During the 2008 financial crisis, a wealthy subprime short-trader stated that digital assets have a “limited supply of nothing.”
In a recent interview, subprime short investor and billionaire portfolio manager John Paulson criticized the volatile nature of digital assets while advocating for investments in traditional safe-havens such as gold.
The co-founder of Paulson & Co, a New York-based firm launched in 1994, Paulson was a historic beneficiary of the United States housing financial market collapse of 2008 after placing a legendary successful short position.
However, Paulson recently took the decision to devolve his hedge fund into a family office after a 76.5% reduction in assets under management, from a peak of $38 billion in 2011 to $9 billion in 2019.
In the interview, Paulson was asked about the emerging cryptocurrency market, and he stated that the assets have a “limited supply of nothing” and “no intrinsic value,” citing the heightened volatility of the nascent space in comparison to the relatively stable traditional markets as a reason to avoid investing.
He also mentioned his inability to recognise the same asymmetrical patterns identified in his renowned trade a decade earlier, an opportunity in which the market appeared to provide little to no downside risk while delivering great upside potential.
Paulson concluded his thoughts on the question of believing in cryptocurrencies with the stern response: “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.”
When asked about the prospect of gold as a viable investment strategy in the current financial climate, Paulson pointed to the increased money supply that entered the markets in response to the COVID-19-related economic fallout, which was “up about 25% last year,” believing that this is the best indicator of future inflation.
In this situation, Paulson’s preference for gold as a safe-haven asset will serve as a hedge against the predicted decline of traditional fiat currencies in the future years.
Paulson’s negative assessment of crypto’s essential characteristics follows that of fellow billionaire investor Warren Buffet, who declared in 2018 that they were “rat poison squared.”