Bitcoin (CCC:BTC-USD) prices have pulled back below $50,000 after reaching as high as $58,330 earlier in the week, but by the time I’m finished writing this story, the price of a Bitcoin could be anywhere from $30,000 to $70,000.
Cryptocurrency gamblers have made a killing capitalizing on the Bitcoin FOMO trade in 2020 and 2021.
BTC has been an excellent trading fix for people looking for a daily adrenaline rush. Unfortunately, this cryptocurrency has a big problem as a long-term investment.
Burry Talks Bitcoin
Scion Asset Management fund manager Michael Burry became famous on Wall Street for correctly identifying and profiting from the mortgage market bubble in 2008. He became even more famous in 2015 when he was portrayed by Christian Bale in the movie version of “The Big Short.”
One of the prevailing arguments Bitcoin bulls make is that the cryptocurrency is an inflation hedge. While the U.S. Federal Reserve prints trillions of dollars of stimulus, the total number of Bitcoins will remain fixed.
It may be true that the value of Bitcoin will increase relative to the U.S. dollar, but Burry says hyperinflation could be the crypto’s worst enemy.
“I don’t hate $BTC. However, in my view, the long term future is tenuous for decentralized crypto in a world of legally violent, heartless centralized governments with #lifeblood interests in monopolies on currencies,” Burry said.
Up to this point, cryptocurrencies like Bitcoin have been no real threat to the values of fiat currencies like the U.S. dollar. However, if hyperinflation sets in, that could change in an instant.
“In an inflationary crisis, governments will move to squash competitors in the currency arena. $BTC #gold,” Burry says.
What Is Yellen Saying?
Up to this point, powerful governments around the world have mostly ignored BTC in the hopes it would go away. For a while, that strategy was working. After reaching nearly $20,000 in late 2017, Bitcoin prices initially dropped back down to under $4,000.
Even now, the Federal Reserve is targeting just 1.8% personal consumption expenditure inflation in 2021. Bitcoin is not killing the dollar. In fact, the dollar isn’t suffering at all, at least not yet.
I do believe there will be a jump in inflation at some point in the coming quarters. Not only is that perfectly fine, but it’s also very healthy for a growing economy. The Fed is actually targeting inflation rates slightly above 2% as part of its “average inflation targeting” strategy.
I do think there’s a chance inflation gets out of control, but if hyperinflation sets in, the U.S. government and other governments around the world will do everything in their power to make sure Bitcoin doesn’t take over.
Treasury Secretary Janet Yellen has made clear she is “not a fan” of Bitcoin and “it is not a stable store of value.”
More recently, Yellen pointed out that cryptocurrencies are a godsend for terrorist groups and other criminals looking to launder money.
“And so regulating institutions that deal in Bitcoin, making sure that they adhere to their regulatory responsibilities, I think is certainly important,” she said.
What It All Means for Bitcoin
BTC investors are delusional if they think the most powerful government institutions in the world are going to sit by and watch a private currency replace their fiat currencies. They are also delusional if they think the U.S. government won’t make its own cryptocurrency based on the Bitcoin model that has a set number of tokens, just like Bitcoin.
Burry has made clear he is not short Bitcoin. I’m not short Bitcoin either, and I don’t recommend anyone else short it.
However, Bitcoin investors hoping for hyperinflation don’t know what they’re in for. Picking a fight with every major government around the world is not a winning strategy. Hyperinflation would likely be very bad news for Bitcoin investors.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. He is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.