According to the billionaire hedge fund legend, depreciation of national currencies could cause cryptocurrencies to increase in use. He also states that while Bitcoin is a kind of digital ‘gold’, the two assets serve different purposes.
Ray Dalio’s surprising prediction about the future of the economy
Ray Dalio, billionaire co-manager of the world’s largest hedge fund, is very knowledgeable in microeconomic trends, and his long experience in following global economic trends has also helped him recognize the increasing shifts in the macroeconomic environment before they become mainstream.
One shift he predicts is coming involves increased competition between different types of money. And he believes that Bitcoin (BTC) will be a viable competitor among these forms. So much so that he allocated 2% of his portfolio to this cryptocurrency. But why would a billionaire take such a large position in such a risky asset? Fortunately for those of us who were wondering, he recently detailed his reasoning.
The billionaire’s preferred cryptocurrency
During his appearance on the Lex Fridman Podcast, Dalio was asked a handful of questions about finance and economics. However, in the end, the subject of Bitcoin emerged. At this point, the discussion turned into a monologue when Dalio explained his prospects for Bitcoin’s growing role in an increasingly digital future, how it stacks up against gold, and even touched on the concept of money itself. Dalio offered several reasons to support his decision to invest in Bitcoin. At the top of this list was how far Bitcoin has come since its humble beginnings and how it achieved its ‘positive value status’.
When Crypto was launched in 2009, its network had almost no users. cryptocoin.comFast forward to the present and the Bitcoin Blockchain has become a vast, decentralized network based on true organic growth. Not only has it grown exponentially, but Bitcoin’s code has proven to be virtually unhackable. In Dalio’s view, this is an under-recognized fact.
The fall of the dollar, the rise of the cryptocurrency
After celebrating Bitcoin’s tremendous rise, Dalio dived into his reasoning as to why it has a legitimate future as a currency. In his own words, the coming years and decades will likely be ‘a period of money competition’. Due to the ever-increasing supply of government-backed fiat currencies, citizens today are getting the notorious short end of the stick. They find that the purchasing power of paychecks decreases as the circulating money supply continues to increase. As a result, Dalio believes the idea of money itself is ‘increasingly taken into account’ by the citizens of these governments.
In his own words, ‘money has two purposes.’ It is supposed to serve as a medium of exchange and a storehouse of wealth. It’s a combination of features that Bitcoin has, and according to him, currencies like the US dollar are starting to lack. In this future of alternative currencies, Dalio sees Bitcoin becoming a formidable competitor for fiat currencies.
gold or digital gold
Because of the use-case similarities with gold, a common approach by investors is the ‘one or the other’ dichotomy between Bitcoin and gold. But Dalio doesn’t see it that way. When asked whether he prefers Bitcoin or gold, Dalio says he sees the two have similar characteristics but serve different purposes.
He notes that Bitcoin has a role to play in our digital future, where the ability to send value over the internet is essential. But he argues there may also be a need for people to exchange values ’off-line’. Also, while Bitcoin transactions are anonymous, they can be technically tracked. Despite the fact that gold still provides value in today’s economy, Dalio believes Bitcoin is an ‘alternative to gold for the younger generation’. As this generation becomes more integrated into the economy, Bitcoin will likely benefit.
Advice for non-billionaires
As mentioned earlier, Dalio is said to dedicate about 2% of his portfolio to Bitcoin. However, Dalio’s net worth is more than $19 billion. His appetite for risk has likely waned as he looks to hedge rather than grow his wealth.
Depending on your investment time horizon and risk tolerance, you may feel comfortable dedicating a larger portion of your portfolio to a volatile asset like Bitcoin. If you’re in wealth protection mode like Dalio, a 2% stake may be a healthy level for you. However, those closer to the start of their investment journey are likely to be in the market enough to see how Dalio’s predictions about competing currencies turn out over the long term.
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