Ray Dalio vs Bitcoin

I recently discovered Ray Dalio, as of a month ago I’d never heard of him or his history. After watching a few interviews and reading Principles It’s impossible not to be impressed by his accomplishments. His company Bridgewater Associates is one of the most successful hedge funds in history, applying unique approaches to solving some of the most complex economic problems. Through there unique approach they were able to predict the financial crisis of 2008 and was one of only a few funds to profit during that time. Needless to say I’m onboard, trying to syphon as much knowledge as possible from one of the financial industries greatest minds. 

There is however an elephant in the room. Dalio has been very open about his stance on Bitcoin, and it isn’t positive. 

The thing is, I don’t fully disagree with him. In actual fact I think it would be dangerous to discount his arguments, and/or his stance as a whole. I say this because the only real information we have regarding his decision making process is from a couple of short interviews. I think it is highly probable that internally at Bridgewater they have conducted real research into what the optimum BTC price should be, and right now the price is above that. And that’s an important distinction to make. When he calls Bitcoin a ‘bubble’, he’s not saying that BTC is worthless and blockchain technology isn’t important, but instead referring to the current market price of bitcoin and how it is currently over valued. 

This obviously doesn’t change my stance on crypto but it does pose the question, ‘at what point did YOU buy into Bitcoin and are you happy with that price?’. To me this is an important question you need to answer. For example, if you purchased BTC when one coin was worth $200 then a $5000 price bubble is irrelevant. 

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I’m going to take a closer look at the arguments he has posed and consider the validity of them, but one thing that is worth noting is that he has been asked directly about Bitcoin and NOT cryptocurrencies or the blockchain technology. 

Ray’s arguments

Ray’s first argument is Bitcoin isn’t a very good medium of exchange. 

This we can all agree on, due to the ageing technology leading to slow transaction times and limits, as well as rising transaction costs have led to a decline in Bitcoin being used a currency. I don’t see this as a massive problem when it comes to determining if the ‘bubble will burst’, you’d have to assume a large proportion of BTC investors consider it a medium of exchange and then universally discover it isn’t. I haven’t been able to find any conclusive data on how many of Bitcoin’s transactions are related to the exchange of good or services, my gut feeling is that it’s a significant amount.

The second argument posed is that Bitcoin isn’t ‘A good store hold of value’

Initially Dalio poses the argument that Gold reflects what FIAT currencies are doing, which helps to hedge against any movements in say the USD, but doesn’t specifically state how or why Bitcoin’s movements are not a hedge against both? We are yet to see Bitcoin in an inflationary environment, but it would surly be a better place to park your wealth in the event that your local currency is being devalued as part of an economic stimulus package. I’d like to hear more about this from Ray, as I don’t think he was able to fully explain his reasoning. And as previously mentioned in Bitcoin’s value consensus problem there isn’t a clear indicator of why the BTC price is what it is. 

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Ray obviously has an innate ability to understand the economic machine on a macro level, and how each individual component interacts with each other. So I think you’re doing yourself a disservice to discount what he says immediately. That being said probably the biggest argument against Dalio’s position is that Bitcoin has the ability to span a store of value, medium of exchange and an investment vehicle at the same time. So although his arguments may fit one of these abilities, they don’t fit them all. 

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