Ray Dalio has runs on the board. This is what he thinks about Bitcoin.
So, crypto hey? Here we go again.
It does feel like a rehash of 2017 to me – an amazing new tech, smothered in a stinking pile of hype and crap coins.
Don’t get me wrong. There’s some gold here. There’s also money to be made. But it’s still the wild west. Play it safe peeps.
Anyway, I thought it’d be interesting to look at what Ray Dalio has to say about Bitcoin.
You know I have a boy crush on Ray Dalio – one of the most successful fund managers of all time, entering his statemanly years, with all the time and resources he wants to ponder the big questions.
So when he ponders Bitcoin, I pay attention. He’s got the experience to understand asset markets as deeply as anyone. He also has a large team of highly trained people to do some of the pondering for him.
Anyway, TLDR: he’s impressed with Bitcoin, but cautious.
I like how he places Bitcoin in the right historical context:
Bitcoin… like the creation of 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.
But more than as a currency, it’s proving its use as “an alternative gold-like asset.”
There aren’t many alternative gold-like assets at this time of rising need for them (because of all the debt and money creations that are underway and will happen in the future). 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.
This is the money quote for me.
The key here is the huge amount of money currently in the pipes heading towards the economy. It’s massive. We’ve never seen anything like it. Even in the GFC.
That means we’re going to get a devaluation of the world’s currencies. Which is another way of saying we’re going to get an upward valuation of the things money buys.
That means everything, but assets in short supply in particular.
(Hey, know what else is in short supply? Property.)
Anyway, Bitcoin has shown that it’s got legs.
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.
However, ‘some value’ is not the same as a particular valuation, and he’s sceptical that governments will just hand the reins of money over to Bitcoin, and would likely move to curtail or shut it down.
… it seems to me that the more successful Bitcoin is the more likely these possibilities would be. Starting with the formation of the first central bank (the Bank of England in 1694), for good logical reasons governments wanted control over money and they protected their abilities to have the only monies and credit within their borders. 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.
Yeah. I think that’s fair enough. A world where Bitcoin replaces fiat is a radically different world to the one we live in now – and different in ways that are hard to imagine. But I wouldn’t expect the tables of finance to be turned without a fight.
And is Dalio happy to take a punt on Bitcoin? He is, but only with his play money.
That is why to me Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.
Ever heard of anyone losing 80% on a house?