Why is this billionaire investor’s crypto-investment advise unfounded?

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For as long as Bitcoin has been, the “Bitcoin is a bubble” hypothesis has been bandied about. Despite the fact that Bitcoin has provided excellent returns in recent years, many traditional investors have failed to see value in the cryptocurrency. Billionaire investor and subprime broker John Paulson is the latest addition to this clique. In a recent interview, Paulson called crypto a bubble that will “eventually prove to be worthless.”

Paulson had famously predicted and benefited from the U.S. subprime mortgage crisis in 2008 by placing a successful short position on it. At the time, his $30 million winning bets made him a legend on Wall Street. Of late, however, his hedge fund has faced an over 75% reduction in assets under management.

Cryptos will eventually prove to be…

In the interview with Bloomberg, the investor declared that he “wouldn’t advise anyone to invest in cryptocurrencies,” while attributing most of its value to its demand pressure. Instead, he believes gold will outshine as a store of value when greater cash supply fuels rising inflation rates. He added,

“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.”

When asked whether he was shorting on the crypto-market, Paulson claimed that it is “too volatile to short.”

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He concluded his criticism of cryptocurrencies by stating,

“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.”

Curiously, his criticism of cryptocurrencies was accompanied by a high level of praise for gold as a safe-haven asset. Paulson’s skepticism towards Bitcoin was also supported by fellow gold bug Peter Schiff who tweeted,

Last week, Schiff had “won” a debate against Anthony Scaramucci about whether gold is a superior store of value to Bitcoin.

Not all that glitters is…

The views of either investor can’t be taken at face value. Despite a steep rise in inflation levels over the past year, Bitcoin has continued to outperform gold over the past decade. In fact, after hitting an ATH of$2,063 in August 2020, gold has struggled to maintain its price levels on the charts.

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Furthermore, although the top digital asset’s nominal ROI increased by 247 percent in one year, gold’s ROI v. USD decreased by 10 percent. As a result, Bitcoin has an advantage over gold as a profitable holding investment.

It has previously been claimed that Bitcoin’s production mechanism is extremely resource-intensive. Others, however, claim that the resource costs of gold mining are substantially higher. While Bitcoin mining is similar, gold mine is a hefty enterprise that requires altering the Earth’s matter, increasing its carbon footprint.

 

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