A question that has been nagging Wall Street's traders and millions of retail crypto enthusiasts since late 2020 was finally answered:
Is this where Dalio will announce Bridgewater's bitcoin hodlings pic.twitter.com/IztnL4nPPM— zerohedge (@zerohedge) February 19, 2021
During today's CoinDesk Consensus 2021 Conference, Ray Dalio said that not only would he rather own bitcoin than bonds - and for the world's largest risk parity hedge fund which traditionally hedges its equity exposure using a balanced 60/40 bond/stock split that's saying a lot - but putting all doubt to rest, he said that "I have some bitcoin."
"I have some bitcoin"@RayDalio— Peter Johnson (@TheChicagoVC) May 24, 2021
Expanding on a theme that he has been discussing extensively in recent months, Dalio said that should cryptocurrencies continue to gain traction, investors might decide to invest in them rather than government bonds, with the result being that governments lose control over their ability to raise money.
“There exists the possibility that bitcoin and its competitors can fill that growing need” for an alternative store of value, he wrote in January.
Reiterating his well-aired concerns about the future reserve status of the dollar, Dalio lamented the soaring US debt load and said that “when the pile gets very big” but the incentives to keep investing in the debt subside, it eventually leads to the printing of money.
“Money is credit - you can make it up,” Dalio says.
But the incentive right now to hold dollars is low. No interest being paid. Even bonds don’t yield much, he said in comments captured by Bloomberg.
“All of those financial assets are claims on real stuff, real goods and services,” Dalio said.
“And when the pile becomes very big, and the incentives for not holding that are no longer there, you have a problem.”
Eventually people will go to “almost anything else” - stocks, gold, real estate and yes, even bitcoin, according to the Bridgewater billionaire.
In short, Dalio reiterated his argument that governments including the US are devaluing their currencies with the run-up of debt, and the deployment of quantitative easing by central banks. He drew an arc from the demise of the Dutch guilder to the FDR and Nixon dollar devaluations of 1933 and 1971 to the Fed’s moves in the spring of 2020.
The current situation now resembles 1971, Dalio warned.
“As you look at the budgets, and you look ahead, we know we’re going to need a lot more money, a lot more debt,” he said.
“You need to borrow money? You have to print that. You need more money? So, taxes go up and that produces a dynamic. Now I can keep going on about what happens in that dynamic. It may be capital controls...
I painfully learned in 1971 that it causes stocks to go up. It causes... gold, bitcoin, real estate, everything to go up, because it's really going down in dollars. And that's the part of the cycle we’re in.”
It's hardly a surprise then that he prefers bitcoin to bonds.
Dalio - whose favorable view of China's economy is also well-known - said that China’s assets are increasingly more attractive to global investors, with higher yields and a more open financial system.
“In 2015, only 2% of Chinese markets were open to foreigners. Now it’s over 60% [but] if you look at the relative pricing, and so on, it’s a whole different story because they’re not doing quantitative easing,” he said.
“They still have an attractive bond market. They have attractive capital markets that are more open. And as they’re more open, big investors – institutional investors, central banks, and so on – view themselves as underweighted there,” meaning their holdings in China are insufficient, relative to the returns they can generate.
He said China’s key role in international trade naturally lends itself to a broader role for the yuan.
“When you buy a Chinese financial asset, like buying an American financial asset, you have to buy their currency. So it’s supportive to their currency and it’s also supportive to their assets,” said Dalio. He said China gains the capacity to bill and lend in its currency when there are capital inflows.
“China has been very reticent to do that [so as] not to disrupt the system. But you’re seeing more of the internationalization of the renminbi. It has appeal for borrowers and lenders. … That dynamic is really following the same arc of monetary systems and empires pattern.”
Dalio also shared his thoughts on inflation, saying there are two types: one is cost-push, one is driven by the supply of money. The big inflations aren’t the supply-demand driven ones, but monetary inflation periods.
He then repeated a mantra he has been saying for the past three years: “Cash is trash” he said, warning that “you’ll experience more inflation."
"Look, all currencies have died"— Peter Johnson (@TheChicagoVC) May 24, 2021
So what is the solution? To Dalio it means owning a diversified portfolio.
"Why does it need to be one or the other?...You want a properly diversified portfolio.... Question is...do you have enough diversity of these alternative currencies?" Why? Because in a surprisingly pragmatic view on fiat he stated simply that "all currencies have died."
He said he owns bitcoin, and prefers that to owning a bond, although when discussing payment efficiencies, he echoed Goldman: "it seems like Ethereum"
And picking a page out of the JPMorgan bitcoin price target, Dalio advised to keep track of the market capitalization of bitcoin – now $1 trillion – relative to the $23 trillion for bonds and $5 trillion for gold (excluding jewelry and central bank holdings).
"For gold, if you take out central banks and jewelry, you have a little over $5tn, so diversification between those things (bitcoin and gold), it's like 80/20."
This is also why JPMorgan has a roughly $140,000 price target on bitcoin: that's where the market cap of gold and bitcoin (i.e. digital gold) is roughly in balance.
Finally, wrapping up his extremely bullish view on bitcoin, Dalio said that "these things come along once in a lifetime....in order to understand what is going to happen over the next 1,2,3,4,5 years, you need to study what happened [in the 1930s]... If you take your wealth....how do you protect it against all of those things...if you can find that, there will be a whole lot of demand for it."
“Bitcoin’s greatest risk is its success,” Dalio cautioned in conclusion.
“One of the great things, I think, as a worry is the government having the capacity to control almost any of them, including bitcoin, or the digital currencies,” he said.
“They know where they are, and they know what’s going on.”
Governments may start to worry should bondholders sell their bonds in favor of bitcoin.
“The more we create savings in [bitcoin], the more you might say, ‘I’d rather have bitcoin than the bond.’ Personally, I’d rather have bitcoin than a bond,” Dalio said, chuckling.
“And then the more that happens, then it goes into bitcoin and it doesn’t go into credit, then [governments] lose control of that.”
The billionaire fund manager sees one scenario where rising debt can be overcome, and that’s through productivity. And while that’s harder to measure than before, it will hinge on technology, he said.
“The world is going to change at an incredibly fast pace,” Dalio said.
“Whoever wins the technology race, wins it all, economically, and militarily. … That’s what the next five years looks like.”
Summing it all up: The billionaire hedge fund boss sees an inflationary future where “cash is trash” and Bitcoin catches on as a store of wealth... but doubts governments will tolerate it.
As Jump Capital Partner Peter Johnson put it "That was the most bullish conversation on crypto I have ever heard from who I consider the smartest investor in the world @RayDalio."
That was the most bullish conversation on crypto I have ever heard from who I consider the smartest investor in the world @RayDalio.— Peter Johnson (@TheChicagoVC) May 24, 2021