Billionaire George Soros recently approved his Soros Fund Management (SFM) to trade cryptocurrency. The news uncovered by Bloomberg likely surprised many, considering Soros slammed virtual currency—bitcoin in particular—this past January at the World Economic Forum in Davos, Switzerland, calling it a “bubble.”
Adam Fisher, who manages the macro investing at SFM, has not yet reportedly bought any virtual currency. But it raises the question of whether Soros approved trading it in case bitcoin proved his instincts wrong, or if attacking it formed part of an investment strategy. Since his comments, bitcoin lost more than 40 percent of its value. Many analysts blame this on proposed regulation in Asia and Europe, but Soros’s lack of confidence could have played a small role.
Bitcoin investors and countries seeking to create their own cryptocurrencies have reasons for concern that Soros could stake his next homestead in the technology. Soros won a sizeable chunk of his fortune by shorting fiat currencies. The United Kingdom’s Black Wednesday on September 16, 1992, made for his most notorious feat, which earned him the title of “the man who broke the Bank of England.” By massively shorting the pound sterling, he gained over a billion dollars in a single day. Meanwhile, millions of British citizens lost much of their life’s savings and investments as the pound fell 4 percent against the dollar. The UK was forced to pull the pound from the European Exchange Rate Mechanism.
Five years later, Soros and Julian Robertson’s Tiger fund took aim at the Thai baht. The strengthening dollar to which Thailand had pegged the baht prompted a series of poor economic moves by the Bank of Thailand. Soros and Robertson moved in for the kill when the Bank ran out of money. This caused the baht’s depreciation against the dollar to reach 60 percent in less than four months.
Soros and other speculators also attacked Malaysia’s currency, the ringgit, and Indonesia’s rupiah. The ensuing economic crisis that spread throughout Southeast Asia caused millions of people to lose their livelihoods; and in Indonesia, it sparked a revolution that featured widespread looting and rape, and cost more than 1,000 people their lives.
The following year, Soros’s similar attempt to sink the Hong Kong dollar failed thanks to Hong Kong Finance Secretary Donald Tsang Yam-kuen’s counterattack. When Soros and other traders began dumping the HK dollar, Tsang Yam-kuen broke with the country’s free-market reputation and bought HK$118 billion in stocks. This allowed the Hong Kong dollar to remain pegged to the U.S. dollar and avoided an economic crash, which could have damaged the Hong Kong and China economies for years. It would have also likely reignited the East Asian financial crisis and provoked additional regional unrest.
Bitcoin is arguably harder to short than real currency because no single trader can borrow several billion dollars’ worth at once. In fact, many of the proposed regulations that drove bitcoin’s recent drop specifically limit the amount of cryptocurrency that a single investor can borrow. However, Soros could subject the cryptocurrency to repetitive shorts. If he plans to invest long, the fear that he could do to bitcoin what he did to the pound and other real currencies could eventually deflate its price enough to make for an easier, massive buy-in for SFM.
Many bitcoin investors are Millennials who came out of the anti-Wall Street and anti-banking mania that swept their generation after the Recession. Many of them see Soros as a rich guy who fears that bitcoin could one day replace his class. But unlike other investors, Soros calculates ideologically as well as financially. He told his biographer, Michael Kaufman, that he aspires to be “the conscience of the world.” For his part, he has treated “the little guy” investor as collateral damage in his crusade to rid the world of closed societies.
One of Soros’s gripes about bitcoin is that dictators can use it as a nest egg. Should he invest seriously in cryptocurrencies, he could manipulate the digital currencies of countries led by leaders of whom he disapproves. He disregards the financial security this could provide to average citizens because if governments enjoy that same security, it could insulate them from international sanctions.
Recently, several governments have either created, or expressed interest in creating their own cryptocurrencies. Venezuela’s Nicholas Maduro created the “Petro,” backed by the nation’s oil. After temporarily shelving plans to create a cryptoruble, Russia is looking at ways to create a supranational cryptocurrency for BRICS (Brazil, Russia, India, China, and South Africa) or the Eurasian Economic Union (EEU). Turkey is considering imitating Venezuela’s Petro by launching Turkcoin, based on the country’s sovereign wealth fund, Turkish Airlines, the Istanbul Stock Exchange, and Turk Telecom. Kazakhstan and Iran, have also recently considered government-created cryptocurrencies. Israel’s diamond exchange will soon release the crypto Carat next month, and Japan plans to release its own J-coin by the start of the 2020 Olympics.
Soros may see investing in risky cryptocurrencies as a way to “police” international finance markets and destabilize countries led by dictators. This sounds good only if one trusts Soros’s definition of dictatorship. It would not be inconceivable for Soros to target weaknesses in countries’ cryptocurrencies the same way he profited from exploiting national fiat currencies to weaken regimes he dislikes.
Soros’s seemingly, contradictory actions regarding cryptocurrencies should cause investors to consider his possible motivations. He could manipulate it through repetitive shorting cycles; or, he could plan to leverage his reputation to scare enough potential investors away to systematically drive the price low enough to buy enough to control it. But when Soros, who dedicates his life to promoting an ideology, eventually invests in cryptocurrencies it will likely not be to simply grow wealthier but to thwart those whose beliefs clash with his own from doing the same.