The Money Game: Michelle Celarier
New York magazine|October 25 - November 7, 2021
The Crypto Concerned Why the ‘Big Short’ guys think bitcoin is a bubble.

DURING THE PAST YEAR OF covid-induced market mania, cryptocurrencies have gone up so much—bitcoin is up about sixfold, while many other crypto projects are up far, far more—that even reluctant Wall Street institutions have started tiptoeing into the arena. A blazing rally that began this month has seen bitcoin shoot up 50 percent in a few weeks. But doubters remain, and their ranks just happen to include many of the same prominent investors who saw the financial crisis of 2008 coming.

Hedge-fund mogul John Paulson, who was behind “the greatest trade ever”—he made $4 billion on his short of subprime mortgages—thinks cryptocurrencies will prove to be “worthless.” Michael Burry, the quirky hedge-fund manager made famous in The Big Short movie, complains that no one is paying attention to crypto’s leverage. For months, he’s been suggesting bitcoin is on the precipice of collapse. Nassim Nicholas Taleb, whose now-canonical book The Black Swan warned about the dangers of unpredictable events just ahead of the subprime crash, argues that bitcoin is functionally a Ponzi scheme. And hedge-fund billionaire and hard-money acolyte Paul Singer, who in 2006 predicted a “wipeout” in mortgage securities, thinks cryptocurrencies are a fraud. In a January letter to investors, he wrote, “We continue to press on for the day when we can say, ‘We told you so.’”

Since then, though, the bitcoin bulls have only grown more optimistic. Despite a steep sell-off in May and the growing evidence that federal regulators are ready to get tough on crypto, retail and institutional investors alike have kept buying. The total value of all cryptocurrencies is now estimated at $2.5 trillion, and a bitcoin trades for around $60,000 (up from a low of about $4,000 last year).

Cryptocurrency investors have been largely unfazed by the fact that, in the case of bitcoin, the term currency is something of a misnomer. “Nothing is priced in bitcoin,” economist Nouriel Roubini, one of the few in his profession to predict the financial crisis, noted in a recent report. While Starbucks might offer customers the option of buying their coffee with bitcoin, almost no one chooses to do so.

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