We’re in the part of the cycle where gold, bitcoin, real estate, everything is going up, but with the US dollar on the verge of devaluation and inflation looming, future expected returns go down after a point, meaning there’s “no longer the incentive to buy those things.”
“I have some bitcoin,” revealed Ray Dalio, the founder, and CEO of the world’s largest hedge fund Bridgewater Associates.
This is because he would rather “have bitcoin than a bond” in an inflationary scenario, he said.
This makes sense given that since March 2020, the price of Bitcoin has gone from $3,800 to $65,000, and even after the recent 54% sell-off, it is trading around $37,500. Meanwhile, the yield on benchmark notes, US 10-year Treasury bonds, has only managed to move from 1.473% to 1.62%.
The yield on treasury bonds has been falling for decades, which was at 15.82% back in late 1981. Bitcoin, on the other hand, has been hitting a new ATH every cycle.
Dalio was previously skeptical about Bitcoin and later said he is learning about it and then wrote about it having the capacity to be an alternative store of value. Now, he has finally come around and invested in cryptocurrency. Recently, as we reported, Bridgewater’s chief financial officer, John Dalby, left the firm to join bitcoin custodian NYDIG.
Bitcoin looks appealing in the current environment where the US dollar is on the verge of devaluation, last seen in 1971, said Dalio. China is threatening USD’s role as the world’s reserve currency.
However, for him, the biggest concern remains regulatory crackdown. Dalio said,
“Bitcoin’s greatest risk is its success.”
During his interview, Dalio talked about how the greenback is in the mid of the first cycle, “debt and credit create buying power,” of the rise and fall of the global reserve currencies.
The second cycle is an “internal cohesiveness clash cycle” as both the wealth gap and political groups grow and then the rise of another great power that challenges the existing top currency.
The first cycle started as the government created buying power, a “stimulant” in the short term, but eventually, they have to pay back their debts, becoming long-term “depressants.”
So, if they need more money, they have to keep printing, and then taxes go up, leading to capital controls as happened in 1971 when President Richard Nixon took the U.S. off the gold standard, making dollar “fiat” currency, and stocks went 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.”
Inflation is of importance here, especially monetary inflation that happens due to a devaluation of the currency, rather than the other one caused by supply and demand.
While pushing the prices of real estate, stocks, and cryptocurrencies up, their future expected returns would go down after a point. Once they come down to the interest rate level, “then there’s no longer the incentive to buy those things.”
However, a neutral cryptocurrency such as Bitcoin can act as gold, but the government has the capacity to control anything. And as more people start preferring Bitcoin than bonds, like him, the more savings go into BTC than into credit, “then [governments] lose control of that,” he said.
And such a situation, he said, can lead those governments to crack down on bitcoin holders, he said. Overall, it’s about technology and whoever wins this race wins it all, Dalio said.