September 3, 2021
Hi folks, Trish Regan here…
Hedge-fund manager John Paulson famously made billions in the U.S. housing market crash. And ever since, people have been asking him about his next big trade.
Earlier this week, he had some harsh words for bitcoin when he told Bloomberg that cryptos “will eventually prove to be worthless.”
Now, regular readers know I’ve been writing about cryptocurrencies for some time. I truly believe, with the future of the U.S. dollar seemingly uncertain, bitcoin is more than just a trend… It deserves our attention.
So as soon as I read that, I reached out to Stansberry Research’s crypto guru Eric Wade to get his reaction.
Eric writes Crypto Capital, Stansberry’s wildly successful crypto newsletter, and his new product, Crypto Cashflow. He holds more huge winners in the company’s hall of fame than anyone else, despite only publishing his research service for just three years.
(He’s offering a historic deal right now on his research. Click here to find out how you can get Eric’s next big moneymaking recommendation.)
Eric had a lot to say in response to Paulson…
Today, we’re sharing his rebuttal, written exclusively for American Consequences readers.
The Billionaire Who Wants the World‘s Money
By Eric Wade
When a smart person – a person with whom you often agree – says something patently, absurdly, provably wrong… that’s your big red blinking light of opportunity. Especially when that smart person is ridiculously wealthy.
But you have to figure out what the opportunity is, and you need to do it fast and with enough conviction that you’ll actually act on it.
Because smart billionaires don’t often give us obvious flashing red lights like we’re getting right now.
Let me explain…
John Paulson is an American hedge fund billionaire. During the 2007 to 2008 U.S. housing bubble and subprime-mortgage collapse, Paulson used the very complicated credit default swaps (“CDS”) to make an absolute killing. (A CDS is a contract that acts like insurance for bonds. If a company can’t pay its debts, a CDS ensures that the owner of the debt gets paid.)
In other words, Paulson leveraged the possibility of risk of default away from his own portfolio and onto other parties just as the entire world’s economy was going into a period of unprecedented defaults.
It was a brilliant move that made Paulson an estimated $4 billion personally.
But there’s something else you should know about Paulson. In 2008, he wrote in the Wall Street Journal that the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) would be better served by buying troubled financial institutions’ preferred stock rather than following the Treasury Secretary’s plan of buying those same institutions’ worst, most toxic assets.
Washington, D.C., as you can expect, rejected the great advice and instead “bailed out” failed institutions with buckets of cash going to failing banks.
Smart and Rich and Wrong
I say all of this to introduce Paulson as someone who clearly has turned his smarts into billions of dollars… so he’s worth paying attention to when he talks about investments.
But what happens when he says something that’s dead wrong?
First, you make sure it’s not you who’s wrong. Then you figure out why he said it and what it means.
Recently, Paulson told Bloomberg Wealth that he doesn’t believe cryptocurrencies have any value. His exact words were, “Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless.”
That’s a bold statement, considering the global value of cryptocurrencies right now is more than $2.2 trillion.
And it’s easy to prove that he’s wrong. There are thousands of cryptocurrencies that provide a broad spectrum of services and utility as well as speculative value… But we need look no further than the most basic, simplest cryptocurrency for our proof.
Let’s look at whether bitcoin (BTC) has any value. Bitcoin, you may or may not know, is a computer program written and released in response to the 2007 to 2008 meltdown that virtually anyone can run. I’ve run it on a standard Windows 10 home computer, an old laptop, and a $100 Raspberry Pi minicomputer.
What the bitcoin program does is simply keep track of where the bitcoin “coins” are, and when a coinholder wants to move coins, the program makes sure the coins being moved really belong to the coinholder who is moving them.
That’s it. Bitcoin keeps track of bitcoin.
To make sure the bitcoin program isn’t hacked, the program pays out rewards to anyone – anywhere – who voluntarily uses their computer to secure the network and process those “moving coins” transactions. Those rewards are paid out in more bitcoin to whoever is lucky enough to solve a puzzle that locks down all the data every 10 minutes.
It works so well that anyone, anywhere in the world, at literally any time of day, can track how many coins there are and where they moved to and from… down to the value of $0.0005. (If you’re curious, there are exactly 18,803,690 bitcoin in existence as I write this.)
It’s a simple, elegant program that has been running on thousands of computers virtually uninterrupted since its invention in 2009.
A 900-Year Head Start Should Count for Something
Compare that to tracking equities, which have been trading since the 12th century according to WorldAtlas.com and – get this – nobody really knows how many shares of stocks there are.
I’m not kidding. We’ve had centuries to perfect stock trading, and yes, high-frequency traders can execute a trade in milliseconds… but nobody can count how many shares there really are.
I know most of you reading this may be stock investors, so I fully expect I’ll have to prove this and you probably want to hear more than just “unscrupulous brokers loaned out 140% of GameStop shares because of funny accounting tricks.”
Yes, that’s a problem. But it’s even bigger than that and a much, much older problem than the recent meme stocks trading on Robinhood. In fact, in the aftermath of the 2007 to 2008 global economic collapse, the U.S. Securities and Exchange Commission (“SEC”) adopted Rule 613 (Consolidated Asset Trail) to try to get a handle on – literally – who held what assets.
At the time, the SEC said Rule 613 would “create a comprehensive consolidated audit trail that would allow regulators to efficiently and accurately track all activity throughout the U.S. markets in National Market System securities.”
Now, when it was written a mere decade ago, there wasn’t a way to accurately track all of the securities in the United States. Rule 613 goes on to require market participants to submit a plan for how they would create and maintain a consolidated audit trail (“CAT”).
In plain English, Rule 613 was the very beginning of attempting to audit who owns what of publicly traded securities.
Sadly, but perhaps not unexpectedly, in 2017 the SEC announced that the phase of actually using the CAT was being delayed by at least a year. It probably surprises no one that in April of 2020, the SEC again agreed to more delays due to COVID-19.
Knowing this, it’s easy to see why brokers fearlessly lend out 140% of a company’s stock right under the nose of the SEC. Until CAT is a reality, I guess you could say “the mice will play.”
This isn’t meant to scare equities investors… Rather, I’m attempting to highlight the difference between bitcoin – the simple, volunteer-run computer program that can track literally every single coin ever issued down to the value of five ten-thousandths of a penny – juxtaposed against Rule-613-spawned “Consolidated Asset Trail” vaporware.
Bitcoin, then, just one of thousands of cryptocurrencies, has solved the “who owns what” problem that has eluded the SEC and its nearly $2 billion annual budget and its 4,658 full-time employees for a decade… after having a 900-year head start dealing with equities.
If you’re considering buying a new phone, this shocking tale could change your mind. Get the full story now.
Paulson Wants Something for Nothing
Therefore, Paulson’s statement is provably wrong: Bitcoin (the program) is clearly worth something, not nothing. Adding to that, bitcoin can be used as a currency or medium of exchange by anyone around the world. You can transfer bitcoin without a bank 24/7, and on average pay a fee of only $2.72… in bitcoin, of course. Plus, you can deposit bitcoin and borrow against it almost instantly with no questions asked.
Moreover, every year another wave of investors turned off by the traditional finance world sees the value in the bitcoin program that – when you own some of its self-issued coins – allows you to be 100% sure of what you own.
That may not appeal to Paulson. Maybe he’s perfectly fine investing his $4 billion estimated net worth in questionable securities sloppily tracked by bureaucrats who can’t even build a database in a decade with a $2 billion annual budget.
But I don’t believe that. And I also don’t believe Paulson just doesn’t understand cryptocurrencies or doesn’t see the value.
I believe, instead, that Paulson says cryptocurrencies are worthless because he wants to buy them… cheap.
Just like in 2007 to 2008 when Paulson convinced the smartest traders in the world to take the other side of his massive, complicated credit-default-swap trade (which has been called The Greatest Trade Ever by the Wall Street Journal‘s Gregory Zuckerman)… Do you think he told the counterparties what he was doing?
No, Paulson’s smart enough to know you don’t telegraph your moves.
What does it all mean? Paulson is smart. He’ll buy, use, or perhaps create and sell cryptocurrencies eventually. If he’s simply looking to buy at lower prices… you should, too.
My advice: Don’t sell him yours, no matter what the price is.
P.S. Eric believes 2021 will change the future of money in America forever… and the signs are everywhere for a dollar collapse. As we’ve talked about many times, if you are holding any cash, the value of that cash is falling fast… So what can you do as an investor?
Eric says that despite the craziness in the world today, there’s an emerging opportunity to make even larger gains than his followers have seen in the past…
Love us? Hate us? Let us know at [email protected].
Publisher, American Consequences
With Editorial Staff
September 3, 2021