Billionaire Paulson: Crypto Going To Zero

He says once the exuberance wears off, or liquidity dries up, it will go to zero.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

Nearly a decade and a half after successfully betting against the U.S. housing market, John Paulson says he has identified another bubble. Speaking in a Bloomberg interview, the billionaire investor called cryptocurrencies a massive bubble that is sure to pop.

“I would say that cryptocurrencies are a bubble. 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,” said Paulson. “But to the extent the demand falls, the price would go down. There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount.”

“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless,” he added. “Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies.”

Risky Bet

Unlike during the financial crisis, when Paulson used credit default swaps to profit from the implosion of the subprime mortgage market, he says  it was far too risky to bet against cryptocurrencies.

“The reason we shorted subprime in size was because it was asymmetrical—shorting a bond at par that has a limited duration that trades at a 1% spread of Treasuries. So you can’t lose more than the spread in the duration. In crypto, there’s unlimited downside,” the billionaire explained “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.”

Paulson’s extreme skepticism of cryptocurrencies is an unusual sight in a year in which crypto has broken through to the mainstream and is widely acknowledged as something that is here to stay. Nevertheless, wild speculation in cryptocurrencies and other crypto assets has brought back memories of past financial bubbles and the risk of massive price declines can’t be ruled out.

To read Paulson’s complete interview with Bloomberg, in which he discusses gold, interesting rates and more, click here.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.