In 1992, George Soros made one of the most famous currency trades ever when he bet against the British pound.
The U.K. government was struggling, during a period of high inflation, to keep the exchange rate of the pound sterling fixed to be within a certain range of the German mark, as it had agreed to do. Soros detected weakness. By September, he had built a $10 billion short position against the currency.
The U.K.’s plan unraveled. The Bank of England realized it could no longer keep raising interest rates to prop up the pound. So, Britain abandoned the promised fixed exchange rate, and the price of the pound promptly fell. Soros’s “big short”—now considered legendary—reaped his fund an estimated $1 billion profit.
Soros’s career—and continued success—has frequently pitted him against entire countries. He bet big against the Thai baht amid the Asian financial crisis of 1997. He made a fortune betting against the yen and then-Japanese Prime Minister Shinzo Abe’s economic plans in 2013. And now Soros is betting on…Bitcoin.
Well, sort of. Dawn Fitzpatrick, chief executive of Soros Fund Management, the hedge fund Soros founded in 1970 (the same one that pulled off the sterling stunt), recently disclosed at a Bloomberg event that the fund is a cryptocurrency investor. “We own some coins,” Fitzpatrick said, referring to Bitcoin. “Not a lot,” she added.
Michael Vachon, a spokesperson for the fund, declined to elaborate further about its cryptocurrency holdings: “We have no more to say for now.”
Bitcoin gaining the endorsement of Soros’s top lieutenant—even such a tepid endorsement—is exactly the kind of news that may cause crypto investors to salivate. Indeed, the price of Bitcoin promptly blasted off after Fitzpatrick’s remarks, rising nearly 10% to more than $55,500 per coin. The price has fallen a bit since then, dipping slightly to $54,000—but it is still up more than 30% since the end of September.
Soros’s Bitcoin position is notable since the fund has made its fortunes by betting against governments and central bank economic policies. As Michael Casey, chief content officer at the crypto trade blog Coindesk, has written, Bitcoin can be considered “a massive short position against the entire financial system”—as he pithily describes it, the “biggest big short”—since the inherently libertarian tender operates outside government control. If Soros owns some, surely there’s something to the idea, right?
The news may be unwelcome to regulators who are trying adamantly to get a grip on the fast-growing $2.3 trillion market for digital coins. According to research from the online crypto exchange Crypto.com, more than 200 million global users are estimated to be participating in this insurgent economy, a figure Fitzpatrick cited in her discussion with Bloomberg.
Even more significant than Fitzpatrick’s scanty Bitcoin tout is what she said next, however. “The coins themselves are less interesting than the use cases of DeFi,” she continued, referring to “decentralized finance,” the crypto industry’s effort to build an alt-Wall Street powered entirely by blockchain software. Given the recent price action, Bitcoin investors didn’t seem to mind her stated preference. Meanwhile, the price of Ether, the cryptocurrency attached to Ethereum, the blockchain most closely associated with the DeFi movement, has risen 7% to more than $3,600 since she spoke.
In case you didn’t catch the most recent issue of Fortune, you can read all about the DeFi trend in my cover story. And anyone wondering how regulators may wrench the rising crypto-economy into their orbit should take a look at this proposal just published by Andreessen Horowitz, one of the industry’s biggest investors.
Time will tell whether the Bitcoin big short is indeed the biggest yet.
Robert Hackett
@rhhackett
robert.hackett@fortune.com
DECENTRALIZED NEWS
Credits 🚀
Securities and Exchange Commission Chair Gary Gensler says a digital asset ban like China's is not coming to the U.S.... Corporate America wants some clarity on how to account for cryptocurrency assets... Citadel Securities founder Ken Griffin says the market-making giant would be "quite fine" with a ban of payment for order flow... Invesco has launched two new crypto-tied ETFs in partnership with with Michael Novogratz's Galaxy Digital... Public.com has launched crypto trading... MEMX and Flow Traders have joined the Pyth Network... U.S. Bank is offering a crypto-custody service to fund managers... Crypto exchanges are popping up on Main Street... Mexico's Bolsa Mexicana de Valores is exploring crypto-based financial instruments... The National Bank of Georgia is planning a pilot program for a central bank digital currency... Dolce & Gabbana has sold a nine-piece collection of NFTs for nearly $6 million... Crypto payments app Wirex has expanded into Vietnam... Hip-hop legend Russell Simmons is getting into NFTs thanks to Snoop Dogg.
Debits 🐻
A cryptocurrency addiction rehabilitation clinic in Scotland called Castle Craig is seeing a surge of inquiries... Coinbase CEO Brian Armstrong wants people to be nicer to CEOs... Hackers recently stole cryptocurrencies from at least 6,000 Coinbase customers... Former Treasury Secretary Steven Mnuchin is a proponent for regulating stablecoins to make sure the funds backing them are in actual banks... SEC Chair Gary Gensler is coming under fire from Republicans for his moves to oversee crypto... The Justice Department is cracking down on criminal misuses of cryptocurrencies with a new Taskforce... Reddit-beloved investor Cathie Wood is moving ARK Invest to Florida from New York... A technical issue took down Liquid Network, built to help speed up Bitcoin transactions, for a part of this week.
FOMO NO MO
Concocted in part by a former child actor from The Mighty Ducks, the world's biggest stablecoin—Tether—remains a mystery.
Each Tether is supposedly backed by $1, a trade that has made the token integral to the cryptocurrency world. But finding the billions that is purported to be backing Tether has become a near impossible task, as Bloomberg Businessweek's Zeke Faux recently found out. In reporting the magazine feature, Faux writes that trying to find the money behind Tether, which is quickly climbing the risk-ladder for regulators, is an international endeavor that stretches from the Bahamas to Taiwan, involves the cocreator of the Inspector Gadget cartoon (as well as the aforementioned Mighty Ducks alum), and $69 billion or so that no one seems to know the exact location of. Not that everyone minds the opacity.
From the article:
The officials who gathered in July at the Treasury Department are discussing regulating Tether like a bank, which would force Devasini to finally show where the money is, or even undermining it by issuing an official U.S. stablecoin. The strange thing is that, at least for now, most participants in the crypto market, including some very large and sophisticated operators, don’t seem to care about any of the risks. Just last month, traders bought $3 billion in new Tethers, presumably sending billions of perfectly good U.S. dollars to the Inspector Gadget co-creator’s Bahamian bank in exchange for digital tokens conjured by the Mighty Ducks guy and run by executives who are targets of a U.S. criminal investigation.
The situation has parallels to the wildcat banking days. The customers patronizing those not-banks weren’t rubes; sketchy notes were the only money they could find. But that ended when, in the early days of the Civil War, President Abraham Lincoln started printing federal paper money and instituted a prohibitively high tax on other currency. The wildcat notes, which once fueled frontier cities’ economies, fell into disuse. Some gave them to children to play with. In rural areas, they were used for wallpaper.
BUBBLE-O-METER
385%
Over the past week, the joke crypto market—especially in tokens based on Dogecoin—has been laughing all the way to the bank.
Shiba Inu coin has gains as high as 385%. And Flokinomics, whose name is apparently inspired by Elon Musk's Shiba Inu puppy Floki, has jumped more than 1,000% in the last 24 hours alone. Granted, it is still only trading for $0.00003. The original Doge, ironically, has seen a more muted gain of about 20%.
THE LEDGER'S LATEST
Creator 25 by Fortune Editors
PepsiCo CFO: No way we'd park cash in Bitcoin by Shawn Tully
After a rough September, investors can expect one thing for October: volatility by Anne Sraders
With NFTs, the digital medium is the message by Alex Tapscott
Bull-market Bitcoin: the king of crypto is up 25% in the past week by Bernhard Warner
Playbook gets new funding to help users do what Peter Thiel does—pay lower taxes on investments by Lucinda Shen
Who beat out Tiger Global as the most active venture investor of the third quarter? by Lucinda Shen
Welcome to the TikTok Economy by Jeffrey M. O'Brien
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
MEMES AND MUMBLES
AMC is not backing away from its interest in crypto. The movie theater chain's CEO tweeted Tuesday that it is now accepting Dogecoin as payment for digital gift cards, in addition to other cryptocurrencies, begging the natural question of when can we use Shiba Inu or Flokinomics?
This issue of Fortune’s The Ledger was assembled by Declan Harty, who you can follow here.
