JAKARTA - Hedge fund manager John Paulson once made $20 billion predicting a crash in the US housing market in 2008. Now, he predicts cryptocurrencies will fall and "go to zero."
“Cryptocurrencies, no matter where they trade today, will eventually prove worthless,” Paulson told Bloomberg in an interview. “Once the excitement wears off, or the liquidity dries up, they will be zero. I would not recommend anyone to invest in cryptocurrencies.”
Despite Paulson's bearish stance on crypto, he said the short-term volatility of digital assets made it too risky for him to go short, or place bets. “I would describe cryptocurrency as a finite supply of something empty,” Paulson said, as quoted by Bloomberg.
Ultimately price fluctuations have more to do with the relative supply of coins. “There is no intrinsic value to any of the cryptocurrencies unless there is a finite number of them,” Paulson said.
"As long as there is no demand the price can go up. But eventually the buyers will decide they want something for their money and the price will fall," Paulson said.
For now, Paulson said he is betting on alternative assets, such as gold, as a safe place to invest.
Paulson's strong stance against crypto is in stark contrast to many of his fellow hedge funds who have adopted Bitcoin and other digital coins in recent months.
For some of the top trading shops, crypto price volatility is seen as an opportunity to make a lot of money.
Point72 Asset Management Steve Cohen is working on launching a crypto-focused trading fund. Millennium Management Israel Englander has started trading crypto derivatives. Hedge fund giants such as Paul Tudor Jones and Alan Howard have also taken bets in cryptocurrencies.
Of course the likes of Englander and Cohen might want to make a quick buck, and not really invest in digital coins in the long term.
Meanwhile, established institutions, including Goldman Sachs and Citigroup, have been working to expand their footprint in the digital space. Goldman allows certain clients to trade crypto through derivative products. Even Citigroup wants to start trading cryptocurrencies through funds.
Morgan Stanley was the first bank to allow clients access to crypto trading. Even now investing his own money in speculative coins. A few days ago, the bank bought Grayscale Bitcoin Trust for nearly a quarter billion dollars.
Even JPMorgan now offers clients access to six cryptocurrency products. In fact, JPMorgan's chief executive officer, Jamie Dimon, once called bitcoin a "scam".
But there are also those who support Paulson's opinion, and avoid digital coins like disease or plague.
One of the most famous investors, Warren Buffett, specifically refers to cryptocurrencies as “rat poison.” The chairman and CEO of Berkshire, Hathaway Buffett, has even stated that he would never buy crypto. Until now he claimed not to have crypto.
Berkshire vice chairman Charlie Munger is also allergic to crypto. "I don't welcome currency that is very useful to kidnappers and extortionists," Munger said.
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