John Paulson: Cryptocurrency Will “Eventually Prove to be Worthless”

John Paulson, a billionaire who made his money investing in hedge funds and who predicted the huge housing crash in 2008, says all cryptocurrency, like bitcoin, is inherently “worthless” and “will go to zero.”

The investor, who was one of the few who foresaw the mortgage collapse in what has been referred to as “the greatest trade ever,” stated in a recent interview with Bloomberg Wealth that all cryptocurrency will “eventually prove to be useless.”

 

Cryptocurrency — especially perhaps Bitcoin, the most visible and controversial alternative digital currency of all — has been on a wild ride this past year especially, as business figures of the stature of Elon Musk denigrated it, implying that his “love affair” with cryptocurrency was now over.

Musk, once a vocal advocate for the use of Bitcoin and other cryptocurrencies, sent out a cryptic tweet on June 3, 2021 that caused the price of the world’s largest cryptocurrency to fall by 4.3%.

Cryptocurrencies are “a bubble, a limited supply of nothing”

Although he later affirmed that his company, Tesla, would indeed accept Bitcoin as payment, the Musk incident left the cryptocurrency world reeling.

Now it appears that other magnates are openly questioning the value of digital currency as a whole.

Bloomberg Wealth asked in their Sunday interview with Paulson if he was a believer in cryptocurrencies.

“No, I’m not,” Paulson relied, adding “And 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. 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.”

“No intrinsic value” to cryptocurrencies except limitation of supply

The investor went on to opine that “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.”

Bloomberg Wealth interviewers then asked why Paulson himself wouldn’t want to “short” the currencies to take advantage of this.

He replied that “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. 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.”

Financier John Paulson touts real estate as the best investment

Later on, the investor was asked “how (somebody) should invest $100,000.” The answer, perhaps unsurprisingly, was along traditional investment lines.

“I always say the best investment for an average individual is to buy their own home,” Paulson replied. “The longer you wait, the more the house is going to appreciate and the greater return you’ll have on your equity investment.”

Paulson is a noted financial expert, after having graduated summa cum laude in finance from New York University’s College of Business and Public Administration in 1978.

He went on to Harvard Business School, on a Sidney J. Weinberg/Goldman Sachs scholarship, earning an MBA as a George F. Baker Scholar as part of the top 5 percent of his class in 1980.

The billionaire began his career at Boston Consulting Group in 1980 where he did research, providing advice to companies. Ambitious to work in investment on Wall Street, he left to join Odyssey Partners where he worked with Leon Levy. He moved on to Bear Stearns, working in the mergers and acquisitions department, and then to Gruss Partners LP.

In 1994, he founded his own hedge fund, Paulson & Co., with $2 million and one employee, located in office space rented from Bear Stearns on the 26th floor of 277 Park Avenue. The firm moved to 57th and Madison in 2001. By 2003, his fund had grown to an incredible $300 million in assets.

Paulson became world-famous in 2007 by shorting the US housing market, as he foresaw the subprime mortgage crisis and bet against mortgage-backed securities by investing in credit default swaps. Sometimes referred to as the greatest trade in history, Paulson’s firm made a gigantic fortune — he earned over $4 billion personally on this trade alone.

Paulson and his company specialize in “event-driven” investments, i.e. in mergers, acquisitions, spin-offs, proxy contests, etc. He has made hundreds of such investments throughout his career.