Banking News

Ray Dalio’s lucid analysis: Bitcoin’s biggest risk is success

bitcoin forex

Bridgewater’s Ray Dalio is frustrated by the media’s soundbite portrayal of his views about Bitcoin, so he published an article, “What I really think of Bitcoin“. While he considers himself a non-expert in this area, his analysis is elegant in its simplicity. 

He refers to Bitcoin as “one hell of an invention”, which he says “like creating the existing credit-based monetary system, is of course a type of alchemy—i.e., making money out of little or nothing.”

Dalio believes Bitcoin has evolved from a speculative idea to one that will “probably” stick around and “probably” have some value in the future.

Because Bitcoin’s supply is limited, he believes the digital asset’s future is dependent on the following factors:

  • demand for Bitcoin
  • competition from other digital assets acting as a store of value
  • potential Bitcoin stagnation
  • cyber risks
  • privacy risks
  • risk of government legislation

“Since the way Bitcoin works is fixed, it won’t be able to evolve and I presume that a better alternative will be invented and pass it by. I see that as a risk,” wrote Dalio.

Yesterday a knowledgeable Senior Government Minister from Singapore highlighted the cyber risks of digital currencies, arguing against a country having a single central bank digital currency (CBDC). Dalio echoes a similar sentiment. “I think that there is a good chance that someday we will see the financial system, which consists mostly of digits, be shown to be more vulnerable to disruption and/or to cyber blackmail than is now recognized,” wrote Dalio.

When it comes to government interference, he says, “I suspect that Bitcoin’s biggest risk is being successful, because if it’s successful, the government will try to kill it and they have a lot of power to succeed.”

He asked his Bridgewater team to analyze the long term supply scenarios, including the probability of 10% – 50% of private gold holdings switching to Bitcoin. His conclusion is: “Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.”

One area Dalio didn’t mention is the ethical issues of Bitcoin consuming so much energy, although the Bitcoin crowd tries to claim it’s all renewable.