Program host David Rubenstein asked the head of New York-based investment management firm Paulson & Co. regarding his take on crypto. Paulson answered: "I'm not a believer in cryptocurrencies. I would describe cryptocurrencies as a limited supply of nothing." He continued that crypto had no intrinsic value at all "except that there's a limited amount."
The investor continued that crypto works "to the extent that there's more demand than the limited supply, the price would go up, but to the extent of demand falls, then the price would go down." Nevertheless, he dismissed crypto as "a bubble" that will eventually have no value at all.
Paulson added that "he wouldn't recommend anyone invest in cryptocurrencies." According to the investor, cryptocurrencies such as bitcoin, "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."
Rubenstein then asked if Paulson was willing to put a "big short" on crypto, adding if it was a good idea to do so. The investor answered that he and other investors managed to short the subprime market was because of its asymmetrical nature -- "shorting a bond at par that has a limited duration that trades at a 1 percent spread of treasuries." He added: "You can't lose more than the spread in the duration."
Paulson continued: "In crypto, there's this unlimited downside. So even though I could be right over the long term – in the short term, I'd be wiped out. It's just too volatile to short." He gave an example of Bitcoin's price climbing from $5,000 to $45,000 in a short period.
Rubenstein also asked about the most common mistake investors commit. "They look for get-rich-quick schemes and they buy based on stories. [Then] they chase investments that are going up, and ultimately those investments deflate – and then they lose money," Paulson answered.
Rubenstein mentioned that after Paulson earned his $20 million from his bet, he purchased a lot of gold and gold futures. He then asked the investor if gold was still a good investment given its price of $1,700 per ounce.
Paulson answered in the affirmative, saying: "We believe that gold does very well in times of inflation. The last time gold when parabolic was in the 1970s, when we had two years of double-digit inflation."
He elaborated that the reason why gold goes parabolic – meaning its value increases – is because there is a limited amount of investable gold amounting to several trillion dollars. On the other hand, the total amount of financial assets is closer to $200 trillion.
Paulson continued: "[As] inflation picks up, people try and get out of fixed income. They try and get out of cash, [and] the logical place to go to is gold. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply and demand imbalance causes gold to rise." (Related: Bitcoin decried as "fraudulent money" and a poor store of value compared to gold.)
Paulson was not the first investor who expressed strong sentiment against crypto. Financial expert Peter Schiff also voiced his criticism toward it, saying that Bitcoin had no real value whatsoever. The chief economist and global strategist of Euro Pacific Capital made the comments during an April 2021 interview with Real Vision.
Schiff described Bitcoin as a "collectible token" mainly used for speculation. He elaborated: "It's not used as a medium of exchange … or a unit of account. It's not an investment asset like real estate, [it] doesn't pay rent. [It's] not a stock, it doesn't pay dividends. [It's] not a bond, it doesn't pay interest. It's not even a commodity, because you can't use it for anything." (Related: Peter Schiff exposes Bitcoin bubble: "There's no real value in Bitcoin.")
Incidentally, Schiff's remarks during the Real Vision interview echoed his sentiments back in 2017. He said that time: "Bitcoin is a digital asset, but what its actual value is remains to be seen. [It] has nothing in common with gold. There are certain things that you could say it has [in common] with gold, but you can't do anything with it."
He continued: "None of the real-world uses of gold are applicable to Bitcoin. [Gold] is used in jewelry, in consumer electronics, it's used in medicine, it's used in aerospace. You can't make jewelry out of a bitcoin. There's no use for [it] other than storing it as an asset."
Schiff also had strong words for investors hoarding crypto tokens with the intent of reselling them in the future. "I don't think these bitcoin collections are going to be worth anything when the music stops. You can't do anything with a bitcoin. Once nobody wants your bitcoin, it's completely worthless." He shared stories of people making use of Beanie Babies as home insulation when the bubble for the collectible dolls burst.
He pulled no punches with his remarks toward individuals who put their faith into every bitcoin token becoming worth millions at a future time. "My son's been indoctrinated into the bitcoin cult. He's completely delusional. Now, he's got an excuse, he's only 18 [years] old. But you've got a lot of older people that don't really have an excuse," Schiff said.
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