Paul Tudor Jones and the Bitcoin Con

Paul Tudor Jones
Paul Tudor Jones

Paul Tudor Jones made a splash recently by investing either “just over 1 percent” or “almost 2” percent of his assets on bitcoin.

That might be a great investment. After all, bitcoin enthusiasts are just the newest generation of gold freaks. The market in cryptocurrency is not driven by those who think it will one day be a useful currency. It’s driven by the ideology of debt hysteria. These people all believe that hyperinflation is just a short time away.

But unlike the Jehovah’s Witnesses who stopped making predictions about the end of the world after they were wrong a half-dozen times, the debt hysterics never admit defeat. It’s just a couple of years away!

If you follow the bitcoin press, you’ll see it’s more advocacy than news. While they do bring up troubling issues, the articles are always peppered with lots of happy horseshit from “industry leaders.” Unmentioned is that all of these people have strong incentives to keep the crypto bubble inflating.

The Value of Currencies

Think about currency in terms of its actual value. Those in the digital bubble refer to government-created currencies as “fiat.” It’s almost always used derisively. But it is true to some extent.

You see, even if all the world decides that the US dollar is useless, it will still have value. You and I can still pay our taxes with it. So the government, by law, provides its currency with value.

Where is the value of bitcoin except in the heads of its believers? The few things I can buy directly with bitcoin only exist because people are speculating on the currency.

But I understand: currency is a strange thing. The more you think about it the less you understand. But bitcoin advocates seem to think that it is some stable form of wealth whereas fiat currencies can’t be trusted. This is despite the fact that all the major currencies have been rock-solid over the last 40 years while the supposed great stores of wealth like gold and bitcoin have been all over the place.

“Whims” of Government, “Wisdom” of Markets

I said before that Paul Tudor Jones might be making a good investment. I am not, however, saying he is smart. His reasons for investing in bitcoin are based on the same old fact-free debt hysteria.

He noted that bitcoin wasn’t “subject to the whims of government spending.” First, the value of a currency is not subject to the whims of government spending. Japan, for example, has a 200% debt-to-GDP ratio but can borrow cheaply. The UK had a debt-to-GDP ratio that high or higher from roughly 1920 through 1960.

The second issue is this anti-government idea that what it does is bad. The whims of the market are supposedly fine. Bitcoin went from $15,000 at the start of 2018 to $4,000 at the start of 2019 to $7,000 at the start of 2020.

Think about that as a practical matter. Here are what you would have paid for a loaf of bread:

YearCost
2018$4.00
2019$15.00
2020$8.57

Wow! What a great system! You might as well live under hyper-inflation.

Inflation, Deflation, and Libertarian Fantasies

Paul Tudor Jones also said this:

If you take cash, on the other hand, and you think about it from a purchasing power standpoint, if you own cash in the world today, you know your central bank has an avowed goal of depreciating its value 2 percent per year. So you have, in essence, a wasting asset in your hands.

One of my first indications that libertarianism was nonsense was an article about the glories of the gold standard. It noted that inflation was a terrible thing that destroyed our precious wealth. It even talked about how great deflation (negative inflation) was. “Wouldn’t it be great if your money went up in value?!”

Well, no. It would be terrible.

If you are rich, a monetary system with no inflation or deflation might be great. If you have to work for a living, it’s terrible. The economy would not grow nearly as fast without modest inflation. If you knew that things would only get cheaper over time, you would hold off on purchases.

Now, that might be great in the abstract. We do a lot of useless consumption. But we need to set up an economic system where the lack of consumption doesn’t result in poor people starving.

Deflation would also be catastrophic for lending. Imagine if in addition to the interest you have to pay on a loan you have to pay it with money that is worth more!

The “Wisdom” of Paul Tudor Jones

People like Paul Tudor Jones don’t think this kind of stuff through. They don’t have to. They are like two guys running from a bear: it doesn’t matter how fast they are; the one who is slower gets eaten. In the bitcoin market, Jones can be an idiot as long as there are even bigger idiots for him to make money from.

That’s all fine. What’s not fine is that people like him are held up as oracles about the economy. And the fact that people see him on television results in something really odd.

People who don’t follow business at all tend to be slightly better informed on how the economy works. That’s simply because they haven’t swallowed all the debt scold nonsense that isn’t true but sounds so very Serious.

So invest in cryptocurrencies or don’t. I actually find them very interesting. I think the rise of stablecoins shows that they may be very useful in time. But the rise and fall of their prices is about speculation — mostly speculation based on nonsense reasoning.

If you invest in corn futures, you are doing something: helping corn get to where it needs to be in the global marketplace. What are you doing when you invest in bitcoin? I don’t think you are doing anything more than if you played poker.

Yes: some people are better poker players than others. Some people make a lot of money playing poker. But the world isn’t a better place because you play poker.


Image created from Paul Tudor Jones by Hedge Fund Letters under CC BY 3.0.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

9 thoughts on “Paul Tudor Jones and the Bitcoin Con

  1. The way I always heard that bear joke was: two guys are hiking, and they see a rabid bear. One hiker slowly and carefully starts changing from hiking boots into tennis shoes. “What are you doing,” whispers the other hiker, “you can’t outrun a bear.” “No, but I can outrun you.”

    Decades ago, on a computer long since ground into cryptopulp, I wrote a short story treatment called “Libertarian Island.” The idea was, you put all these preachers of self-reliance into a desert island survivor situation. Limbaugh got killed first, by group consensus, because he had more meat on his bones back then. (And now the poor guy has cancer, which makes me almost feel bad about making fun of him, while knowing full well he’d do the same to anyone else.) I think Dinesh D’Souza ended up winning, he had the combo skills of relative youth, relative intelligence, and utter lack of conscience.

    The updated version would have Beau From The Fifth Column secretly monitoring the whole thing and saving all the ones others left for dead.

    • You know Beau?! He’s very good. I often find what he produces kind of elementary, but I think it’s good to have that stuff. It’s so easy to assume everyone knows what you are talking about — like with the bear joke! And I like how topical he is. His takes on things are usually pretty much mine.

      I think a libertarian reality show would be great! Just drop them on an island naked and see what they do. But be nice about it: make the island have a supply of water and raw resources. Then come back in a year. I have a feeling that no libertarians would sign up for that show. But that wouldn’t make sense. Imagine! A whole year with absolutely no interference from the government! Well: up to a year. I suspect most wouldn’t live more than six months.

      • I learned about Beau from this site! Incidentally, Mrs. James really likes him. She doesn’t always enjoy the same political stuff I do, and she’s certainly not into the pro-military scene Beau seems to know, but she’s kind of a Country Culture person and so is Beau. I think there’s something comforting in being reminded that not every Country Culture person is buying the Republican sales pitch about how those politicians are the only barricade against East Coast elitists who sneer at tractor parades. Like Tucker Carlson, whose Long Island home is damn close to where Fitzgerald set the fictional Gatsby’s. Many Country Culture people do get this. But there’s also money to be made confirming people’s most tribalist suspicions, like sportswriters who know “how the umps plotted against your team” is always gonna get readers.

        • I like that aspect too. We need more diversity in leftist public figures. They are already in the moment but tend to be excluded from powerful positions. And that’s bad for the movement.

    • I’ll defer to your and Frank’s experience, because I avoid these people. Have you ever met a poor libertarian? I don’t mean white trash whose operating principles are functionally equivalent but who express it as religiosity (although perhaps I am cheating there). I mean fedora and writing, notes in the margins of The Fountainhead, got his MCSE in 1996 and cashed in, white master of all he surveys. Him all the way up to Peter Thiel. They aren’t going to Libertarian Island unless you give them Boardwalk and Park Place with three hotels. The whole thing is about protecting incumbent privilege and incumbent property.
      I watch Beau on YT from time to time. Usually like what he has to say. I try to limit my viewings so as not to introduce more hillbilly content into my feed, and because I wan’t to keep liking him. I’m a bit out of patience with the right and right adjacent. I read David Brin and I find him intelligent and mostly agreeable. But he can’t resist taking cheap shots at the left. A bit suppressed in these times because the whole both sides thing is pretty obvious right now. But I have often read Brin and thought “I can’t wait for our nation’s politics to get sane so you and I can be on opposite sides.” And I would enjoy talking to conservatives like Brin. I nagged him recently (maybe) for deploying the Vietnam veterans were spat on trope. I asked him if he was under the impression that it happened. He accused me of “lawyering”. If you know it isn’t true why did you say it? William Caley got house arrest and was popular. Hugh Thompson got death threats in civilian life.
      Sorry for veering so off topic. I may not comment much lately but I do follow this blog regularly.

      • @ Lawrence — it wasn’t very off topic! I’ve gone far more off. I think Frank puts up with it to collect metadata he sells to Facebook for $5 a year. My lawyers are asking for about $12.50 back.

        I understand about hillbilly/redneck content (although there’s a good Beau where he talks about how the term “redneck” originally came from union strikers wearing red bandanas tied around their necks, so having that bandana was a sign of labor solidarity). A writer and film critic I liked, John Bloom aka Joe Bob Briggs, went from using a phony redneck persona as gentle satire to actually cashing in on it for the dark side, bashing liberals and what-not. I don’t think Beau would ever do that, but others have.

        A fun thing I like on Beau’s show is his use of T-shirts. Every so often he’ll have a really funny one. Like when talking about how conservatives misread the Constitution, he had a “Schoolhouse Rock” one on. Or discussing the recent half-assed coup attempt in Venezuela and wearing a “Motley Crue” shirt, that was great.

        I have met poor libertarians, I tend to almost feel sorry for them. They’re in the same situation as white supremacists or hardcore fundamentalist End Timers, they have to work their mania into every conversation, and it tends so make them socially isolated from any but their fellow extremists (the rich libertarians have all kinds of others to play with). It is sad, but at the same time, what they can’t shut up about is so truly nasty. It’s like meeting someone who’s foot is broken because they kicked their neighbor’s dog. You empathize with their pain, but kinda think they had it coming, and wonder why they don’t see how pointless their attitudes are.

      • There are these kinds of libertarians. The key is that even though they aren’t rich they think they will be rich. Other than the “I just want my drugs” libertarians, they are all convinced that they are the smartest person in every room. They are the kind of people who know almost no economics but justify it with “it’s just supply and demand!” What do you think of the research that shows raising the minimum wage doesn’t cause job losses. “But it does! It’s just simple supply and demand!”

  2. Great post! I learned a lot. When I think about bitcoin I think about the Fallout games. Currency in the post apocalyptic wasteland is bottle caps. That cracks me up but it sounds more feasible than cryptos because without electricity you still have caps in your pocket.

    • LOL! There are certain bitcoin/gold types who might like it because there would be no way to create more bottle caps. Currency is a strange thing. But the people who worry so much about fiat currencies don’t spend much time looking at their own currency preferences, which are usually even worse.

      I’m also very concerned about the gold-silver ratio. There is absolutely no way that gold is 100 times as valuable as silver. But I can’t say gold prices will crash because there are so many people who are willing to pump the prices higher. It’s hard to be skeptical about gold and crypto when people can say, “Look at all the money that’s being made!” Of course, that was true of tulips too! (That boom only lasted a matter of months though.)

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