Bridgewater Associates founder Ray Dalio, the 68-year-old founder of the world’s largest hedge fund, said bitcoin is "in a bubble" during an interview on CNBC Tuesday morning, arguing that the so-called currency is too difficult to spend, and too volatile to be a useful store of value.
During the interview, Dalio argued that most investors who buy the digital currency do so with the hope of making a quick speculative profit, undermining bitcoin’s functionality as 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.
In terms of a storehold of wealth, it’s not an effective storehold of wealth because it has volatility to it. Unlike gold, let’s say, which reflects the value of money, its more stable than the value of money, bitcoin is a highly speculative market.”
Dalio added that he doubts that governments will allow bitcoin transactions to remain anonymous in perpetuity. The IRS has sued Coinbase, a popular US bitcoin exchange, demanding records on client transactions – a decision that many in the community saw as the beginning of the US government’s effort to unmask the currency’s users. Aleady, using sophisticated blockchain analysis techniques, US authorities have been able to trace bitcoins back to their respective owners, making it more difficult for tax cheats and money launderers to use the digital currency to facilitate their crimes.
“The idea that it will be private in terms of transaction…in other words people won’t know what you’re doing and it will be a private currency…is really questionable.”
Based on the amount of speculation alone – the price of a single coin has risen by more than 300% since the beginning of the year – Dalio argues that the only logical conclusion is that bitcoin is in a bubble.
“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, 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.”
Bitcoin also faces competition from other digital currencies like Ethereum, which compounds the problem of investing in digital currencies, in Dalio’s view.
“And then there are other cryptocurrencies. Bitcoin might lose competition to other cryptocurrencies. So is it a bitcoin bet that we’re making or a cryptocurrency bet. It’s very much speculative people thinking can I sell it at a higher price…and so it’s a bubble.”
Bitcoin reached an all-time high just shy of $5,000 on Sept. 1. But the digital currency pulled back earlier this month amid reports that Chinese regulators were forcing local bitcoin exchanges to shut down as part of a crackdown on ICOs. It’s decline accelerated - briefly sending the digital currency below $3,000 a coin, its weakest level since mid-July - after JP Morgan CEO Jamie Dimon proclaimed that bitcoin is “a fraud” and that he'd fire any JPM trader caught buying it. Of course, his remarks were followed almost immediately be reports that JPM had beeen one of the biggest buyers of a bitcoin-linked exchange-traded note traded on Nasdaq Stockholm, one of the only bitcoin-focused securities to trade on a public exchange in any market, raising important questions about whether the bank was violating its fiduciary duty by assisting clients to transact in an asset that the bank's CEO believes to be fraudulent.
However, over the past two years, bitcoin has ripped the face off of every bear who has spoken out against It. Over the summer, billionaire investor Howard Marks was forced to recant his bearish view in an investor letter, issuing a now-famous mea culpa. Unlike its response to Dimon's remarks, bitcoin barely moved after Dalio's interview aired, and has remained almost unchanged on the day.
How long before Dalio and Dimon are forced to do the same?