'Bond King' Jeff Gundlach says cryptocurrencies are the 'poster child' for speculative fever in markets - but adds that bitcoin's sell-off may signal frothiness is drying up

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'Bond King' Jeff Gundlach says cryptocurrencies are the 'poster child' for speculative fever in markets - but adds that bitcoin's sell-off may signal frothiness is drying up
REUTERS/Eduardo Munoz
  • Jeff Gundlach told Yahoo Finance that crypto is the "poster child" for the speculative fever in markets.
  • The DoubleLine Capital founder and CEO added that bitcoin's recent sell-off may signal that some market frothiness is dissipating.
  • The so-called Bond King was bullish on bitcoin in 2020, but now says the price is too high.

Billionaire "Bond King" Jeff Gundlach told Yahoo Finance last week that cryptocurrencies represent the speculative fever in financial markets right now.

The founder and CEO of $135 billion DoubleLine Capital said cryptocurrencies have become "objects of speculation," fueled in part with government stimulus money.

"A lot of people are just playing with this funny money. And when you give people money that don't need it, which, unfortunately, we've been doing a lot, they feel like they're playing with the house's money," Gundlach said. "So it actually does resemble a casino to them psychologically."

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The legendary fixed-income investor noted that every era of "really highly valued markets" has a poster child after they've run hot for a while. In the dot-com era of the late 1990s, zero-revenue internet companies were the symbol. He said right now, cryptocurrencies look to be the poster children.

Bitcoin slid below $43,000 on Tuesday, and is down more than 30% from its record high in April near $64,000. The world's largest cryptocurrency has pulled back lately amid a slew of tweets from Elon Musk regarding its energy consumption. Musk hinted Tesla may sell its bitcoin holdings, but clarified later that Tesla had not sold any bitcoin, which it bought for $1.5 billion in January.

Gundlach suggested that the downward move in bitcoin may be temporary, but he also said that if bitcoin's peak was already hit, that could be a sign the rest of the market is turning.

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"But when you're looking at a speculative fervor, I look for the poster child to roll over last," Gundlach said.

According to the investor, another sign that some speculative fervor is in the process of dissipating is the recent underperformance in the tech-heavy Nasdaq.

He added: "I always look for things that are sustained trends that get out of hand, and then quietly, without a lot of people talking about it, they roll over. It's a sign that risk would be increasing, and I'm feeling that the markets are more at risk now thanks to the higher interest rates."

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Gundlach was extremely bullish on cryptocurrencies at the start of 2020. As bitcoin was hovering near $4,000, he predicted it could surge to $15,000 that year. It ended up finishing the year above $23,000 - the point at which Gundlach said he "turned neutral on."

He said that neutral call was obviously too early, given that the token has more than doubled in price since then.

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