Billionaire John Paulson Calls Crypto ‘A Limited Supply of Nothing’

Ever since John Paulson bet against the U.S. housing market more than a decade ago, people keep asking him about his next big trade.

The billionaire hasn't found anything to rival his massive short, but it's hard to top the $20 billion that Mr Paulson made for himself and investors when subprime mortgage bonds collapsed and ignited the worst financial crisis since the Great Depression.

The founder of New York-based investment management firm Paulson & Co. called cryptocurrencies a bubble during an interview on Bloomberg TV, also describing them as “a limited supply of nothing.”

“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless,” he explained in an episode of Bloomberg Wealth with David Rubenstein. “Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies.”

An executive at Paulson & Co. did not immediately return Blockworks’ request for comment. 

Paulson is in part known for using credit default swaps to bet against the US subprime mortgage lending market in 2007. Funds he ran were up $15 billion that year, and he collected an estimated $4 billion for himself, the Wall Street Journal previously reported.

The hedge fund billionaire said during the interview that his firm shorted subprime because it was asymmetrical – the upside far outweighed the downside – but noted that crypto is too volatile to short. 

“In crypto, there’s an unlimited downside,” he said. “So even though I could be right over the long term, in the short term, I’d be wiped out.”

Paulson said he prefers investing gold in times of inflation, noting that he expects inflation levels to exceed expectations. Federal Reserve Chairman Jerome Powell said during his virtual Jackson Hole policy forum address on Friday that today’s 4% inflation will not be lasting, also claiming that current wage increases are unlikely to impact inflation significantly. 

Paulson’s comments come as other billionaire hedge fund managers have vocalized the opportunity they see in crypto investments.

Paul Tudor Jones, founder and CIO of Tudor Investment Corporation, said in June that bitcoin was a good portfolio diversifier to combat inflation, noting that he favours allocating 5% of a portfolio to the cryptocurrency.

Steve Cohen, CEO of hedge fund manager Point72, said during a webinar that he has been looking into crypto and is now “fully converted.” The billionaire noted at the time that he cares more about how disruptive blockchain technology can be than bitcoin itself.

A survey published by Intertrust Group found that about one in six hedge fund managers expect to invest more than 10% of their investment holdings in cryptocurrencies in five years.


SOURCE: BLOOMBERG, NDTV