MUMBAI: Ray Dalio, renowned Wall Street investor and co-chief investment officer of Bridgewater Associates, called Bitcoin “a hell of an invention” Thursday and said it made early believers very rich, much like the bankers who lend in the US invented the Middle Ages.
“Those who built it and supported the dream of making this new breed of money a reality did a great job of making that dream a reality and turning Bitcoin (by which I mean it and its analogous competitors) an alternative gold-like asset make, “he said.
The cryptocurrency made a comeback into the mainstream financial markets over the past year as both retail and institutional investors shop at a brisk pace.
Dalio has also shown how Bitcoin has managed to maintain itself and its infrastructure for over 10 years. “It seems to me that Bitcoin has succeeded in crossing the line from a highly speculative idea that might not exist in a short period of time to one that is possible and probably also possible in the future,” he said.
Despite his praise for the crypto asset, he also highlighted some important risks that he sees as a “non-expert” in owning the bitcoin.
The most heard argument for Bitcoin is that it has a limited supply of 21 million Bitcoins, which automatically makes it an attractive store of value.
Dalio believes the supply risk is from the number of bitcoins, but from the number of cryptocurrencies that can replace bitcoin. “I assume that better ones will come and replace it, because that’s how everything evolves,” he said.
Since Bitcoin is a digital asset, much like most of the financial system, it is vulnerable to cyberattacks, says Dalio. “If the Department of Defense cannot protect its systems from being hacked, it would be naive to be completely sure that digital assets cannot be hacked. This is one of the advantages of gold-like assets and one of the risks of all financial assets, ”he argued.
Data protection risk
The technology behind Bitcoin, called blockchain, enables an anonymous decentralized ledger in which every Bitcoin transaction is kept anonymous for data protection reasons. However, Dalio believes privacy will most likely go out of the window if the government asks to open the book. “It seems that Bitcoin is unlikely to be as private as some suggest. It’s a public ledger, after all, and a significant amount of Bitcoin is not privately held, ”Dalio said.
Finally, Dalio says governments around the world won’t just stand and watch their fiat money be replaced with something else. “Starting with the creation of the first central bank (the Bank of England in 1694), there were good logical reasons why governments wanted control of money and protected their ability to have the only funds and credits within their limits,” he said.
Given these four big question marks about Bitcoin and its products, Dalio believes that buying a cryptocurrency is like buying a long-term options contract in a highly uncertain future: “… I could invest an amount of money that I would like to lose, about 80 percent of. ”
“This is what Bitcoin looks like to this non-expert,” he said, but added that his hedge fund will continue to investigate Bitcoin in its search for an alternative store of value at a time of excessive global money pressures.