Renowned hedge fund manager Ray Dalio has penned an essay that outlines his thoughts on Bitcoin as interest in the cryptocurrency continues to surge in 2021.
In a post published on LinkedIn earlier this week, Dalio expressed his feelings towards the preeminent cryptocurrency off the back of requests for continued comment on the space. Daylio stressed that he does not consider himself an expert on the cryptocurrency space and put forth his thoughts with that clear disclaimer.
‘Alternative gold-like asset’
Dalio is a known proponent of physical Gold as a reliable store of wealth but his recent take on Bitcoin has likened the digital asset to its physical counterpart in some ways. The hedge fund manager also tipped his hat to Bitcoin for staying the course since its inception, having established itself as a unique asset:
“I believe Bitcoin is one hell of an invention. To have invented a new type of money via a system that is programmed into a computer and that has worked for around 10 years and is rapidly gaining popularity as both a type of money and a storehold of wealth is an amazing accomplishment. That, like creating the existing credit-based monetary system, is of course a type of alchemy—i.e., making money out of little or nothing. It, like the making of credit that made bankers rich starting with the Medicis around 1350, is making its inventors and those who got in on it early very rich and has the potential to make many more people very rich and to disrupt the existing monetary system. Those who have built it and supported the dream of making this new kind of money a reality have done a fabulous job of sustaining that dream and moving Bitcoin (by which I mean it and its analogous competitors) into being an alternative gold-like asset,” Dalio wrote.
Dalio added that there are not many alternative assets that have similar investment properties to gold in a time where socioeconomic factors are constantly driving inflation. This is another reason why Dalio believes that Bitcoin is becoming an increasingly reliable investment option.
“Because of what is going on in the world, besides there being a growing need for money or storehold of wealth assets that are limited in supply, there is also a growing need for assets that can be privately held. Because there aren’t many of these gold-like storehold of wealth assets that can be held in privacy and because the sizes of their markets are relatively small, there exists the possibility that Bitcoin and its competitors can fill that growing need. It seems to me that Bitcoin has succeeded in crossing the line from being a highly speculative idea that could well not be around in short order to probably being around and probably having some value in the future. The big questions to me are what can it realistically be used for and what amount of demand will it have. Since the supply is known, one has to estimate the demand to estimate its price.”
There are still barriers to widespread adoption
Much like his disclaimer at the beginning of his article, Dalio also provided a number of factors that stand in the way of Bitcoin attracting widespread adoption in investment.
Having noted that a finite supply is an important part of Bitcoin’s value proposal, Dalio also suggested that the argument around Bitcoin’s limited supply can be countered by the fact that there are various cryptocurrencies that offer similar functionality to the preeminent cryptocurrency.
“Although Bitcoin is limited in supply, digital currencies are not limited in supply because new ones have come along and will continue to come along to compete so the supply of Bitcoin-like assets should, and competition will, play a role in determining Bitcoin and other cryptocurrency prices. In fact I assume that better ones will come along and displace this one because that is the way the evolution of everything works—i.e., new ways of doing things and new things always have and always will replace old ways of doing things and old things. Since the way Bitcoin works is fixed, it won’t be able to evolve and I presume that a better alternative will be invented and pass it by. I see that as a risk. For those reasons the “limited supply” argument isn’t as true as it might appear—e.g., if Blackberries were in limited supply they still wouldn’t be worth much because they were replaced by competitors that were more advanced. I still don’t know the answer to why that isn’t a risk, but I would welcome my naïveté being corrected,” Dalio argued.
Dalio also highlighted the perception of privacy that Bitcoin affords its users as its potential undoing from a regulatory perspective. He suggests that Bitcoin may not be as private as some users think, if governments and other players decide that they want to know who has how much BTC. Another factor could be out and out regulation to stop the use of Bitcoin driving demand down.
“When I a) put myself in the shoes of government officials, b) see their actions, and c) hear what they say, it is hard for me to imagine that they would allow Bitcoin (or gold) to be an obviously better choice than the money and credit that they are producing. I suspect that Bitcoin’s biggest risk is being successful, because if it’s successful, the government will try to kill it and they have a lot of power to succeed.”