2020-11-13 20:30 |
Ray Dalio continues to have his concerns about Bitcoin, which he doesn’t prefer over the traditional safe-haven gold, unlike the latest converts like legendary investors Paul Tudor Jones, Stanley Druckenmiller, and Ben Miller.
In his latest interview with Yahoo Finance, the founder of the world’s largest hedge fund Bridgewater Associates shared his views on digital currencies, which he said is of two types; the first one is the bitcoin type of currency, which will be an “alternative currency in terms of its supply & demand and an alternative storehold of wealth.”
The second ones are the digitized version of fiat currencies, central bank digital currencies (CBDC), and “we're going to see a lot more of that,” he said.
But his problem with Bitcoin is that though theoretically, it's good to be a currency, it has to be an effective medium of exchange, store hold of wealth. Moreover, governments want to control it.
He argued, “I can’t take my bitcoin yet and go buy things easily with it.” As for being a storehold of wealth, it is volatile, and so much of it is based on pure speculation as such not an effective one at that, making it not suitable as a “transaction vehicle.”
Interestingly, while BTC has recorded +120% year-to-date performance, Bridgewater Pure Alpha II Fund is down by 18% YTD.
Another problem with Bitcoin, according to Dalio, is, “if it becomes material, governments won't allow it. I mean they'll outlaw it.”
“They'll use whatever teeth they have to enforce that they would say you can't transact the bitcoin, you can't have a bitcoin,” which would make one a felon to use it. He points out how governments even outlawed gold.
Cash is a Risky AssetAccording to Dalio, gold will be a vehicle that central banks and countries will use as an alternative to cash, which won’t be devalued by printing it, and already the precious metal is the third-largest reserves of the US.
“I don't think digital currencies will succeed in the way people hope they would,” he said.
His views on digital currencies are based on the “new era of monetary policy” we are in, which he believes is the third one where the free market will play a much less role in determining capital market flows.
“The two dimensions of the big change environment you're going to see: much more government influences and direction of where money goes,” said Dalio, adding “the government will play a bigger” which means there'll be much more debt that is monetized and that has implications for the value of financial assets and the value of the currencies.
By printing the money, governments have already diminished the value of cash and the value of bonds as they promise to receive a lot of currency, Dalio said.
All of this is shifting wealth to financial assets and, as always, sends stocks and gold higher. Another clear thing is that “cash is a risky asset,” he added.
“So many people think if I go to cash, I'm going to be safe because it's much less volatile, but please realize in this environment of producing a lot more cash the real returns go down, it's a seductive risk, risky asset,” because of inflation, said Dalio.
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