Ray Dalio: Bearish On Bitcoin, But Still Buys

Well, you thought that I was done talking about Ray Dalio? No way! Because, interestingly, while most of his interviews at the moment talk about macroeconomics and investing in China and so on, I was very surprised to hear him bring up the fact that he has bought into Bitcoin. Yes, Ray Dalio of Bridgewater Associates buys Bitcoin! I didn't think I'd see that. But actually, it gets a little bit weirder. The crazier thing about this story is that he's still bearish on Bitcoin. He holds the opinion that if Bitcoin is successful enough, it will be banned by major governments.

So, in this video, I want to try and get to the bottom of how Ray Dalio got in this position—being bearish on Bitcoin and also buying it. So, lots to unpack here, so let's get started.

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So, Bitcoin. Hey, no secret, it's been a volatile asset class over the past few years, but it's also gained tremendous popularity, which, as is normally the case for assets without intrinsic value, has led to large price increases. So, more eyes on it, more discussion, more development. But no intrinsic value to ground it means more people buy it at the market price, and the price rises quite substantially.

Now, to be honest, this fundamental issue of Bitcoin having no intrinsic value, you know, in much the same way that baseball cards or gold also have practically no intrinsic value, this has led most big-name investors to simply sidestep the Bitcoin phase. But Ray Dalio has decided to dive in.

So, it was in a recent CNBC interview that I first learned that Ray Dalio had bought Bitcoin. So, I thought I'd play you that clip; then we can start to break down why he made this decision.

"I mentioned briefly the idea of crypto, and I know you've had different views of this. A lot of people think of that as a new investment class that has had enormous run thus far, but also as a way to mitigate, if you will, against the idea of what the value of cash becomes. Well, I think it's worth considering all the alternatives to cash and all the alternatives to some of the financial assets. And so, Bitcoin has... that is a possibility. Is that America? I have a certain amount of money in Bitcoin. It's a small percentage of that which I have in gold, which is a relatively small percentage of what I have in my other asset classes and so on. And I think that that has the merit. It's an amazing accomplishment to have brought it from where that programming occurred to where it is and take the test of time."

"On the other hand, if it's successful, it's going to... not be. The governments don't want to have it successful. You don't want to have it. We're starting to see governments like El Salvador. I know that's not exactly going to be the leading government on this, but there are governments that may take this on. But no, no, no, no, no. You have El Salvador taking on, and you have India and China getting rid of it, and you have the United States talking about how to regulate it. And it could still be controlled."

"That's right. What it looks like, if you're El Salvador and you talk about your alternative monies, you know, it's a different thing. Do you believe that regulation ultimately will make something like Bitcoin and other cryptocurrencies have a future, or do you think regulation will kill it?"

"Well, I think regulation... I think at the end of the day, if it's really successful, they'll kill it. And they'll try to kill it. And I think they will kill it because they have ways of killing it. But that doesn't mean it doesn't have, you know, a place of value and so on."

So, the way Dalio approaches Bitcoin is definitely from a diversification standpoint. He treats it as one of the alternatives to cash, kind of like gold. So, in actual fact, he's not really investing in it at all. He just hates being caught, you know, holding cash. So, he spreads his cash money across cash alternatives. And, as he says in that clip there, his Bitcoin holdings are a small percentage of what he holds in gold, which is a small percentage of what he holds in other asset classes like equities.

So, he's not really making a bet on Bitcoin; he's simply including it in the diversification strategy of his funds.

And then we get to the really interesting bit where he actually speaks his mind, where he says he believes that if Bitcoin is successful enough, it will quite simply be banned by governments. I've covered Ray Dalio's line of thinking here before, and honestly, I got a lot of backlash from people saying, you know, you don't know. You know, Bitcoin is decentralized, it's independent of any government, etc. They can't regulate it and so on.

And, you know, I get that argument. I don't think Bitcoin is going away, and in all honesty, I wouldn't even be surprised if it continues to hold such a high price. But think about it like this: Governments like to control their currency. It's very helpful for them to be in control. So, there's this third-party currency that all of a sudden starts to threaten their own currency and thus their control. Then, of course, the government will obviously take action on that.

Do I think that it will get to this point? Though, probably not, in all honesty. The one thing that cryptocurrency has failed to do so far is take off as a form of currency. At the moment, it's almost entirely seen as a financial asset, you know, same as gold. You know, you could use gold as a currency; it has been used as currency in the past, but people don't view it that way today. We just treat gold as a financial asset. But having said that, I do think it would be foolish to dismiss the idea that governments will act to eradicate it if it poses any sort of threat to their control.

Now, let's head back to Ray, and this time he's discussing a major characteristic and risk of Bitcoin that you definitely need to be comfortable with if you decide to invest in it.

"But it's one of those things that it has right now, it doesn't have intrinsic value. If you look, if you put cryptocurrencies or let's say Bitcoin in the historical perspective, right, there are so many things in a historical perspective that were given intrinsic that didn't have intrinsic value, and we have perceived value and then became hot, and then they become cold. And so it could be either way. You just have to know what it is, right?"

"Yep. I mean, like, you know, it could be tulips in Holland, you know, and intrinsic value. So, what is the value? And then there are technological changes. I don't... I'm no expert on that; I'm just trying to say that you asked me what my opinion is. Take it for what it's worth. I'm no expert on it. I think diversification matters. I suspect the real question that investors should be asking themselves is how much stuff like that do they have? Do how much stuff do they have? Do they have gold? Okay, should we be talking about how much you have in gold versus how much you have in Bitcoin? And do you have a diversification in those kinds of things that we might call intrinsic value money? Because we have a fiat monetary system."

"Okay, with a fiat monetary system, where is your hard money? That's the question. And however you go after it, I think that's the question to be answered."

So, there you go. Ray highlights the importance of knowing what you own. You know, a lot of people that have gotten into the markets over the last year or two have gotten into Bitcoin thinking that, you know, this is very valuable. They see a headline—wow, Bitcoin is worth potentially a hundred thousand dollars.

So, I like that Ray takes the time to explain that if you own Bitcoin, you have to be at peace with the fact that this is a non-productive asset and thus, by definition, has no intrinsic value. As he says, it could be tulips in Holland. Now, to be fair, it could be the beginnings of a new global monetary system, but the point is we don't know what it will be, and there's no way to calculate what it is worth. And because it lacks intrinsic value, that's why it's subject to enormous price swings.

Now, as Ray says, it's okay to own stuff like this in your portfolio. But, as he says, it's important to look at what percentage of your portfolio you give to assets that lack intrinsic value. You know, if you own five shares in an S&P 500 index fund but then you have an extensive collection of art, baseball cards, and have 20 grand in gold and 10 grand in Bitcoin, then you're probably in a little bit of trouble.

Bitcoin has an imputed value, not an intrinsic value. And so, it depends on what it's perceived as. It's a tremendous accomplishment to have done that programming, not have it hacked, and to have its advancement at the same time. And so it will have the perceived value that it is given by the marketplace.

Now, at the time right now, if you take the value of Bitcoin, you take the price, what should the price be, and you... since the quantity doesn't change, you know what, it's a function of demand. Right now, Bitcoin is worth a little less than a trillion dollars. Gold, all gold in existence, is worth, if you take central banks and jewelry out of it, about 5 trillion. So it's about 20% of that market that represents the hedge market and so on.

I think that there... I think if it's successful—really successful—it’s not going to be a lot more than that. And also, if it's successful, there's a risk the government will outlaw it.

There you go. One last clip to hammer it home. You know, if you play with Bitcoin, just remember it has perceived value rather than intrinsic value. And if you understand that, and instead of speculating, come at it from a cash diversification standpoint, then you'll largely protect yourself from its uncertainty.

And that's exactly what Ray has done in this instance. You know, wise words from the founder of the world's most successful investment management firm.

So overall, they are Ray Dalio's thoughts and opinions as to why he is kind of bearish on Bitcoin in the long run but also holds it in his portfolios.

So overall, guys, I hope you enjoyed that video. I hope it provided some clarity. If you did enjoy it or if you found it useful, give the video a like. I really appreciate it! Subscribe if you'd like to see more videos similar to this.

Check out Profitful if you're interested in how I go about my investing. Check out New Money clips, of course, if you have not done so already.

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