Key takeaways:
- Cryptocurrencies will be worthless.
- I wouldn’t recommend anyone invest in cryptocurrencies.
- Gold is primed for its moment.
- Investors should invest in areas they know about.
YEREVAN (CoinChapter.com) — John Paulson is a known hedge fund billionaire. He is famous for shorting in the US housing market before the financial crisis in 2008. He made huge returns and managed to net a $20 billion profit for his clients.
Paulson has concerns about cryptocurrency investment and its future. In an episode of “Bloomberg Wealth with David Rubenstein,” he said that digital assets are a bubble and will “eventually prove to be worthless.”. However, Paulson, who supported gold for years, also mentioned that the precious metal is a good investment and it “does very well in times of inflation.”
Paulson does not believe in cryptocurrencies as he said that “I would describe them as a limited supply of nothing.”
He explained that when there is a demand for a limited supply, the price will go up, but the price will decrease when the market falls. Therefore, “there’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount.” He noted that cryptos like Bitcoin would fall to zero when the exuberance wears off or liquidity dries up.
“I wouldn’t recommend anyone invest in cryptocurrencies,” he said.
Rubenstein, the co-founder of Carlyle Group, asked Paulson if he thinks cryptocurrencies will be worthless and why he doesn’t short them. He said that when you short cryptocurrencies, there are unlimited downsides.
“So even though I could be right over the long term, in the short term, I’d be wiped out.”
Paulson mentioned the volatility with a Bitcoin price example which went from $5,000 to $45,000.
“It’s just too volatile to short,” he said.
Who is John Paulson?
The 65-year-old manager has quit the hedge fund world to turn his firm into a family office last year after assets dropped to about $9 billion in 2019 from a peak of $38 billion in 2011. Also, during recent years the cryptocurrencies outperformed gold. These two factors can be enough to attract expert’s attention and their criticism.
Paulson went to Harvard Business School, and after graduation, he worked at Boston Consulting Group. He opened Paulson & Co. in 1994, which was known for its risk arbitrage. After a while, he discovered the housing market and started to work on that. More than a decade after his big trade on the US housing market, people still want to know what his next move will be.
He said in the interview that the US housing trade was asymmetrical, and he hasn’t yet found anything like that. He explained asymmetrical as a trade you could lose a little bit on the downside but make essentially 100 times on the upside, but most trades are not like that.
Paulson talked about the investor’s most common mistake. He said the issue is that they want to gain money so fast that they end up looking for “get-rich-quick schemes, and they buy based on stories, so they lose money.
Paulson advises the investors to invest in areas they know about. He said maybe you had a piece of good luck on a specific investment, but it’s not a long-term strategy to depend on luck.
