A letter warning of a potential cryptocurrency bubble, partly drove by President Donald Trump’s promotion of the technology, was delivered to investors by renowned activist investor Elliott Management.
The Financial Times was the first to reveal the letter, which warned investors that the “inevitable collapse” of the cryptocurrency bubble “could wreak havoc in ways we cannot yet anticipate.” Elliott further cautioned that the White House’s support for cryptocurrencies would reduce the U.S. dollar’s standing as the world’s main reserve currency, thereby undermining its influence in the global economy.
Elliott stated in the letter that the cryptocurrency bubble’s “perceived proximity to the White House” has recently led to a dramatic increase in its size and, consequently, the risks it posed to investors and the economy.
Trump frequently proclaimed his support for cryptocurrencies and his wish to see the United States take the lead in the market during the campaign. The president has also launched his own memecoin and participated in a number of cryptocurrency endeavors, such as World Liberty Financial. His media business also said earlier this week that it will be creating a fintech service that would enable trading of digital assets, among other things.
Cryptocurrency prices have surged since Trump’s election victory in November, as have stocks related to the sector and the US economy as a whole. The process of establishing a national reserve of digital assets was initiated by an executive order signed by Trump shortly after he took office.
Elliott claimed to have “never seen a market like this,” with so many speculators flooding the market with capital driven solely by speculative enthusiasm. Elliott cautioned that speculative assets that it deemed to have “no substance” should not see a sharp increase in value. Memecoins and other assets in that category have no intrinsic worth; rather, their value is driven only by investors’ optimism that they will be able to find someone else who is willing to pay more than they did.
Elliott stated in the letter that “crypto is ground zero” for these speculative assets.
Elliott believed that this was the reason why so many investors were drawn to cryptocurrency. However, a lot of them were just expecting that the market would keep rising. According to the letter, they are “behaving like a crowd of sports bettors.”
However, the risk of the cryptocurrency bubble extends beyond individual investors, who might lose all of their money if it bursts. “Any support from public officials for policies that might result in the dollar being marginalized” is “profoundly dangerous,” Elliott said, adding that the White House’s support for cryptocurrencies, and specifically the effort to establish a national reserve, could harm the U.S. dollar.
Elliott is accustomed to volatile market conditions. Founded by Paul Singer, the firm is a potent activist investor that has frequently engaged in protracted boardroom disputes with corporations. Elliott is an activist investor who frequently spots underperforming companies and thinks they can turn things around.
With governments, the company has even adopted comparable stances. In Argentina, it most famously fought the government for 15 years for unpaid debts as one of the nation’s creditors. Elliott and the Argentine government ultimately came to a $2 billion settlement.
