Billionaire Investor Who Predicted the 2008 Housing Crash Says Crypto Is a ‘Worthless’ Bubble

Billionaire Investor Who Predicted the 2008 Housing Crash Says Crypto Is a ‘Worthless’ Bubble
Photo: Spencer Platt, Getty Images

John Paulson, the billionaire investor who accurately predicted (and bet against) the subprime mortgage crisis in 2007, has some kind words for cryptocurrency: mainly, that it is a vacuous financial bubble bound to eventually collapse.

“I wouldn’t recommend anyone invest in cryptocurrencies,” Paulson told Bloomberg during a recent interview.

The financier, who is retired from the hedge fund business, made close to $US4 ($5) billion in 2007 when he bet against the subprime mortgage lending market — a decision that reportedly made him “one of the biggest fortunes in Wall Street history.”

During his recent talk with Bloomberg, Paulson described the crypto industry’s tokens as devoid of any actual value except that they exist in limited supply. The industry will ultimately prove “worthless” in the long run, he said. When asked whether he was a fan of crypto, he put it this way:

No, I’m not. And 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.

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.

Paulson further added that the crypto market was too volatile to effectively bet against as he did with the housing market in 2007.

The reason we shorted subprime in size was because it was asymmetrical — shorting a bond at par that has a limited duration that trades at a 1% spread of Treasuries. So you can’t lose more than the spread in the duration. In crypto, there’s unlimited downside. So even though I could be right over the long term, in the short term, I’d be wiped out. In the case of Bitcoin, it went from $US5,000 ($6,855) to $US45,000 ($61,695). It’s just too volatile to short.

So there you have it. Some high praise.

To be fair, Paulson is not the only one to have made this prediction. Lots of other big important business people (see: Jamie Dimon and Warren Buffett, for instance) share the “supply of nothing” view of crypto — with similar theories about a coming token-fuelled financial meltdown. Such professionals opinions have not stopped a recent surge in interest in the coins.