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Paul Krake is an ex-macro hedge fund manager who now provides research to professional investors. In an interview on Srivatsan Prakash's Market Champions podcast, he discussed three "mega trends": China's economic growth, climate transformation, and digitization. This is what he had to say about Bitcoin (BTC-USD) and crypto more broadly, with the quotes edited for clarity:
"There are 19,000 [crypto] coins in the world. 18,980 of them are going under.
Crypto is BS, complete BS. I'm the ultimate skeptic on crypto. China can never ban crypto? China banned crypto. Crypto can't be regulated? The "store of value" argument? BS. The "comparisons will come as a medium of exchange" argument? BS.
Let's be really clear here. The fraud that goes on in this space is unacceptable in equity markets, credit markets etc. The only reason it exists is because governments are behind the curve and they haven't regulated it properly. I personally think that the coins will get regulated out of existence.
I've always been a skeptic on crypto. I think the behavior of people like Michael Saylor [CEO of MicroStrategy (MSTR), pictured] and Elon Musk, those who advocated that young people max out their credit cards to buy crypto currency "that couldn't go down", to buy stable coins with 20% yield even though they didn't know where the yield came from, would be criminal in any other market.
We've got to separate blockchain technology from the coins. You don't need tokens to implement blockchain strategies. The tokens are the pariah on the back of the innovation.
We're very lucky that there isn't a lot of systemic risk around the crypto crash, because it's a lot of rich people getting less rich. But there are also a lot of young people who have lost everything listening to the likes of Michael Saylor. What was his famous thing? "Mortgage your house to buy bitcoin." It's disgusting, just disgraceful. And I'm sure he's not sitting down with the parents of the 20 year old kid who is now filing for bankruptcy because he took that advice.
I used to worry that I'm just sounding like an old dude, and I would get criticized for sounding like an old dude. But I think I'm absolutely right on this. I'd challenge everyone to think about this: If you don't know where the yield is coming from, you're the yield.
I have no view on the price of bitcoin, because I don't think it has any value. There are plenty of things you can trade if you want to trade something with comparable volatility. You can trade Salesforce or Amazon. Anthony Scaramucci often says that bitcoin is going to be like Amazon, because Amazon was once a trillion dollar company and now it's worth three trillion dollars, and that's where bitcoin is going. But unfortunately bitcoin doesn't sell books. It isn't the world's biggest cloud company. The notion that there is somehow inherent value in bitcoin is ridiculous. There's scarcity value, just like there is with contemporary art and wine and property. It doesn't mean we need to build an entire infrastructure around it.
Do I think there's enough embedded leverage so that there's another shoe to fall with other stable coins going under? Yes, absolutely. That's coming. Bitcoin could stay around. But is bitcoin going to be as relevant as the market and the media said it was? Absolutely not.
Here are my three lessons for investors. First, clearly define your timeframe with any investment. The longer you can hold something, the greater your probability of achieving your goal because you're not getting stopped out by noise. Second, follow mega themes, because mega themes matter. Focus on themes which are truly structural. Third, never use leverage. The reason people get stopped out is because they use leverage. People who don't use leverage don't go bankrupt. You might leave money on the table, but from a risk-reward standpoint it's a far superior outcome."
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