What do Bitcoin and Coca-Cola have in common?

For years, Coca-Cola Co. (QUEUE 0.39%) has been one of Warren Buffett’s favorite stocks. He has often spoken about why Coca-Cola is such a great investment. As a result, Coca-Cola has become a symbol of Buffett’s long-term, value-driven investment philosophy. Coca-Cola is the kind of stock you buy and hold forever.

On the other hand, Buffett is not at all fond of Bitcoin (BTC -4.79%). He’s called it “a mirage” and “rat poison squared,” and even suggested he wouldn’t buy all the Bitcoin in the world for $25. Obviously, Buffett would never even entertain the thought of adding Bitcoin to his investment portfolio. But Coca-Cola and Bitcoin may be more similar than you think. Let’s take a closer look at some of the arguments that Buffett has made in favor of Coca-Cola and see if they apply to Bitcoin.

An iconic brand

A key part of Coca-Cola’s appeal is that it is an iconic brand, instantly recognizable around the world. There are many different drinks out there, but Coca-Cola has become a uniquely American brand that inspires devotion from fans and admiration from investors.

Image source: Getty Images.

Bitcoin is also an iconic brand, but in a different way. Ask a random person on the street to name a cryptocurrency and chances are they will name Bitcoin. The orange Bitcoin logo – just like the red Coca-Cola logo – is instantly recognisable. Bitcoin was the first cryptocurrency and stands alone at the top of any ranking of cryptocurrencies. So much of the lingo that we use in the crypto world – like “buy and HODL” (HODL is crypto-lingo for “hold”) and “to the moon” – is derived from Bitcoin. And many of the ways people talk about Bitcoin – like “Bitcoin is digital gold” – remind me of the great advertising slogans that Coca-Cola has been generating for more than 100 years.

The top player in the industry

Coca-Cola did not become the largest beverage company in the world by accident. It did so by forming an almost impassable moat to thwart competitors. It has a world-class distribution network and a world-class brand team. In addition, it has a management team that is laser-focused on increasing profits and shareholder value. All this has made Coca-Cola so attractive to Buffett.

Of course, Bitcoin is not a company, so we need to adjust the way we think about being the top player in the industry. The top crypto will of course be the one with the biggest market cap. It will also be the one most used as a payment option and the one institutional investors rely on the most to deposit their portfolios. Bitcoin meets both of these conditions. Bitcoin may not have a management team, but it does have an algorithm. And that algorithm carefully controls how many coins are in circulation and describes exactly how coins can be created in the future. Just as Coca-Cola regularly pays dividends, Bitcoin regularly adjusts the rewards paid to miners.

What is a fair valuation for Bitcoin?

Where things get tricky is when it comes to valuation. While everyone can agree that Coca-Cola is more or less fairly valued based on metrics like price-to-earnings ratio, almost no one can agree on Bitcoin’s valuation because crypto is still so new. Some say that the value of Bitcoin is heading towards zero, while others say that the value of Bitcoin is heading towards 1 million dollars each.

Every time Bitcoin sets an all-time high, skeptics immediately come out and say it’s not sustainable. But then it goes higher. Remember when Bitcoin broke through the $100 mark for the first time? Back in 2013, this seemed both remarkable and fantastic. By 2020, Bitcoin had already passed Coca-Cola in terms of market capitalization. Now we’re talking about $20,000 – roughly today’s price – for Bitcoin as potentially a fair valuation.

Is Bitcoin an Eternal Cryptocurrency?

This is not to suggest that Bitcoin will ever appear in Buffett’s investment portfolio. Or that Bitcoin has the same risk-reward profile as Coca-Cola. Or that Bitcoin has some of the same basic metrics that Coca-Cola has. Of course not.

However, I don’t think it’s out of the realm of possibility that one day we’ll be talking about Bitcoin as a “forever crypto”. It will be the crypto you buy and hold forever in much the same way that Coca-Cola is a stock you buy and hold forever. Bitcoin will likely be the first crypto many investors ever own. If you’re thinking about buying Bitcoin, just remember one piece of classic Coca-Cola advice: “You can’t beat the real thing.”