Michael Burry, who is well known for predicting the subprime mortgage crisis, is not investing in Bitcoin because of its speculative nature and potential opposition by governments.
Burry was made famous by the 2015 movie “The Big Short”, which told the story of his large bet against the housing market in 2005.
It took a few years to play out, but in the end, he returned a personal profit of $100 million and $700 million for his investors.
He continues to monitor the markets, and in March 2021, he correctly predicted that “Bitcoin was a speculative bubble that poses more risk than opportunity”.
At the time, Bitcoin was trading at around $60,000. Fast forward fifteen months and the cryptocurrency has lost two-thirds of its value.
Apart from the risk of being in bubble territory, Burry highlighted three other reasons he does not like Bitcoin as an investment.
- Governments like control over their currencies and will crush cryptocurrencies if they gain traction.
- Bitcoin and other cryptocurrencies are not a good store of value or hedge against inflation.
- Cryptocurrencies, like Bitcoin, have no intrinsic value, and the price purely relies on what the next person is willing to pay.
Here is a look at each of Burry’s three concerns in more detail.
Governments will crush cryptocurrencies if they gain traction
Burry said the long-term future is tenuous for decentralized crypto because centralized governments like to control their currencies and act against cryptocurrencies if they become a threat.
This view is shared by American billionaire investor and hedge fund manager Ray Dalio, who said governments don’t want to see cryptocurrencies become successful.
“If cryptocurrencies become successful, governments will kill it,” said Dalio.
Cryptocurrencies are not a great hedge against inflation
Many Bitcoin advocates punted the value of cryptocurrencies as a hedge against inflation, but it was proven wrong.
Bitcoin is currently a speculative asset where investors sell their crypto assets during times of uncertainty and high inflation.
As such, Bitcoin closely tracked the Nasdaq index in 2022 over a period when the tech-heavy exchange recorded a significant decline.
Cryptocurrencies have no intrinsic value
Cryptocurrencies are non-productive assets where the price is determined purely by what the next person will pay.
Bitcoin is similar to gold or cash, but without the credibility these traditional speculative assets have developed over the centuries.
Burry called Bitcoin the “greatest speculative bubble of all time in all things” last year, warning it was drawing in retail investors before the “mother of all crashes”.
It is exactly what happened, with Bitcoin plummeting from a high of over $60,000 in 2021 to under $20,000 in June 2022.
Burry’s views are shared by other investors
Protea Capital Management CEO Jean Pierre Verster said he is not investing in cryptocurrencies like Bitcoin because it is a speculative investment.
Verster highlighted that simply because something increased in value in the past does not guarantee it will increase in value in future.
He added that as a non-productive asset, Bitcoin does not produce anything. You cannot, for example, get interest or dividends from cryptocurrencies.
The only way you can make money from cryptocurrencies is to sell it to another person at a higher price.
“I don’t like those types of investments because it makes me dependant on what the other person thinks the asset is worth,” Verster said.
Berkshire Hathaway CEO Warren Buffett also believes Bitcoin has no real value.
According to Buffett, Bitcoin doesn’t produce earnings or dividends, which means it has no inherent value.
“When you’re buying non-productive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along,″ Buffett said.
He said Bitcoin is no different from Tulip mania in 1636 and predicted “with almost certainty” it will also end badly.