Ray Dalio: Ray Dalio on Bitcoin: Buy it only if you do not mind losing 80%

MUMBAI: Ray Dalio, renowned Wall Street investor and co-chief investment officer of Bridgewater Associates, on Thursday called Bitcoin “one hell of an invention� and said it is making early believers very rich, much like the bankers who had invented credit in the Middle Ages.

“Those who have built it and supported the dream of making this new kind of money a reality have done a fabulous job of sustaining that dream and moving Bitcoin (by which I mean it and its analogous competitors) into being an alternative gold-like asset,� he said.

The cryptocurrency has made a comeback into the mainstream of financial markets over the past year amid brisk buying from retail as well as institutional investors.

Dalio also tipped his hat on the manner in which Bitcoin has managed to sustain itself and its infrastructure for over 10 years. “It seems to me that Bitcoin has succeeded in crossing the line from being a highly speculative idea that could well not be around in the short order to probably being around and probably having some value in the future,� he said.

However, for all his praise for the crypto asset, he also highlighted some key risks that he as a ‘non-expert’ sees in owning the Bitcoin.

Supply Risk

The most heard of argument made in favour of 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 exists through the number of Bitcoins, but the number of cryptocurrencies that can replace Bitcoin. “I assume that better ones will come along and displace this one, because that is the way evolution of everything works,� he said.

Cyber theft

With Bitcoin being a digital asset it, much like most of the financial system, is susceptible to cyber-attack, feels Dalio. “When the Department of Defence can’t protect its systems from being hacked, it would be naïve to be totally comfortable that digital assets can’t be hacked, which is one of the advantages of gold-like assets and is one of the risks of all financial assets,� he argued.

Privacy risk

The technology behind Bitcoin, called blockchain, enables an anonymous de-centralised ledger where each transaction of Bitcoin is kept anonymous for user privacy. However, Dalio believes if the government asks to open the book, then privacy will most likely go out of the window. “It appears that Bitcoin will unlikely be as private as some people surmise. It is, after all, a public ledger and a material amount of Bitcoin is held in a non-private manner,� Dalio said.

Government ban

Finally, Dalio says governments around the world will not just stand and watch their fiat money get replaced by something else. “Starting with the formation of the first central bank (the Bank of England in 1694), for good logical reasons, governments have wanted control over money, and they protected their abilities to have the only monies and credit within their borders,� he said.

Given these four major question marks around Bitcoin and its ilk, Dalio believes buying a cryptocurrency is similar to buying a long-duration options contract on a highly uncertain future that “…I could put an amount of money in that I wouldn’t mind losing about 80 per cent of.�

“That is what Bitcoin looks like to this non-expert,� he said, but added that his hedge fund will scrutinise Bitcoin further in its search for alternative store of value at a time of excessive global money printing.