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Here's Why Billionaire Ray Dalio Would Rather Own Bitcoin Than Bonds

Ray Dalio
Credit: Jason Lee - Reuters / stock.adobe.com

Billionaire Ray Dalio’s Bridgewater Associates has the largest Assets Under Management (AUM) of any hedge fund, with assets estimated at $140 billion. Naturally, much of Ray Dalio’s investment philosophy may sound familiar to the Bitcoin faithful.

“Most of what people think is money is really credit, and it does disappear. As implied by this, a big part of the deleveraging process is people discovering that much of what they thought was their wealth isn’t really there,” Dalio wrote in a 2008 blog post.

Dalio backs investment in Bitcoin rather than a bond because he believes this strategy would lead the government to reduce its control over the monetary system. The statement is quite surprising because his $140 billion fund held substantial investments in government bond treasuries. Dalio, who believes bitcoin’s greatest risk is its success, says he owns “some” bitcoin but didn’t reveal how much. Early this year, Ray Dalio expressed his intention of investing in cryptocurrencies to protect investors against currency devaluation.

Dalio was among the money managers who previously held critical views on cryptocurrency but later accepted BTC as a store of value. "Unlike gold, which is the third-highest reserve asset that central banks own, I can’t imagine central banks, big institutional investors, businesses or multinational companies using [bitcoin]," Dalio tweeted last year.

Is Investing In Bitcoin Better Than Bonds?

Bridgewater’s founder is bearish about bonds because he thinks bonds pay less than inflation. The data also points out that bitcoin’s returns have substantially outpaced returns from U.S. bonds and securities.

Fixed-income investors have been facing setbacks over the last couple of decades. Yields fell sharply as investors moved their focus towards risky assets including stocks and currencies. Furthermore, pandemic-related economic disruptions, as well as zero interest rate policy, have further damaged returns from bonds and other debt offerings. Even though the most prominent U.S. 10-year treasury yield has stabilized in the past couple of months after notching an all-time low of 0.54% in early March last year, Dalio still believes investing in bonds is an unwise idea.

On the other hand, Bitcoin price saw massive growth in the last twelve months despite the latest selloff that wiped off more than $20K per coin. Bitcoin price is up close to 40% since the beginning of this year, extending the twelve-month gains to 350%. The world’s most valuable coin is up 7170% in the last five years.

Ray Dalio Is Concerned About Government's Behavior After The Success Of Bitcoin

Dalio said in a CoinDesk conference that cryptocurrencies can work as the best store of value in a volatile environment, and he has expressed concerns over the treasuries’ behaviors towards digital currencies. He claims that the U.S. government could put strict regulatory control or might completely ban cryptocurrencies due to increasing competition with treasury bonds.

"One of the great things, I think, as a worry is that the government has the capacity to control ... Bitcoin, or the digital currencies. They know where they are, and they know what’s going on,” he said.

The role of the central bank and regulators could also hinder the wider adoption of cryptocurrencies, he said. “There exists the possibility that Bitcoin and its competitors can fill that growing need” for an alternative store of value, he wrote in January.

Other Big Players Are Jumping In Even After Bitcoin’s Price Collapse

Yale Professor and Nobel Prize Winner Robert Shiller plans to jump into the crypto markets despite a high level of crypto market volatility in the past few months. “I never bought bitcoin. Maybe I should be active in that market,” he said. Shiller, who won the Nobel Prize in Economic Sciences for his empirical analysis of asset prices, expressed his future plans in a CNBC interview last Sunday.

He calls cryptocurrencies an impressive technology and claims that it’s a very psychological market. He presented an argument that narratives have a lot to do with the source of value than reality. He said he has been seeking to jump into crypto markets to experience the effect. The change in Shiller’s sentiment is among the biggest wins for Bitcoin bulls facing setbacks in the past couple of weeks amid environmental concerns and tighter regulations. He was a Bitcoin disbeliever, calling it a speculative bubble in 2017.

Conclusion

Dalio's idea of moving investments towards assets that offer above-average returns is worth considering when an investor compares it to sluggish returns from bonds and debt securities. The investment allocation, however, depends on your risk tolerance. Crypto markets can be volatile with the potential to make or erase hundreds of billions of dollars in a few hours alone. Despite that, increasing institutional investors' interest in cryptocurrencies highlights its ability to become a real store of value and one of the most powerful forms of payment in the future. In terms of returns, cryptocurrencies have outshined bonds in the past years, with trends suggesting that crypto adoption may further accelerate in the days ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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