James Chanos, an investment manager, and short seller asserts that he would prefer owning fiat currency to cryptocurrencies in the event of a global financial crisis.
Jim is the Founder and President of, Kynikos Associates, an investment advisory firm registered in New York City that focuses on short selling. Notably, all through 2001, Chanos was a short seller of Enron and increased his short position as more information on Enron was revealed. Subsequently, Kynikos Associates made a profit.
Jim says that fiat is preferable to cryptocurrencies in event of a crisis because the government can enforce the use of fiat and can act as lenders as a last resort. There are many policies that a government can employ to prevent or combat a recession, like cutting interest rates, increasing government spending or devaluation on an exchange.
Unfortunately for cryptocurrencies, due to their decentralized nature, such measures are not possible to keep its value from plummeting in case of a crisis. Over the past year, Bitcoin’s price has been rising, sometimes sensationally jumping in value. This led people into believing that the value of Bitcoin will continue to stay near the stratosphere, but holding this belief may be catastrophic.
“For those who believe that you need to own digital currency as a store of value in the worst-case scenario, that’s exactly the case in which a digital currency will work the least. “
Short selling is a practice where the short seller borrows a number of shares from an institution/company, immediately sells them, then waits for the price of the share to go down. The short seller then buys the same number of shares and gives it back to where he borrowed the initial shares from. Due to the fall in share price, the short seller makes money.
Jim says about Bitcoin:
“This is simply a security speculation game masquerading as a technological breakthrough in monetary policy.”
Chanos is also a long time skeptic of China’s economic future. In January 2010, New York Times referenced him predicting an impending economic crash for China, which did not materialize.
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