the mega-investor John Paulson gained fame and a few billion dollars by betting against the US housing market on the eve of the 2008 crisis. Now, the founder and president of Paulson & Co. is turning his sights on the bitcoin and the cryptocurrency market.
In an interview with Bloomberg, Paulson assessed that cryptocurrencies are “a limited supply of nothing”. According to the logic, linked to the fixed amount available for some of the digital assets, such as bitcoin, the market is a bubble.
“Cryptocurrencies, regardless of how they are currently traded, will eventually prove useless. Once the exuberance is gone or the liquidity dries up, they will reach zero”, he pondered.
Asked why, then, he doesn’t sell short cryptocurrencies — a strategy he adopted in the case of subprime mortgage bonds, and which allows investors to profit from a fall in the price of an asset — the billionaire replied that digital assets are very volatile. He said that even if he was right in the long run, he could still lose a lot of money in the short run.
For Paulson, the most common mistake investors make is to pursue get-rich-quick schemes or buy assets based on a story rather than solid fundamentals.
When in doubt, go gold
For those looking for an alternative to protect assets against inflation, Paulson indicates that “the logical place to go is the gold market”.
As with some cryptocurrencies, there is also a limited amount of metallic asset to invest.
The investor explains that, as inflation increases, people tend to move out of fixed income. And as the amount of capital leaving this asset class outweighs the amount of gold available, “the imbalance between supply and demand causes the precious metal to appreciate.”
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*With information from Business Insider