Bitcoin "Is A Bubble" but Gold Is Money Says World's Biggest Hedge Fund Manager

GoldCore's picture

- Bitcoin "is a bubble" but gold is money says world's biggest hedge fund manager
- Gold is a better "store of value," Ray Dalio of $160 billion Bridgewater tells CNBC
- Bitcoin has climbed over 300% this year on speculation and expectation that it will continue to climb
- Bitcoin is not a valid currency due to volatility and lack of spending ability says Dalio
- Bitcoin is 'worse than tulip bulbs' says JP Morgan's CEO Dimon
- Crypto buyers need to be concerned with government regulations

 

The manager of the world's biggest hedge fund, Ray Dalio has declared his preference for gold over bitcoin.

Earlier this week Dalio, of $160bn Bridgewater Associates, labelled bitcoin 'a bubble'. Dalio believes the 300% plus rise in price of the most popular cryptocurrency is down to speculation over its expected price rise, as opposed to confidence in its future role as a currency.

Dalio's comments come less than a week after J.P. Morgan's Jamie Dimon said bitcoin "is worse than tulip bulbs" and a month after Professor Robert Shiller said it was the best example of  "a bubble right now".

Bitcoin had a tough week last week, taking a hit following an announcement by Chinese authorities to shut down exchanges. However, it has since begun to recover.

It's strong performance this year has prompted many experienced investors and economists to call it out for what it seems to be - a bubble.

Bitcoin is not a store of value, it's a bubble

"It's not an effective store of wealth because it has volatility to it, unlike gold...Bitcoin is a highly speculative market. Bitcoin is a bubble."

For Dalio speaking in an interview with CNBC, bitcoin is in too speculative a market for it to become an effective store of wealth. This has long been the case with the cryptocurrency. This is a problem that may well continue and may prevent it becoming a store of value.

Why will this continue? Back in August Dalio expressed concern over investors becoming complacent in markets and how this can then lead to volatility:

... People adapt to the circumstances they have experienced and are then surprised when the future is different than the past. In other words, most people are inclined to assume that the circumstances they have recently encountered will persist, which leads them to change what they are doing to be consistent with that recently experienced environment

This is what we are now seeing with bitcoin. Traders have pretty much only seen bitcoin rise over the last couple of years. This has come with high levels of volatility, but overall the price has gone up. For bitcoin investors, this is now the norm. This is what they have come to expect.

So they keep pushing the price (and volatility) up because, for now, what on earth else would possible happen?

When asked if bitcoin is in a bubble, evangelists are offended you could ask such a thing. Following Professor Shiller's comments about bitcoin's bubbliness we noted an article on CoinTelegraph which was about as far from a far economic argument for something not being in a bubble as you could get:

"Looking at a chart of the growth of sectors that experienced bubbles since 1990, there is a familiar pattern. However, Bitcoin skyrockets off and away from that chart, showing no correlation with the tech bubble, the homebuilders bubble or the biotech bubble."

So...because bitcoin skyrockets off the chart then it's not in a bubble.

As Dalio points out, gold is not volatile. Over hundreds of years it has consistently performed according to markets around it. It has rarely surprised anyone, 'nor has the gold market been accused of any kind of irrational exuberance.

This makes gold an effective store of value. You are rarely surprised by the price of it, you are unlikely to check your gold savings account from one day to the next and find the price down by 40% in less than a week. This is not the case for bitcoin.

Bitcoin is not a currency 

“There are two things that are required for a currency. The first thing is that you can transact in it, it’s a medium of exchange. The second thing is it’s a store of value. Bitcoin today…you can’t spend it very easily.

We take these criteria, and we define a bubble based on those criteria, bitcoin is a bubble. It’s a shame – it could be a currency, it could work conceptionally, but the amount of speculation that’s going on and the lack of transaction..."

At this point it would be unfair not to remind Dalio that the bitcoin infrastructure is still relatively young. Of course it is difficult to spend bitcoin as the ecosystem is still in its infancy.

You have to give credit where its due for how far exchanges and merchants have come given the youth of the currency.

However, there are few people actually spending bitcoin. The majority of transactions come from speculators.

This ties into the point above, regardless of how many merchants accept bitcoin if the price can drop by 40% and then recover by 25% (as it did last week) how on earth can I expect to do the weekly shop with it?

Like bitcoin, gold is borderless in terms of where it can be accepted. The difference is that I know the price stability and its long-time role as a medium of exchange.

For bitcoin, this is just not a priority for those trading it on a daily basis. It is just about getting the price up and cashing in on those gains. It is all about speculation for most buyers.

Threat of government

One of the big selling points for early bitcoin adopters was its ability to operate outside of the eyes of 'the Feds'. In truth, bitcoin transactions are not anonymous, as evidenced by US authorities' ability to trace various bitcoin users in the past.

However transactions are not easily viewed and take serious work to trace. At present they do not have to be reported to authorities and traders can operate out of sight.

Dalio expressed his doubts that governments will continue to allow cryptocurrency transactions to be managed in such a way.

"the idea that it will be private in terms of transaction…is really questionable if you look at what’s gone on in terms of governments to examine it.”

The most recent attempt by the IRS to unmask cryptocurrency users was when they sued Coinbase and demanded client transaction records.

Jim Rickards recently expressed concern over governments' interest in bitcoin, writing:

There is every indication that governments, regulators, tax authorities and the global elite are moving in on cryptocurrencies. The future of bitcoin may be one in which Big Brother controls what’s called “the blockchain” and decides when and how you can buy or sell anything and everything.

It is worth mentioning here that if a government is able to get hold of client records legally, then it stands to reason that cyber-hackers can also get their hands on them.

If prying eyes want to have your records then it stands to reasons that they may also be able to track your bitcoin.

Gold will be there in times of need, who knows about bitcoin

This is the second time in recent months that Dalio has shown a preference for investors to own gold.

In August he said clients should move 5% to 10% of their capital to gold as a hedge to the two biggest risk events that were unfolding: North Korea and the (then) looming debt ceiling crisis.

Neither risk has disappeared in the last month. They have perhaps been delayed some what but only at a cost of them being exacerbated further. At the time Dalio was speaking they were the two most imminent threats to financial and political stability.

In the background there were of course all the other disasters-in-waiting. Namely Washington's inability to get anything done, central banks' monetary policies for the last decade and, of course, the most bubbly of stock markets, to name a few.

We have no idea how the next few days, months or even years will play out. We are not taking a punt like the bitcoin traders and assuming everything will stay as it is. We are realists and know that the current 'status-quo' is just not sustainable.

In the same manner, we know that the current performance of bitcoin is also unsustainable if it expects to be taken seriously as a currency and store of value. For now this seems to be down a long and volatile road.

Given all of the unknowns, we know it is important to diversify and that we should anchor our savings in this ever uncertain and volatile environment.

As Dalio says:

When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don't have a unique insight that we'd choose to bet on.

We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen and treasuries) would benefit.

So if you don't have 5-10% of your assets in gold as a hedge, we'd suggest you relook at this. "

 

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BadSpybot's picture

So one of the qualities of a currency is that it must be a store of value.  Then someone born in 1950 was given one dollar and told to hang on to it since it's a store of value, wouldn't he be surprised to find what little value was left in that dollar bill. I have to laugh at myself.  I remember finding bread costing a dollar a loaf and thinking who the hell is willing to pay a dollar for bread? 

King of Ruperts Land's picture

RE: a dollar in 1950

Depends if it was the German Thaler, Spanish Silver Dollar, 1804 dollar, Gold dollar coin, the Trade dollar, Morgan dollar, Peace dollar or in quarters and dimes of the day.

Or, even a "dollar" on deposit at a bank at competitive compound interest.

The paper stuff clearly states: "legal tender for all debts public and private." It makes no other claim. It's only paper for Christ's sake. So as soon as you are handed one you should immediately pay a bill or taxes with it.

My grandfather gave me Kennedy half dollars. I still have them.

It is when they took the silver out that things got completely phony and the "dollar" became a fraud.

EcoJoker's picture

When a banker, economist or CEO rips bitcoin, I BUY MORE!  It's a threat to the establishment and it's nowhere near a bubble.   7 Billion people on this planet and MAYBE 10M have some amount of bitcoin.  when there's a billion people in it, it will be a bubble.

Ajax_USB_Port_Repair_Service_'s picture

Make sure your exchange is selling GOLD colored Bitcoins. Some exchanges are selling worthless white Bitcoins.

King of Ruperts Land's picture

Don't buy bitcoin on an "exchange" on the internet if at all possible. Deal directly and in person if possible with your trading counter party.

Have your own wallet. Understand the technical side of how bitcoin works.

DjangoCat's picture

Bitcoin atms are sprouting like weeds around here.  It is more expensive to trade, but it is cash for bitcoin without the KYC requirements.

Many are also two way machines.

afronaut's picture

too complicated to buy. Ag and Au are straight forward and easy to buy and sell..Plus I can exchange cash for it and gov never knows

King of Ruperts Land's picture

True, bitcoin is not for everyone. I tend to think that going back to the silver dollar is a good solution as the paper dollar is such an unsustainable fraud.

Any electronic system for the masses will not be a system like Bitcoin. It will inevitably be a mark of the beast control grid.

nicturations's picture

I have tried very hard to understand why bitcoin is not going to be rather like betamax - not bad -,just not the one that sees mass adoption and as a result becomes worthless . 

If you are too young to know what betamax is/was - it was an early 80's video recording system that was actually slightly superior to the one eventually mass adopted and sold very well in some markets

The only thing I can think of that could render gold worthless would be some sort of sci-fi matter transmuter capable of making it in vast quantities .

Therefore in the long term gold will most likely retain value and bitcoin very probably may not .

The blockchain seems to have vast potential but it is hard to see where it will go and what it will develop into .

King of Ruperts Land's picture

This is a BIG buy signal. If Bitcoin is tulips, then this is your once in a multi-generational chance to load up at not too far from the ground floor and make a fortune.

When the funds are all into bitcoin and bragging about how smart they are, then you know its time to sell.

Gold is nice. When you can by a 400 oz bar for 1 bitcoin then go to gold.

Spaced Out's picture

So, the manager of "the world's biggest hedge fund" says Bitcoin's price rise is a result of "speculation". Would someone care to define the role of a hedge fund please?

Yellow_Snow's picture

Now 'gold pumpers' openly embrace the words of gangster bankers like Jamie Dimon.  The same idol they are now worshiping has been manipulating gold and silver prices during the last 10 years.  Truly foolish hypocrites...

Father ¢hristmas's picture

I do not trust the word of a company called "Gold Core", and neither should you.  

Hi folks, Father ¢hristmas here, and I want to tell you about the soundest store of wealth in the history of mankind and aliens: Bitcoin.

For over an eighth of a quarter century, debt serfs worldwide have been liquidating and investing their entire net worth in this  God©-sent magical key to the shackles of government oppression known in secretive cabalistic Wall Street circles as "cryptocurrency ".

Cryptocurrency is a close cousin of gold and silver, physically mined from the sacred grounds of Jewish settlements along the Gaza Strip, then magically converted to the famous digital pixels prophesied in the New Testament to be distributed to hardworking, decent Americans who pray daily for the continued prosperity of God's© Chosen People™.

From there, international speculators utilize a special Biblical code telepathically bestowed upon the most worthy of munneychangers to decipher Bitcoin's intrinsic value within God's© coming Kingdom, and this is used to determine its current market value.

And there you have it, folks.  Sound hard to believe?  Well, it's a heck of a lot better than the truth, which is that this is a Ponzi scheme backed by nothing.  So you make the call: Believe this story, or believe in paying thousands of dollars for nothing backed by nothing.

So go ahead and call now, and for a limited time when you order ten Bitcoins, you'll receive a commemorative plate memorializing Treasury Secretary Steven Mnuchin's historic visit to Fort Knox.

. . . _ _ _ . . .'s picture

I have a great deal of faith in the future of the blockchain.

I have no confidence in BTC.

Maybe Ripple, maybe ETH, maybe even Request Network, but BTC... no.

DjangoCat's picture

Why would you consider Ripple.  It is produced by a private company with major bank involvement.

No decentralisation.

King of Ruperts Land's picture

BTC
All that hashing power?
Shame to waste it.

The forking is a problem though.

I don't think the great store of value and the payment processing solution necessarily come in the same package.

Karl Marxist's picture

And we should care what you thiink? Are you holding on to your cryptos just to make you rich like Dimon who thinks BTC and such are gold and silver, something to be slammed down every fucking day because those markets are rigged? And BTC is decentralize? What analysis do you and Dalio and Dimon use to evaluate BTC or any other crypto's worth? What about the rash of brand new companies developed on the blockchain? Isn't that where the real value of cryptos are? Of course. You must be some renegade offa MSN.com because they shut down the comments section, right?

. . . _ _ _ . . .'s picture

Every assumption you made above is wrong, and they are all assumptions. Meh...

Yellow_Snow's picture

If you think bashing Bitcoin is somehow gonna win investors back into gold - you are mistaken.  I see the gold community much differently since the adversarial approach 'gold-pumpers' have taken toward Crypto's...  The riff just grows and more and more. As people see the negativity and hypocrisy of these Doomsday 'Gold-Pumpers' (Schiff et al) - more folks will flow in to Cryptocurrencies.

Albertarocks's picture

Bitcoin and Gold are not adversaries.  There isn't a single reason in the world that one should go up if the other goes down.  And Bitcoin definitely is not in a bubble.  That's utter nonsense.  As much as I like and respect Mr. Dalio, the only reason he could say Bitcoin is in a bubble is because he (as impossible as it seems) doesn't clearly understand what it really is.

Decoherence's picture

There isn't any reason one should go up and other doesn't.  So if one goes up 300% and leaves the other in the dust, wouldn't that indicate a bubble?  

el buitre's picture

Why have cryptos risen exponentially while PM's are flat?  Both assets are a response to the coming collapse of the debt based money and investment in both are to some extent an attempt of in-the-known people to get out of the Cabal's banking system before they pull the plug, the to a major extent, the increase in crytpos us speculative trend chasing.  But the answer to the initial question is that the Cabal has an established system to control the fiat exchange rate for PM's, i.e. naked short monkey hammers on the bogus futures market.  The way to control cryptos is not yet in place.  Thus the former stays depressed while the latter soars.  When fiat, the debt based system, and the USD becomes irrelevant, then PM's will soar as well in terms of fiat, but more importantly, in terms of purchasing power of useful real stuff.  China and Russia are now accelerating their plans to transform the global financial system toward a PM based asset system and away from a debt based system.  How this plays out in terms of cryptos once the USD vanishes remains to be seen.

King of Ruperts Land's picture

My brother tells me he "lends" cryptos. These are short term, as in day trade loans. The effective interest rate he gets is quite impressive (60%/anum). These loans allow people without cryptos to day trade the crypto markets. It results in at least short term "shorting" of Bitcoin.

Decoherence's picture

Or the usual suspects haven't really started to monkey hammer crypto yet.  Dimon's comments may have been the prelude to that kiss.  

Albertarocks's picture

How are they going to monkey hammer it?  There is no futures market for BTC that they can use to slam the price down.  The only way 'anybody', and that includes the usual suspects (big banks) could hammer it down is if they have a million BTC to sell.  But they don't.  And even if they did have 1,000,000 BTC, the moment they spent all of them hammering the market down they're completely out of ammo.  Nope... there's no way big banks can hammer BTC unless they own a ton of it.  And even then... it would be a one shot deal.

King of Ruperts Land's picture

It is the time scales and where each is on its chart.

Gold is on an exponential chart. Just a longer time scale. Also Gold long ago valued itself to be a significant world store of value.

Bitcoin is on a shorter time scale chart. Also bitcoin is still scaling its value up to the level that it could be a major world store of value.

If Bitcoin does prove to become a major world store of value (much doubt now as the forces that want to make it a payment system are wrecking it in my opinion with all the "forks") then it gets a market cap the same as all the worlds gold at:

1 BTC = 400 oz bar of gold.

Karl Marxist's picture

100% correct and it is almost amusing and factually pathetic the fools who equate BTC to gold and silver. They want an actual token that says "this is one BTC" like a nickel or a dime. You can get one, I suppose but that isn't where the real value is. It is as you say -- blockchain technology. Badmouthing cryptos, then buying them up is the gold and silver model. Blockchain ain't any of that and their crimes as bitcoin rises will be exposed and spells their ruin which must occur.

Albertarocks's picture

You get an A grade.  Exactly right on all counts.

Filthy_Cerberus's picture

"Pretty bubbles in the air
They fly so high, nearly reach the sky
Then like my dreams they fade and die"

CH1's picture

Bitcoin "is a bubble" but gold is money

Translation: Plese don't leave me!

silverer's picture

Bitcoin. Where are we now?

Rex Andrus's picture

The tulip smoking speculators all ran away, the beach is habitable again.

RafterManFMJ's picture

Sometimes I feel I, as a reader of the Hedge, am in a bubble.

ultraticum's picture

What do you expect from a grand beneficiary of the fiat fraud, brought to you by your dutiful masters every day since 1913?

Gold/Silver/Bitcoin - a financial trifecta against the corrupt status quo.