Bitcoin doubters remain — and their ranks just happen to include many of the same prominent investors who saw the financial crisis of 2008 coming, writes mcelarier
Michael Burry believes bitcoin will crash. To date though, it just keeps going up. Photo-Illustration: Konstantin Sergeyev/Intelligencer. Photos: Paramount Pictures; Getty Images During the past year of COVID-induced market mania, cryptocurrencies have gone up so much — bitcoin is up about fivefold, while many other crypto projects are up far, far more — that even reluctant Wall Street institutions have begun to tiptoe into the arena.
Since then, though, the bitcoin bulls have only grown more optimistic. Despite a steep sell-off in May and the growing certainty that the Securities and Exchange Commission, the U.S. Treasury, and even the Department of Justice are getting ready to clamp down on the cryptocurrency world, retail and institutional investors alike have kept buying. When China announced on September 24 that it would ban all cryptocurrency activities, bitcoin fell less than 6 percent.
It’s undeniable that bitcoin pessimism has been costly over the past decade, making it easy to dismiss the naysayers for spreading “FUD” — or “fear, uncertainty, and doubt.” But Mike Green, a prominent investment strategist who was also short subprime before the financial crisis, when he worked at hedge fund Canyon Capital, nonetheless shares the perspective of his fellow ’08 Cassandras. “These guys tend to be good BS sniffers,” he says.
“I kind of like to have the Fed run by Ph.D.s who went to work for the government being the people deciding fiscal policy more than a bunch of kids,” he says, referring to the generation of extremely online young people who have figured prominently among the early adopters of bitcoin. “And the U.S. dollar is backed by the full faith of the United States.
“Crypto people think it’s an antidote to central-bank bubbles, but it has actually become a symptom,” says Mark Spitznagel, founder of Universa Investments, a hedge fund that made headlines by producing eye-popping gains during the COVID crash last year. Spitznagel, also a fervent critic of the Fed’s monetary policies post-crash, says cryptocurrencies themselves are fiat currencies, because they are “created out of thin air.
Similar questions and uncertainty swirl around the decision by El Salvador to adopt bitcoin as legal tender. “I would broadly describe what’s going on with El Salvador as they’re trying to make money-laundering the national business,” says Green, who contends that El Salvador is at risk of becoming a narco state.
Crypto mania is “the perfect love child” of those two predecessors, says Josh Wolfe, who lived through both eras on Wall Street and is the co-founder of venture-capital firm Lux Capital. The cryptocurrency world contains both the technological innovation of the dot-com boom and bust and the leverage associated with the housing bubble’s complex securitization, as well as its evasion of regulation.
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