Back in November, billionaire Bridgewater founder Ray Dalio - skeptic of cryptocurrencies - slammed bitcoin, saying that there are three main problems with bitcoin and other cryptocurrencies: a lack of venues accepting digital assets as payment, price volatility and the potential for governments to "outlaw" them.
While hardly a fan, one month later, Dalio's view on the cryptocurrency warmed significantly when during a Reddit AMA session, the billionaire said that bitcoin and other cryptocurrencies had “established themselves” over the last 10 years and were interesting “gold-like asset alternatives.” The billionaire hedge-fund manager also noted that cryptocurrencies share similarities and differences to gold and various “limited-supply, mobile (unlike real estate) storeholds of wealth.”
Bitcoin "could serve as a diversifier to gold and other such storehold of wealth assets," said Dalio. “The main thing is to have some of these type of assets … including stocks, in one’s portfolio and to diversify among them.”
Well, fast forward another two months when in a dramatic reversal from his previous skepticism, the founder of the world's biggest hedge fund (excluding central banks), said that Bitcoin is "one hell of an invention" and, more importantly, Dalio is considering cryptocurrencies as investments for new funds offering clients protection against the debasement of fiat money.
“I and my colleagues at Bridgewater are intently focusing on alternative storehold of wealth assets and expect Bridgewater to soon offer an alt-cash fund and a storehold of wealth fund in order to better deal with the devaluation of money and credit that we consider to be a major risk and opportunity, and Bitcoin won’t escape our scrutiny.”
Translated, this means that in the near future Bridgewater itself will be buying bitcoin.
But what prompted this unprecedented shift in Ray Dalio's view on bitcoin? As Dalio explains, in a note clients that was disclosed to Bloomberg, "to have invented a new type of money via a system that is programmed into a computer and that has worked for around 10 years and is rapidly gaining popularity as both a type of money and a storehold of wealth is an amazing accomplishment."
“There aren’t many alternative gold-like assets at this time of rising need for them", he added.
To be sure, Dalio still retained some skepticism, and repeating a frequent lament said he found it challenging to put a value on digital assets. While Bitcoin has the potential to make investors “very rich” as well as “disrupt the existing monetary system,” there are risks. Dalio also said cryptocurrencies are probably vulnerable to being hacked and subject to restrictions by governments that want control over the money supply. In other words, once digital currencies are rolled out in 2-3 years, central banks will go to war with cryptocurrencies which they can't control.
Ultimately, Dalio said he thinks of Bitcoin as a “long-duration option on a highly unknown future” - which many financial gurus have said about gold previously - while warning that investing in it means recognizing the potential to lose about 80%.
Courtesy of Bloomberg, here are some of the other highlights in Dalio's note:
Bitcoin has succeeded in “crossing the line” from speculative idea to something likely to have value.
“Because there aren’t many of these gold-like storehold of wealth assets that can be held in privacy and because the sizes of their markets are relatively small, there exists the possibility that Bitcoin and its competitors can fill that growing need.”
Another risk is supply: While a finite number of Bitcoins can be mined, there is nothing to stop new coins from being created and “I assume that better ones will come along and displace this one.”
“When the Department of Defense can’t protect its systems from being hacked it would be naïve to be totally comfortable that digital assets can’t be hacked.”
If there were restrictions on the usage of Bitcoin, “demand for it would plunge.”
“Rather than it being far-fetched that the government would invade the privacy and/or prevent the use of Bitcoin (and its competitors) it seems to me that the more successful it is the more likely these possibilities would be.”