Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater Associates said there are three main problems with bitcoin and other cryptocurrencies which he believes could limit their future, including a government ban should they become “material”.
In Brief
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Ray Dalio believes bitcoin will be outlawed if it becomes “material”.
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One inherent problem for crypto in Dalio’s view is that it’s not widely adopted.
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The investor prefers owning gold to bitcoin and is at odds with his peers who have already bought bitcoin.
In an interview with Yahoo Finance, Dalio said he expected governments to issue more digitized forms of currencies in the future other than bitcoin. Dalio mentioned three all-too-familiar reasons why he believes bitcoin and cryptocurrencies are not sufficient (in comparison to CBDC’s).
His three key reasons were:
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A lack of venues that accept cryptocurrencies. “I today can’t take my bitcoin yet and buy things easily with it.”
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Bitcoin and other cryptos are too volatile to be considered an effective store of value. That volatility also hurts bitcoin’s use transactionally since vendors won’t know how much they’re getting, Dalio continued.
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If bitcoin or other cryptos become “material,” Dalio predicted governments will “outlaw” it. “They’ll use whatever teeth they have to enforce that.”
“I don’t think digital currencies will succeed in the way people hope they would,” he said.
Notably, these comments are at odds with what billionaire investors like Paul Tudor Jones and Stanley Druckenmiller have said, both of whom have accepted that bitcoin is a similar or better bet than gold given inflationary risks.
Addressing the bitcoin-gold comparison, Dalio asked: “would I prefer bitcoin to gold? No,” he said.
Will government seize your bitcoin?
To be fair, Dalio raises a good point in underlining that the US government might attempt to outlaw direct ownership of bitcoin. Originally, bitcoin was outlined as a peer-to-peer electronic cash replacement, and bitcoin evangelists often advertise this idea of replacing fiat money with bitcoin.
In the 1930’s great depression, the US government confiscated gold, and compensated citizens with USD cash. The confiscation measure forced Americans to sell their gold below market price and shortly after the edict, gold prices were much higher per the Gold Reserve Act in 1934.
This brings us to the idea of ‘not your keys not your coins’ slogan – often touted within the bitcoin community. The simple act of owning your own bitcoin in your hardware wallet makes outright confiscation much harder for a government. And the added layer of wallet pseudonimity for every generated wallet adds to the safety net for individual bitcoin holders fearing government confiscation.
Naturally, the same cannot be said for large institutions, hedge funds and high net worth individuals, who’s ownership of bitcoin won’t easily go unnoticed. Still, Dalio seems to have glazed over the fact that banning or “outlawing” bitcoin would mean impeding a well-regulated investment environment that is already well in line with the law. Whether it’s Bakkt, the CME, Coinbase, Gemini or others, bitcoin’s regulatory framework has improved dramatically since 2017.
When it’s all said and done, it might be that Dalio is simply hoping for lower buy-in prices to compete with his peers before the train officially leaves the station.
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