Billionaire hedge fund manager John Paulson argued that Bitcoin and other cryptocurrencies are “a limited supply of nothing.”
Billionaire investor John Paulson claims that cryptocurrencies “will eventually prove useless“, the billionaire made a fortune selling short in the American real estate market in the midst of the 2008 financial crisis.
talking to the Bloomberg today, Paulson emphasized that he doesn’t believe in cryptocurrency and “would say that cryptocurrencies are a bubble“.
“I would describe them as a limited supply of nothing. Therefore, as there is more demand than limited supply, the price would increase. But as demand falls, the price falls”.
“There is no intrinsic value to any of the cryptocurrencies, except that there is a limited amount.”
NEW: “I would say that cryptocurrencies are a bubble. I describe them as a limited supply of nothing.”
Billionaire investor John Paulson says crypto holders should be prepared to lose everything.
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More than a decade ago, his company made nearly $20 billion capitalizing on the housing bubble that resulted in one of the worst financial crises in modern history. Paulson did this by betting that subprime mortgage bonds would fall, otherwise known as shorting.
A subprime mortgage is a loan made to a borrower that poses a higher risk of default than another borrower with a better credit score. Interest rates for these mortgages are also much higher.
Still, cryptocurrencies are too risky from an investment standpoint, Paulson argued.
“In cryptocurrency, there are unlimited disadvantages. So even if I could be right in the long run, in the short run I would be out. In the case of Bitcoin, it went from $5,000 to $45,000. It’s too volatile to sell,” he said.
Bitcoin offers very little reward for risk
In part, this is because crypto-asset trading is primarily symmetric in terms of its risk-reward ratio.
Meanwhile, shorting in the US housing market was a highly asymmetric operation, “meaning you could lose a little on the downside, but essentially gain 100 times on the upside.”.
“Most deals are symmetrical. You can win a lot, but you risk a lot. And if you’re wrong, it hurts”.
“Cryptocurrencies, no matter where they are traded today, will end up being useless. After exuberance wears off or liquidity dries up, they will reach zero. I would not recommend anyone investing in cryptocurrencies. ”
At the same time, Paulson praised the gold, arguing that he “does very well in times of inflation” because there is a quantity “very limited” of gold to invest.
“As inflation increases, people try to get out of fixed income. They try to get out of money. And the logical place to go is the gold”.
“But as the amount of money trying to get out of cash and fixed income exceeds the amount of gold to invest, the imbalance between supply and demand causes gold to rise.”