Hedge fund manager John Paulson earned $ 20 billion in predicting the fall in the U.S. real estate market in 2008. Now, he predicts that cryptocurrencies “will go to zero”.
“Cryptocurrencies, no matter where they are traded today, will end up proving useless,” Paulson told Bloomberg in an interview. “Once the exuberance is exhausted or the liquidity dries up, they will go to zero. I would not recommend anyone to invest in cryptocurrencies. ”
Despite Paulson’s bearish stance on cryptocurrency, he said the short-term volatility of the digital asset makes it too risky for him to short or to bet.
Ultimately, price fluctuation has more to do with the relative supply of currencies, Paulson added. “There is no intrinsic value to any of the cryptocurrencies, unless there is a limited amount.”
For now, Paulson says he is betting on another alternative asset, gold, as a safe haven.
Paulson’s hard line against crypto contrasts with many of his hedge fund mates who have adopted Bitcoin and other digital currencies in recent months.
For some top-tier trading stores, volatility in the price of crypto is seen as an opportunity to make a fortune from arbitrage.
Steve Cohen’s Point72 asset management is working on launching cryptocurrency-focused business funds. And Israel Englander’s Millennium Management has begun trading cryptocurrency derivatives. Hedge fund titans like Paul Tudor Jones and Alan Howard have also participated in cryptocurrencies.
Of course, England and Cohen may be looking to make a quick buck, not investing exactly in the long-term future of digital currencies.
Meanwhile, established institutions, including Goldman Sachs and Citigroup, have tried to expand their footprint in space. Goldman allows certain customers to trade cryptocurrency through a derivative product and Citigroup wants to start trading cryptocurrency through a fund.
Morgan Stanley was the first bank to allow customers access to commercial cryptocurrencies and even now invests their own money in speculative currency. A few days ago, the bank bought nearly a quarter of a billion dollars in gray from the Bitcoin Trust.
Even JPMorgan, whose CEO Jamie Dimon has referred to Bitcoin as a “fraud,” offers customers access to six cryptocurrency products.
But others fall directly into the Paulson field and avoid digital currencies like the plague.
One of the most famous investors, Warren Buffett, has remarkably referred to the cryptocurrency as “probably rat poison.” Berkshire Hathaway chairman and CEO Buffett has no cryptography and says he “never will.”
Berkshire Vice President Charlie Munger has also weighed heavily, saying: “I do not welcome such a useful currency for kidnappers and extortionists.”
Other large brokerage firms warn clients not to trust risky assets. Brokerage firm Charles Schwab warns retail investors that cryptography is a “speculative asset” and that “there are no methods to assess its value that we endorse or believe persuasively beyond commercial value.”
While Schwab allows customers indirect exposure to Bitcoin through various “currency trusts,” they suggest that customers “consider the high volatility and risks involved.”
Crypto remains a largely unregulated industry, but it is under enormous control by Congress, the Federal Reserve, and the Securities and Exchange Commission.
Federal Reserve Chairman Jerome Powell has suggested the central bank could offer its own digital currency, possibly as a way to reduce cryptocurrencies.
The recent infrastructure bill sought to crack down on cryptocurrency by forcing anyone involved in cryptocurrency transactions to disclose it to the IRS. It is unclear whether this rule will be adopted.
SEC President Gary Gensler has noted that he will make the regulation of cryptography a priority. Earlier this month, in a speech at the Aspen Security Forum, Gensler said that cryptography is “full of fraud” and “If we don’t address the issues, I’m worried that a lot of people will get hurt.” However, Gensler has not yet submitted specific proposals or even a timetable for when it will introduce possible rules.
In the last year alone, the remarkably volatile Bitcoin has gone from about $ 10,000 in October to over $ 60,000 at some point in April. Last month, the price of Bitcoin fell below $ 30,000, but since then it has been steadily rising to $ 47,000.
Other cryptocurrencies have experienced even more dramatic spikes. Dogecoin, which is trading at around three cents, has risen to 400 per cent in a single week.
The prices of cryptocurrencies can be easily influenced by tweets from the likes of Tesla CEO Elon Musk, who at various points has accepted bitcoin as a payment from Teslas.
Billionaire investor Mark Cuban also has a history of changing the price of cryptocurrencies with his tweets: Dogecoin rose after announcing it would accept it as payment for several products it sells as part of its Dallas Mavericks franchise .