Billionaire investor Stanley Druckenmiller said that crypto could make a comeback as citizens begin to distrust their central banks.
The hedge fund manager sees this outcome as increasingly possible given the state of the global economy, and the Fed’s uphill battle against both inflation and recession.
Recession is Coming, Says Druckenmiller
During an interview at the CNBC Delivering Alpha Conference on Wednesday, the Duquesne Family Office CEO began by criticizing the Federal Reserve’s “radical monetary policy” in 2021. “I was just incredibly frustrated with what to me looked like a Fed that was just taking unbelievable risks,” he said.
He added that the Fed’s actions helped blow up the “wildest raging asset bubble ever seen,” noting that economic collapses frequently follow such bubbles. However, the Fed ignored such asset inflation at the time because addressing it was “not part of their mandate.”
Bitcoin erupted in 2020 and 2021, but has fallen back to late 2020 lows after the Fed began tightening monetary policy to quell inflation this year. Annual CPI peaked at 9.1% in June, but has now backpedaled to 8.3% as of August. Meanwhile, the central bank’s benchmark interest rate is slightly over 3%.
While Druckenmiller is pleased that the Fed is finally combating inflation, he doesn’t believe they’ll be able to make it to the end of 2023 without causing a recession. As such, he remains skeptical about whether the Fed will follow through on its inflation-reduction mission, without reversing course.
“Let’s see what happens if we get a hard landing,” he said. “You have to slay the dragon. And the chair is right. You’re probably going to have some pain.”
Fed chairman Jerome Powell acknowledged in August that reducing inflation “is likely to require a sustained period of below trend growth.”
Losing Faith in Central Banks
Druckenmiller clarified that he’s staying away from assets – including Bitcoin and other cryptos – as the Fed continues to tighten. However, he sees a long-term case for crypto to rise if central banks start to reverse course, much like the Bank of England began to do on Wednesday.
“I could see cryptocurrency having a big role in a Renaissance because people just aren’t going to trust the central banks,” he said.
Much like gold, Bitcoin has a reliably scarce supply, causing many to view it as a long-term inflation hedge asset. Paul Tudor Jones has even suggested that Bitcoin is superior to gold, and that central banks may feel threatened by its potential to become the new global money.