It’s as if cryptocurrency has been considered a worthless fad ever since Bitcoin first appeared from the guts of an unknown engineer’s computer in 2009.
While some criticism has come from the general public, who may not have a clear understanding of what cryptocurrencies are, how they work or why they have any value at all, some financial savvy minds have also questioned the rise of cryptocurrency.
One such critic is billionaire investor John Paulson, who in his recent comments described cryptocurrencies as a bubble that “will eventually prove worthless.”
The volatility seen in the cryptocurrency markets over the past few days — bitcoin fell 17% at some point on Tuesday, the same day El Salvador began accepting it as legal tender — does not provide much of a defense against Paulson’s criticism.
Let’s see what his problem with cryptocurrency is, and whether you should cash in or buy a dip.
Paulson Reasons for Being Bearish on Cryptocurrency
Paulson has experience exposing at least one financial fraud. As the co-founder of The Carlyle Group, he was a major hedge fund who saw corruption at the heart of the sub-prime mortgage industry and subsequently undercut the US housing market before plummeting in 2007, making himself $4 billion.
And he seems equally skeptical about cryptocurrencies.
“I would not advise anyone to invest in cryptocurrencies,” Paulson said during an appearance on Bloomberg Wealth with David Rubenstein Bloomberg TV.
“I would describe it as finite supply from nothing. So to the extent there is more demand than finite supply, the price will go up. But to the extent there is less demand, the price will go down. There is no intrinsic value to any of the cryptocurrencies except That there is a limited amount.”
It’s also worth asking how much value an asset could really have if its price could swing wildly from minute to minute, as Bitcoin did on Tuesday. According to an analysis by CoinMarketCap, the entire cryptocurrency market lost about $300 billion in value between Tuesday morning and Wednesday afternoon.
This kind of fluctuation is reminiscent of the Internet bubble of the early 2000s and the housing crash that Paulson previously benefited from. Both were the result of empty assets that attracted billions of ignorant money.
Paulson went on to say that cryptocurrencies can eventually be worthless.
Once the abundance fades away, or the liquidity dries up, it will go to zero. I would not recommend anyone to invest in cryptocurrency.”
The other side of Bitcoin
With bitcoin values plummeting on Tuesday, at least one investor bought the dip: the country of El Salvador.
Bitcoin’s plunge on Tuesday came at a critical time for the Central American country as it launched its plan to accept cryptocurrency as legal tender. Despite the turmoil, El Salvador bought another 150 bitcoins while prices were dropping on Tuesday morning.
It is clear that the President of El Salvador, Neb Bukele, sees more value in Bitcoin than Paulson. But his decision – Anyone Decision – Buying a volatile asset as its value is collapsing is as risky as an investment.
Bukele tweeted that he bought 150 new coins at 11:15 a.m. Tuesday. (Twitter posts are automatically date stamped with local time, making it 11:15 CET, or 1:15 EST.) Assuming he caught them within an hour or two of the tweet, El Salvador likely has 150 coins landed for about $51,000 a piece.
The problem is that bitcoin ate it after the purchase. By 4:15 p.m. Tuesday, it sold for $46,927. It fell to just over $44,000 early Thursday morning, before rising again to over $46,500 by 4:00 p.m.
This is the benefit of buying dip. You don’t really know if it’s really the plunge—or the trough, or the hellhole the size of the Marianas Trench—until enough time has passed for hindsight to begin.
Get the game
Whether you view cryptocurrency as the currency of tomorrow or a get-rich-quick scheme whose days are digitized, there are plenty of ways to put your money to work for you.
For risk-averse investors, focusing on assets that produce cold, hard cash is a good place to start.
For example, some popular investment services allow you to secure a steady stream of rental income by investing in premium properties – from commercial developments in Los Angeles to apartment buildings in New York City.
You’ll get a chance to learn about high-end properties that real estate tycoons usually have access to, and you’ll receive regular payments in the form of quarterly dividends.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.