Ray Dalio and doubts about Bitcoin: “it could be made illegal”

While the price of Bitcoin seems to rise relentlessly, there are those like Ray Dalio who step out of the enthusiastic crowd and exhibit scepticism.

Ray Dalio is the founder of the Bridgewater Associates investment fund, and unlike the many institutions that are now investing in Bitcoin, he shows serious doubts about the queen of cryptocurrencies. 

He has expressed them in a series of tweets in which he explicitly says:

“I might be missing something about Bitcoin so I’d love to be corrected”.

He then goes on to list what he defines as problems with Bitcoin.

Ray Dalio and the problems with Bitcoin

The first objection raised at Bitcoin by Ray Dalio concerns the function for which it was conceived by Satoshi Nakamoto: Bitcoin is not a very good exchange method because, due to price fluctuations, it would be too volatile to be used by traders.

To this objection another one is connected: Bitcoin is not even a good store of value, again because of its volatility and poor correlation with the prices of things people want to buy. 

Hence, Dalio says:

“Owning it doesn’t protect my buying power”.

Furthermore, he adds, Bitcoin could be outlawed:

3) if it becomes successful enough to compete and be threatening enough to currencies that governments control, the governments will outlaw it and make it too dangerous to use. (4/5)

— Ray Dalio (@RayDalio) November 17, 2020

“If it becomes successful enough to compete and be threatening enough to currencies that governments control, the governments will outlaw it and make it too dangerous to use”.

Finally, Dalio makes a comparison with gold, claiming that:

“Also, unlike gold which is the third highest reserve assets that central banks own, I can’t imagine central banks, big Institutional investors, businesses or multinational companies using it”.

He ends this series of tweets by asking to be corrected if he is wrong.

Experts in the field have responded promptly, including Nick Szabo and Brendan Blumer.

Nick Szabo (who calls himself a pioneer of cryptocurrencies and blockchain), points out that Ray Dalio focuses too much on a “shallow” phenomenon such as Bitcoin volatility, rather than on the great risks associated with the current monetary system and fiat currency. Bitcoin, says Szabo, requires less trust, but unlike gold it is more easily transferable.

And he concludes:

“It’s an unprecedentedly superior form of money, but like anything else new traded in a free market, its historical journey starts off volatile”.

According to Brendan Blumer (CEO and founder of Block.one), Bitcoin is actually used as a store of value, adding:

“We don’t spend gold, shares, or others alike, as fiat is purpose-built for local spending. Bitcoin is equitably distributed, inclusive, extensible, publicly verifiable, and has finite supply integrity. Bitcoin is belief in math over people”.

In another tweet he is even more insightful:

“There is an infinite amount of fiat to buy a finite amount of #BTC. The fundamental principle of investing is to increase your relative buying power, and Bitcoin is perhaps the best instrument to do so. Similar fundamentals to Gold but outperforms on virtually every metric”.

Was it enough to convince Ray Dalio of Bitcoin’s soundness? Nobody knows because he hasn’t responded. In any case, critics or enthusiasts, Bitcoin continues to climb and today it has reached $18,000. 

Price aside, even the market capitalization shows that Bitcoin’s strength can no longer be neglected. But apparently, it will still take a lot more to convince the sceptics of the existence of a new currency to be used also as a store of value.