Cramer says speculating on crypto is OK — as long as investors know all the risks
- CNBC's Jim Cramer said Thursday he's OK with investors buying cryptocurrencies if they understand all of the risks associated with the nascent digital asset class.
- "As long as you recognize the very real possibility that the whole investment case for crypto rests on the greater fool theory, you've got my blessing to speculate on it," the "Mad Money" host said.
CNBC's Jim Cramer said Thursday he's OK with investors buying cryptocurrencies if they understand all of the risks associated with the nascent digital asset class.
"As long as you recognize the very real possibility that the whole investment case for crypto rests on the greater fool theory, you've got my blessing to speculate on it," the "Mad Money" host said.
The greater fool theory refers to the idea that you can make money purchasing an asset because there is someone out there who eventually is willing to buy it from you at a higher price. This strategy crumbles when there are "no greater fools" remaining to buy that asset, prompting its value to plummet.
Cramer is not the first person to connect the greater fool theory to crypto markets, but his comments Thursday are noteworthy given the former hedge fund manager has owned bitcoin and currently owns ether, which runs on the Ethereum blockchain.
"I know a lot of people say ridiculous things about crypto—and I've caught a lot of flack for acknowledging that—but at the end of the day I've said repeatedly that you can use bitcoin or Ethereum as a hedge against inflation. Up to 5% of your savings, as a replacement for gold," said Cramer, who also advises putting 5% in gold.
Cramer first bought ether in March as a way to bid on nonfungible tokens, or NFTs, being auctioned in March by Time magazine. He's trimmed in his position on multiple occasions, including very recently in trades tied to the launch of the first bitcoin futures ETF in the U.S.
"I didn't buy bitcoin or Ethereum as inflation insurance. In all honesty, I was gambling. I was simply gambling on crowd psychology, though, and I have no idea whatsoever why these things went up, except that there are a lot of overenthusiastic people who want to buy high and sell higher," Cramer said.
Cramer stressed to viewers he believes owning cryptocurrencies is totally fine as long as people view them through an investment lens, not one colored by fandom. The latter can compromise judgment, he said.
"I'm holding onto my Ethereum because I believe there could be millions of greater fools out there. I think that's a decent bet," he said. However, Cramer added, "I don't have any particular attachment to Ethereum and eventually I'll ring the register on the rest of my position when I think it's done going higher."
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