It seems DoubleLine's Jeffrey Gundlach has had a change of heart regarding bitcoin. And while the cryptocurrency's spectacular rise has mostly converted skeptics into believers (or reluctant investors inspired by FOMO), for Gundlach, it's the other way around. In an interview with Yahoo Finance, the billionaire investor, who once said crypto could be a hedge against irresponsible monetary debasement by central banks, now fears the rally has gotten out of hand.
As bitcoin bounces back from its Elon Musk-inspired dip, Gundlach told Yahoo Finance that bitcoin and crypto is the "poster child" for out-of-control speculation in contemporary markets.
According to Gundlach, the founder and CEO of $135 billion DoubleLine Capital, crypto units have become "objects of speculation, and had a lot to do, again with the government money."
The investor told Yahoo Finance in an interview that some investors "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."
He added: "So it actually does resemble a casino to them psychologically."
Gundlach was once "really bullish" on bitcoin when it was trading at lower levels. But at current prices, bitcoin and dogecoin are putting the dot-com bubble to shame.
However, "all of a sudden it blew right through $15,000, and all the sudden it was $23,000, and that's what I turned a neutral on it, too early obviously, because it's now double that. It was nearly triple that."
Gundlach added the big swings in the digital currency are "based upon speculative fever" punctuated by Musk's surprising U-turn this week.
"It's almost like every era of really highly valued markets — after they've run a lot — has some sort of a poster child if you will," Gundlach told Yahoo Finance. "It was like some of the crazy dot-coms that had no revenue that were coming to market very successfully in the year 1999. Here, it's I think it's really these cryptos."
Though Treasury yields have mostly held within recent ranges, Gundlach advised that he's keeping a close eye on long-term rates.
The 61-year-old investor added that he always looks for "things that are sustained trends to 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 more at risk now than it was thanks to the higher interest rates."
Gundlach believes "we're one really bad day away from going to a new high yield on the 30-year" Treasury bond, where yields have been creeping up in the face of the recovery. "I think that that's something to watch out for as a risk factor."
Compared with other frothy assets, bitcoin might have more durability than the Nasdaq, which is already starting to sink while tech stocks including many stocks held by Cathie Wood's ARK funds stumble. The drop in the Nasdaq in recent weeks is just the first sign that the air is coming out of the speculative bubble as markets grow increasingly skeptical of Fed Chairman Jerome Powell's assurances that inflation will be "transitory" and that the central bank isn't even discussing pulling back its monetary policy. Gundlach has previously insisted that the Fed is "guessing" about inflation, and that the market reckoning won't be delayed for much longer.