EDITOR'S NOTE: Legendary investor John Paulson says that crypto is Giant Bubble that's going to Zero and urges Americans to buy Gold! Mr. Paulson needs little to no introduction as he’s virtually a one-man bastion of sound financial thinking on Wall Street. To younger investors, though, he probably falls under the more “basic” rather than “iconic” category (to use GenZ-speak). The new generation is all about crypto; the biggest one being Bitcoin. If any “culture” understands the struggle for monetary decentralization, wealth democratization, and asset privatization as much as Millenials and Gen Z, it’s the Silent Gen, Boomer, and GenX gold proponents. Scarcity and limited supply are critical in countering the erosive effects of the fiat system. Bitcoin is scarce, deflationary, private, and decentralized. But can scarcity alone substantiate value? Can a trustless verification system and popular sentiment (note we didn’t say “usage” because there’s hardly any) support an intangible asset’s money function? Paulson is harsh in calling Bitcoin a “limited supply of nothing.” You might or might not agree. But his arguments are worth reading, especially if you’re going to sink a portion of your paycheck into this virtual asset in the hopes of it (someday) becoming money.
- Legendary investor John Paulson trashed crypto and recommended gold in a wide-ranging interview with Bloomberg TV.
- He described crypto as a "limited supply of nothing," referring to the fixed quantity that some coins have.
- Paulson told Bloomberg that he was newly bullish on gold as a hedge against rising inflation.
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Legendary investor John Paulson, whose bet against the housing market in 2008 made him a billionaire, trashed crypto and recommended gold in a wide-ranging interview with Bloomberg TV.
"I would say that cryptocurrencies are a bubble," said Paulson, who last year quit the hedge fund business after netting his firm $20 billion. He described crypto as a "limited supply of nothing," referring to the fixed quantity that some coins have, including bitcoin's 21 million token cap - though others have no such limit.
"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," he added.
Asked why he doesn't just short crypto, Paulson pointed to the asset class's outsized volatility, saying a short bet could ruin him in the short term even if he was proven right in the long run.
Paulson, who has tended to favor buying gold, told Bloomberg that he was newly bullish on the precious metal, citing its tendency to perform well during high-inflation periods.
"As inflation picks up … the logical place to go is gold," said Paulson. "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."
Some academics have looked skeptically on the gold-as-an-inflation-hedge view. An influential 2012 paper by a Duke professor and a former portfolio manager found that gold's inflation-hedge properties only hold for time horizons as long as a century. On shorter timescales, the relationship breaks down, they found.
Crypto fans and gold bugs have at times been at odds, each camp offering their preferred asset as the best hedge against inflation.
The most common mistake investors make, according to Paulson, is looking for get-rich-quick schemes or buying based on a story, rather than based on fundamentals.
"And then they chase investments that are going up, and ultimately those investments deflate. And then they lose money," he said.
Originally posted on Market Business Insider.