Record-Breaking Inflows

When an investor like John Paulson buys gold and throws shade on Bitcoin, you know they know that bitcoin is in the process of disrupting gold and overtaking the store of value mantle.

And now, just last week, Bitcoin breached $50,000 for the second time in two weeks showing the resilience of a wild mongoose.

At what lengths will the old guard go to downplay this legitimate asset class?

Hedge fund manager John Paulson made $20 billion predicting the downfall of the US housing market in 2008.

So now he’s predicting cryptocurrencies will “go to zero” — just because he made hay in the financial crisis, will he look stupid if bitcoin goes to $100,000?

Talk is talk — nothing more than that.

“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.”

Bitcoin launched on January 3, 2009, he speaks like he has no idea about this, so does he mean the “exuberance” has been happening for the last 12 years and he’s still waiting for it to wear off?

Despite Paulson’s less than ideal stance on crypto, he said the short-term volatility of the digital asset makes it too risky for him to short, or place bets against.

Paulson continues to say, “Ultimately the price fluctuation has to do more with the relative supply of the coins.”

I would correct Paulson by noting that the supply situation is just only one of many drivers of higher bitcoin prices.

The more “experts” that chime in shouting down crypto assets, the worse they look, as new sets of millionaires and billionaires get minted daily.

Retail buyers are thirsting for percentage growth while bitcoin reigns supreme, it has relatively stable growth while there is exponential growth happening on Ethereum.

That’s what really hooks their eyeballs.

Paulson also neglects to say where retail traders can find yield in this world.

He might even recommend loss-making gold trades since he’s gotten it completely wrong the past year.   

Paulson’s hard line against crypto stands in stark contrast to many of his hedge fund bros who have now embraced Bitcoin and shelved their relentless criticism of it.

The biggest takeaway from Paulson is that he is not willing to deploy capital against bitcoin, meaning he acknowledges that it can go up significantly from here and he is scared to lose money by shorting the asset.

I would not advocate holding this asset until death and even the early adopters trim their bitcoin positions on huge spikes — this is prudent risk management.

Readers need to remember that these “pros” like Warren Buffet and Paulson missed the boat on bitcoin, so they are incentivized to criticize the asset by delegitimizing its very existence.

This is a simple and garden variety manipulation tactic that is easy to call out.

Who knows…maybe in 10 years, all the crypto trillionaires will start to peddle out the reverse theory that stocks and fixed income are not assets as well!

I have seen crazier things in my life.

For some top trading shops, the volatility in the price of crypto is seen as a godsend in order to make a fortune from price arbitrage.

Steve Cohen’s Point72 Asset Management is working on launching crypto-focused trading funds. And Israel Englander’s Millennium Management has begun trading crypto derivatives. Traders like Paul Tudor Jones and Alan Howard have also taken stakes in cryptocurrencies.

Including Paulson, all of these traders made fortunes betting on other asset classes, therefore, it’s really not certain if they have spent more than two seconds looking into what crypto is about.

The recent data points are snowballing at the right time, such as Bitcoin IRA, an investment platform that aids retail investors in gaining crypto exposure in IRA retirement accounts.

This platform experienced “record-breaking inflows” of new accounts over the previous month.

Currently, Bitcoin IRA has close to 120,000 client accounts, with approximately $2 billion in assets on the platform.

The swell of retail investors opening new accounts — especially for tax-advantaged IRA accounts — is an indicator of how interested investors are as they use regulated markets to leverage bitcoin.

The median Bitcoin IRA account holder possesses 43% of their portfolio in bitcoin, 27% in Ethereum, and the remaining 30% in more remote cryptocurrencies.

The company will double its crypto offerings in the fall, and I can tell you that everyone I talk to, from brokers, market makers, and wealth management service providers, are doubling and tripling their cryptocurrency services this fall.

What you are seeing at Bitcoin IRA isn’t an anomaly.

It’s been in the price action that the gyrations of bitcoin have been smoother lately and we aren’t seeing 10% drawdowns in a day like we did before.

The longer the price action shows continuity, the more investors will feel comfortable placing large amounts into different coins as well as the bellwether bitcoin.

An avalanche of data points shows more efficacy, higher volume, and broad-based adoption as Bitcoin crested above $50,000.

Granted, it won’t be the last time that crypto is talked down, but the problem is every time these guys do it, they look out of touch by the day.

John Paulson made his fortune betting against subprime mortgages at the peak of the 2007 credit bubble and the evidence is out there that he simply doesn’t understand cryptocurrencies.

And that’s ok because, after his great call on subprime housing, he rapidly lost a large amount launching a gold fund in 2009.

Since that year, crypto has revealed itself as a better alternative to physical gold and Paulson simply doesn’t like that. Paulson is hellbent on making this gold trade work — it almost seems like it’s a fetish at this point.

People of that stature usually don’t like being wrong and throw money at the problem until the variables and price turn in their favor.

But honestly, sour grapes because missing the crypto boat won’t make the price of gold go up 10X, 100X, or 1000X, and that’s what crypto is about in the early innings of a 9-inning game.