool theory’ type of investment,” he said.

Tyler Winklevoss, who is one of the first bitcoin billionaires by virtue of his investment in the cryptocurrency, fired back at Gates’ suggestion of shorting bitcoin by tweeting out an easy method of shorting bitcoin using Cboe futures.

Meanwhile, bitcoin, which was marching towards the $10,000 target, fell after remarks by Buffett and Gates made their way to the wires.

Buffett And Gates May Have A Point

As I mentioned in a piece on the topic on Investopedia, Gates is not exactly against bitcoin. In an earlier Bloomberg interview, he said bitcoin could be used for cheap money transfers in developing countries, with large segments of unbanked population.

There is some truth to Buffett and Munger’s arguments. Till date, it has been difficult to assign a defined use case for bitcoin. It was touted as a medium for daily transactions but high transaction fees and crowded networks that result in long wait times for transaction processing have put paid to that ambition. Even the number of transactions on bitcoin’s network crashed earlier this year.

While investors have poured money into bitcoin, it is difficult to separate investors, who believe in long term value of the asset, from traders, who are short-term speculators. In fact, bitcoin’s price volatility makes it seem more like a fly-by-night asset than a long-term store of value.

Still this is a story which has been written earlier. For example, gold and silver, two metals that are considered excellent stores of value, witnessed similar volatility in prices during the 1970s ad 1980s. The price of silver jumped from $6 per troy ounce to $49.80 in less than six months towards the end of 1979 and beginning of 1980. During the same period, gold shot up from $512 per Troy ounce to $850 per Troy ounce. Both metals crashed soon after to a prolonged slump and revived their prices only after three years of a slow ascent.