It feels as though cryptocurrency has been deemed a worthless fad since Bitcoin first emerged from the guts of an anonymous engineer’s computer rig back in 2009.
While some of the criticism has come from the general public, who may not have a clear grasp on what cryptocurrencies are, how they work or why they possess any value whatsoever, some very clued-in financial minds have also questioned crypto’s rising prominence.
One such critic is billionaire investor John Paulson, who, in recent comments, called digital currencies a bubble that will “eventually prove to be worthless.”
The volatility seen in crypto markets over the last few days — Bitcoin dropped by 17% at one point on Tuesday, the same day El Salvador began accepting it as legal tender — doesn’t provide much of a defense against Paulson’s criticism.
Let’s see what his issue with crypto is, and if you should be cashing out or buying the dip.
Paulson’s reasons for being bearish on crypto
Paulson has experience exposing at least one notable financial scam. As the co-founder of the Carlyle Group, he was one of the hedge fund heavyweights who saw the corruption at the heart of the subprime mortgage industry and subsequently shorted the U.S. housing market before it tanked in 2007, earning himself a reported $4 billion.
And he seems to be just as skeptical about crypto.
“I wouldn’t recommend anyone invest in cryptocurrencies,” Paulson said during an appearance on Bloomberg Wealth with David Rubenstein Bloomberg TV.
“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.”
It’s also worth wondering just how much value an asset can truly have if it’s price can swing so wildly from one minute to the next, as Bitcoin’s did on Tuesday. According to analysis by CoinMarketCap, the entire crypto market shed about $300 billion in value between Tuesday morning and Wednesday afternoon.
That kind of volatility brings to mind the dot-com bubble of the early 2000s and the housing crash Paulson previously profited from. Both were the result of empty assets attracting billions in ignorant money.
Paulson went on to say that cryptocurrencies could eventually be worthless.
“Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies,” he said.
The other side of the Bitcoin
As Bitcoin values plummeted on Tuesday, at least one investor bought on the dip: the country of El Salvador.
Bitcoin’s plunge on Tuesday came at an awkward time for the Central American country, as it was just launching its plan to…
Read more:Crypto crash: Here’s why billionaire John Paulson’s ‘worthless’ call might be right
