Billionaire John Paulson: Crypto Will ‘Eventually Prove to Be Worthless’
Billionaire investor, John Paulson, who made $4 billion by betting against the U.S. housing market during the 2008 financial crisis, says cryptocurrencies are a bubble, but won’t short against them.
Billionaire hedge fund manager, John Paulson, who made a fortune by shorting the American real estate market amid the 2008 financial crisis, along with Michael Burry, argued that Bitcoin and other cryptocurrencies are “a limited supply of nothing” and will eventually go to zero.
Paulson told Bloomberg that he is not a believer in crypto and “would say that cryptocurrencies are a bubble.”
He opined:
“I would describe them as a limited supply of nothing. So to the extent, there’s more demand than the limited supply, the price would go up. But to the extent the demand falls, then the price would go down. There’s no intrinsic value to any of the cryptocurrencies except that there’s 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.
Paulson’s firm netted roughly $4 billion during the 2008 financial crisis – one of the worst in modern history – by capitalizing on the real estate bubble. Paulson did this by betting that subprime mortgage bonds would go down, in other words shorted the market.
A subprime mortgage is a loan given to a borrower that bears more default risk than another borrower with a better credit score. The interest rates for these mortgages are also much higher.
Still, cryptocurrencies are too risky from a shorting standpoint, Paulson said.
“In crypto, there’s unlimited downside. So even though I could be right over the long term, in the short term, I’d be wiped out. In the case of Bitcoin, it went from $5,000 to $45,000. It’s just too volatile to short,” he said.
Bitcoin’s risk offers too little reward
In part, this is because crypto trading is mostly symmetrical in terms of its risk-to-reward ratio.
Meanwhile, shorting the U.S. housing market was a highly asymmetrical trade, “meaning you could lose a little bit on the downside, but make essentially 100 times on the upside.”
Paulson explained:
“Most trades are symmetrical. You could make a lot, but you risk a lot. And if you’re wrong, it hurts. Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies.”
At the same time, Paulson praised gold, arguing that it “does very well in times of inflation” because there is a “very limited” amount of investable gold.
He said:
“As inflation picks up, people try and get out of fixed income. They try and get out of cash. And the logical place to go is gold. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply and demand imbalance causes gold to rise.”
