JP Koning: Bitcoin, the Perfect Trading Machine, Icons of Hooks

No group of speculators was more famous in the 1980s and 1990s than Stanley Druckenmiller, Paul Tudor Jones and George Soros. Druckenmiller famously was betting $ 2 billion on Deutsche’s mark when the Berlin Wall collapsed. Soros and Druckeniller together made billions betting on the British pound when its peg fell in 1992. And Jones benefited from the 1987 stock market crash.

In 2020, two of these three traders – Druckenmiller and Jones – finally started buying bitcoins.

This post is part of CoinDesk’s 2020 Year Review – a collection of editors, essays and interviews for the year in crypto and beyond. CoinDesk columnist JP Koning worked as an equity researcher at a Canadian brokerage firm and is a financial writer at a large Canadian bank. He runs the popular Moneyness blog.

One wonders what it took them so long. The world has never seen a purer trading machine than Bitcoin. It is purpose-built to let professional speculators like Druckenmiller and Jones make, or lose, large sums of money quickly.

A look back at the 1987 stock market crash, probably the craziest day in market history, provides a window into the minds of these three speculators. It also suggests why, 33 years later, they have finally converted bitcoin.

‘One of the most exciting times of my life’

To help inform his trading decisions in 1986, 33-year-old hedge fund manager Paul Tudor Jones turned to the 1920s for inspiration. It did so by constructing an “analogue model,” a simple visual overlay of the 1980s market over the 1920s market.

Jones talks about this analogue model in a famous documentary about him, “Trader.” He has allegedly tried to remove “Trader” many times over his career.

Jones ‘analogue model suggested to him that the 1980s market would collapse at some point, much like in 1929. And so Jones’ hedge fund was short of the stock market (ie, in a position to benefit from a collapse) going October 19., 1987, or “Black Monday.” Jones has described accident week as “one of the most exciting times of my life.”

Speculators are less concerned with reality, or the fundamentals, and more concerned with what’s going on in people’s heads.

publish on CNBC said it had “just over 1% of my assets in bitcoin. He might be almost 2[%]. That seems like the right number right now. “In October, Jones noted” I like bitcoin even more now than I did then. “

In November, Druckenmiller admitted he owned “a small piece of it.” He went on to say bitcoin has “a lot of attraction as a store of value for new West Coast millennials and currencies and, as you know, they have a lot of it.”

See also: Legendary Investor Stan Druckenmiller Turns Bitcoin Bull (podcast)

Soros, for his part, has been mum on the question of whether he owns bitcoin.

Some people are surprised that legendary speculators like Druckenmmiller and Jones jump into a relatively relentless tool. I’m surprised it took so long.

Keynesian beauty contests

Market participants like Soros, Druckenmiller and Jones are not investors. Investors evaluate a company’s future cash flow in an effort to determine whether its shares are underpinned.

Speculators are less concerned with reality or the fundamentals and more concerned with what’s going on in people’s heads. If they can find out in advance what others are going to do they can buy (or sell) ahead of time and download their targets later for a much better price.

Jones’ strategy in 1987 was a great example of speculation. He used the analogue model to try to gauge the psychology of the markets, positioning himself to benefit from other panics.

As a beauty in Keynes’s competition, the price of bitcoin is merely a function of the market’s imagination.

The Dark Future Where Payments Are Politicalized and Bitcoin Wins

Big swings like these are the bread of butter of professional speculators like Druckenmiller and Jones. Both have proved adept at playing beauty contests, delving deep into people’s minds to predict what they will buy or sell in the future. That skill allows them to make huge sums of money, very quickly. For them, bitcoin is the perfect trading machine.

Speculators often talk about their jobs. That is, they mention on TV that they happen to invest in something, hoping that they can create a bandwagon effect. Do not confuse their words for true belief. Jones describes bitcoin as being in the “first inning.” But it will shorten bitcoin the moment it deserves it, much like how it shortened equity in 1987.

Speculators love to play the game. Do not pin them to the side.