Druckenmiller, Jones and Bitcoin’s Perfect Trading Machine

Druckenmiller, Jones and Bitcoin’s Perfect Trading Machine

Paul Tudor Jones II on CNBC

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

In 2020, two of these three traders – Druckenmiller and Jones – finally began to buy bitcoins.

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

A look back at the 1987 stock market crash, probably the single craziest day in market history, provides a window into the thinking of these three speculators. It also hints at why, 33 years later, they’ve finally had their bitcoin conversion.

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

Jones mentions this analog model in an infamous about him, “Trader.” He has tried to have “Trader” quashed many times over his career. 

Jones’s analog model suggested to him that the 1980s market would at some point collapse, much like it had in 1929. And so Jones’ hedge fund was heavily short the stock market (i.e., positioned to gain from a fall) going into Oct. 19, 1987, or “Black Monday.” Jones has described the week of the crash as “one of the most exciting periods of my life.”

Druckenmiller also has a war story about the 1987 crash. On the afternoon of Oct. 16 – the Friday before “Black Monday” – Druckenmiller remembers walking over to George Soros’ office. At the time, Druckenmiller, then 34 and managing his own hedge fund, was heavily invested in the stock market. Soros happened to pull out a copy of Jones’ analog model from a month or two earlier. 

After absorbing the implications of Jones’ chart, Druckenmiller recalls being “sick to my stomach when I went home that evening. I realized that I had blown it and that the market was about to crash.”

When markets opened that Monday, 200 points lower than Friday’s close, Druckenmiller sold his entire position and even managed to go short. The Dow would end up falling 508 points that day, or 22.6%, the largest one day decline in history.

Soros also lost money in the 1987 crash. “I was as badly caught as the next fellow. I was convinced the crash would start in Japan; that turned out to be an expensive mistake.”

Fast forward to 2020 and one wonders if Druckenmiller and Jones haven’t been exchanging trading ideas again. In May, Jones CNBC that he has “just over 1% of my assets in bitcoin. Maybe it’s almost 2[%]. That seems like the right number right now.” In October, Jones noted that “I like bitcoin even more now than I did then.”

In November, Druckenmiller admitted to owning a “tiny bit of it.” He went that bitcoin has “a lot of attraction as a store of value to both millennials and the new West Coast money and, as you know, they have a lot of it.”

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