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Ray Dalio clarifies his stance on Bitcoin's strengths and challenges

The well-known author and investor Ray Dalio, published this Thursday, January 28 in the bulletin Daily Observations of Bridgewater Associates, the document What I think of Bitcoin. In the document, which CriptoNoticias had access to, Dalio states that he wants to make his position on Bitcoin clear. He points out that the opinions expressed about the first cryptocurrency in previous statements have been “distorted by many means.”

Next, Dalio refers to Bitcoin as a great invention that has worked without interruption for more than a decade.

To have invented a new type of money through a system that is programmed into a computer, and that It has been around for about 10 years, and is rapidly gaining popularity as a kind of money and store of wealth is an amazing achievement.

Ray Dalio, «What I Think of Bitcoin. ”

Dalio has reservations regarding the fact that bitcoin has a limited supply. In this regard, he argues that “although the supply of bitcoin is limited, the supply of bitcoin-like assets, its competition, plays a role in determining the prices of bitcoin and other cryptocurrencies.”

Another aspect of Bitcoin that Dalio criticizes is the security of the funds. He argues that cold storage “is difficult and few people do it.” Being digital and connected, « It is not protected against cyber risks, to my understanding. I wish someone would correct me, if not, “says Dalio.

For a more detailed examination of the attributes and challenges of Bitcoin, Dalio presented a study conducted by a team of Bridgewater specialists , led by Rebecca Patterson. This, after highlighting the great appreciation of bitcoin in the recent rally and some of its attributes such as its limited supply and global interchangeability, highlights that Bitcoin cannot be seen, at least for now, as a store of value.

However, by Right now, we don’t see it as a viable storehouse of wealth for large institutional investors, primarily because of a high degree of volatility, regulatory uncertainty, and operational limitations. Rather, we see it more like buying an option on a potential ‘digital gold’: it has a broad cone of returns, with a path that puts it on the path to becoming a true alternative pool of institutionally accepted wealth.

Rebecca Patterson, Head of Investments at Bessemer Trust.

Despite this warning, specialists mention the low interest rates that detract from the bond’s diversification potential as an asset and the increasing risk of depreciation of national currencies. “This could accelerate the development of alternative stores of value,” says the document and shows how the market capitalization of bitcoin has grown in percentage with respect to the market capitalization of gold.

Ray Dalio clarifies his stance on Bitcoin's strengths and challenges
The value of Bitcoin went from 1% to 4.4% of the capitalization of gold in 2020. Source: What I Think of Bitcoin. Bridgewater Associates.

The discussion about bitcoin as a store of value

The rally of the price Bitcoin trading that started in 2020 reignited discussion about whether it is really “digital gold,” the document says. The rally of 2017 was predominantly speculative, whereas, from mid-2019 to the end of 2020, the noticeable appreciation of bitcoin seems based on the idea of ​​this as “digital gold” , the authors say.

The limited supply of bitcoin , although questioned by Dalio, is highlighted by Patterson as «an especially attractive factor at a time when central banks aggressively print money. ”

Bitcoin has a full supply encrypted 21 million bitcoins, with an issue rate that is automatically cut in half every few years. It is this characteristic of Bitcoin that has primarily driven the ‘digital gold’ narrative. As shown below, while Bitcoin’s issuance rate during its early years was initially much higher, its supply growth rate is now lower than that of gold.

Rebecca Patterson, Head of Investments at Bessemer Trust.

Supply increase as a percentage of the total supply of gold and bitcoin. Source: What I Think of Bitcoin. Bridgewater Associates.

The report also highlights that bitcoin is globally accessible and easily transportable. This, the study points out, is a useful attribute for an asset considered as a store of value.

Influence of bitcoin on portfolios 60-40

The report shows that gold has been efficient as a diversifier of portfolios composed of 60% of stocks and 40% of bonds both in the increase of returns as in the reduction of the eventual falls of undiversified portfolios.

Bitcoin is starting to be evaluated as a 60/40 portfolio diversifying asset. Source: What I Think of Bitcoin. Bridgewater Associates.

Charts show that, over the past 5 years, bitcoin outperformed gold in both returns and neutralizing portfolio declines, but given which has only been included in a limited number of these, from 2014-2015, it is still early for a firm verdict in favor of bitcoin, the study says.

Bitcoin is not accepted entirely as a store of value, the study highlights, due to “its volatility, regulatory uncertainty and its still immature infrastructure.” While the addresses that accumulate BTC have grown to 15% of the total active addresses and the accounts inactive for more than five years exceed 20%, the study maintains that the majority of the supply still appears to be active or semi-active. This would suggest more speculative trading , according to the authors.

Regulatory uncertainty

The study proposes stricter regulation of bitcoin and cryptocurrencies as a possibility, although he admits that the dominant direction of regulation in the United States can be characterized as’ one of increasing acceptance of blockchain-based technology and cryptocurrencies, in areas that are not seen as threatening ». But at the same time, the study notes, “strict regulations are proposed in areas that are perceived as facilitators of illicit activities.”

For example, bitcoin derivatives could be available in traditional exchanges in 2021 same as custodial services, states the report.

At best, a maturing of regulation cryptocurrency that provides collateral around Bitcoin and greater means of accessing the asset (such as a Bitcoin ETF) could encourage large institutions to increase their exposure.

Rebecca Patterson, Head of Investments at Bessemer Trust.

In its conclusion, the report states that «Bitcoin has features that could make it an attractive storehouse of wealth; it has also proven to be resilient so far. ‘ However, he points out that, as a financial vehicle it is only a decade old and refers to possible future challenges that may come from quantum computing, or the regulatory backlash. “Bitcoin, for now, seems to us more like an option on a potential wealth reserve.”

CriptoNoticias reported last November comments from Ray Dalio, in which he admitted that there were aspects of Bitcoin that I was still unaware of. Last December, it seemed to have softened its stance on Bitcoin, as reported then by CryptoNews.

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Sandra Loyd
Sandra is the Reporter working for World Weekly News. She loves to learn about the latest news from all around the world and share it with our readers.

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