Cryptocurrencies will “go to zero”

Hedge fund manager John Paulson made $ 20 billion predicting the collapse of the US real estate market in 2008. Now he predicts that cryptocurrencies will “go to zero.”

“Cryptocurrencies, regardless of where they trade today, will eventually prove to be worthless,” Paulson told Bloomberg in an interview. “Once the exuberance wears off or the cash runs out, it will go to zero. I would not recommend anyone to invest in cryptocurrencies.

Despite Paulson’s bearish stance on crypto, he said the short-term volatility of the digital asset made it too risky for him to sell or place bets against it.

Ultimately, the price movement is more related to the relative supply of coins, Paulson added. “There is no intrinsic value in any of the cryptocurrencies except that there is a limited amount.”

For now, Paulson says he’s betting on another alternative asset – gold – as a safe haven.

Paulson’s hard line against crypto contrasts sharply with many of his hedge fund colleagues who have embraced Bitcoin and other digital coins in recent months.

For some major trading stores, the volatility of the crypto price is seen as an opportunity to make a fortune through arbitrage.

Steve Cohen’s Point72 Asset Management is working on launching crypto-focused trading funds. And Israel Englander’s Millennium Management has started trading crypto derivatives. Hedge fund titans like Paul Tudor Jones and Alan Howard have also taken stakes in cryptocurrencies.

Of course, people like Englander and Cohen may be looking to make a quick buck – not exactly investing in the long-term future of digital coins.

Established institutions, including Goldman Sachs and Citigroup, have sought to expand their footprint in the space. Goldman allows some clients to trade cryptocurrencies through a derivative, and Citigroup is looking to start trading cryptocurrencies through a fund.

Morgan Stanley was the first bank to allow clients access to crypto trading and now it even invests its own money in the speculative coin. Just days ago, the bank bought almost a quarter of a billion dollars from Grayscale Bitcoin Trust.

Even JPMorgan – whose bitcoin CEO Jamie Dimon called “fraud” – is offering customers access to six cryptocurrency products.

But others fall squarely on Paulson’s camp – and avoid digital coins like the plague.

One of the most famous investors, Warren Buffett, notably called the cryptocurrency “probably rat poison”. Berkshire Hathaway CEO Buffett doesn’t own crypto and says he “never will.”

Berkshire Vice President Charlie Munger also spoke, saying: “I don’t appreciate a currency so useful to kidnappers and extortionists.”

Other large brokerage firms warn clients not to trust risky assets. Brokerage firm Charles Schwab warns retail investors that crypto is a “speculative asset” and that “there is no method of measuring its value that we either endorse or find convincing beyond market value.”

While Schwab allows clients indirect exposure to Bitcoin through various ‘coin loyalties’, they suggest clients to ‘consider the high volatility and the risks involved’.

Crypto remains a largely unregulated industry, but is under intense scrutiny by Congress, the Federal Reserve, and the Securities and Exchange Commission.

Federal Reserve Chairman Jerome Powell has suggested the central bank could offer its own digital currency – perhaps as a way to cut down on cryptocurrencies.

The recent infrastructure bill aimed to crack down on cryptocurrency by forcing anyone involved in crypto transactions to disclose it to the IRS. It is not known whether this rule will be adopted.

SEC Chairman Gary Gensler has indicated he will make crypto regulation a priority. Earlier this month, in a speech at the Aspen Security Forum, Gensler said that crypto “is rife with frauds” and that “if we don’t fix the problems I’m afraid a lot of people will be wounded”. Yet Gensler has yet to unveil specific proposals or even a timeline for when it will introduce possible rules.

In the past year alone, notoriously volatile Bitcoin has grown from around $ 10,000 in October to over $ 60,000 at some point in April. Last month, the price of Bitcoin fell below $ 30,000, but has continued to climb to $ 47,000 since that point.

Other cryptocurrencies have seen even more dramatic peaks. Dogecoin, which is trading at around three cents, jumped 400% in a single week.

Crypto prices can easily be swayed by tweets from Tesla CEO Elon Musk, who at various times accepted bitcoin as a payment method for Teslas.

Billionaire investor Mark Cuban also has a habit of rocking the price of cryptocurrencies with his tweets – Dogecoin jumped after announcing that he would accept it as payment for various products he sells as part of his Dallas Mavericks franchise.