Ray Dalio's new work: Bitcoin is a brilliant invention, considering the establishment of a Bitcoin investment fund

This article was published by DeepQuant Group, authored by Ray Dalio, founder of Bridgewater, and translated by Zhou Yayue.

The head of the world's largest hedge fund, Dalio, has just released his latest long article, "What I Think of Bitcoin." The DeepQuant team quickly captured and read it, as the original text elaborates on Dalio's thoughts on Bitcoin. On one hand, Dalio softened his previous biases against Bitcoin, considering it a brilliant invention; on the other hand, he raised various risks from the perspective of institutional entry, which is very valuable for reference.

This article is merely a brief commentary from DeepInsight's translation of Bloomberg's website, making it easier for readers to grasp quickly. Currently, media interpretations are extremely divided. In traditional media, Dalio considers Bitcoin to be "a meaningless invention" that could lose most of its value. In the new cryptocurrency media, Dalio views Bitcoin as "a brilliant invention" and intends to establish a new fund to invest in Bitcoin. This relates to Dalio's historically adaptable writing style, but for quantitative practitioners, independent and objective multi-perspective thinking is more important. Therefore, the DeepQuant team will provide a detailed translation of this article from Bloomberg and will interpret Dalio's original text in the future, so stay tuned.

Dalio's change in attitude represents the general psychology of Wall Street institutions, indicating that more Wall Street investment firms are recognizing the value of Bitcoin. In the context of global central banks engaging in quantitative easing, Bitcoin can effectively serve as a store of value, thus preserving wealth. If traditional funds (old money) rush in, everything about Bitcoin is unimaginable.

Ray Dalio, founder of Bridgewater

On Thursday, January 28, Dalio, the founder of the world's largest hedge fund Bridgewater, wrote in a 14-page daily news briefing sent to clients that Bitcoin is "one hell of an invention." Bridgewater is considering using a new fund to invest in cryptocurrencies to preserve wealth for clients amid fiat currency devaluation.

"Inventing a new type of currency through a system programmed in a computer, which has been in use for about 10 years and has rapidly gained popularity as a currency and a store of wealth, is an incredible achievement," Dalio wrote in his client communication (this message was later published on Bridgewater's official website). "Currently, with the increasing demand for gold, there are not many alternative assets similar to gold."

However, like others, Dalio said he finds it challenging to value digital assets. Although Bitcoin has the potential to make investors "very wealthy" and "disrupt the existing monetary system," there are risks. He noted that cryptocurrencies could easily be hacked and may face restrictions from governments wishing to control the money supply.

Dalio stated that he views Bitcoin as "a long-term bet on a highly uncertain future," and investing in it means being aware that Bitcoin could lose about 80%. While Dalio does not hold a fully supportive stance, he is one of the most significant figures among hedge fund heavyweights who see a bright future for Bitcoin. Compared to Dalio, Paul Tudor Jones of Tudor Investment Corp. and Alan Howard, founder of Brevan Howard Asset Management, are more bullish.

Howard is a partial owner of One River Digital Asset Management and an investor in its cryptocurrency fund. He also owns Elwood Asset Management, which operates an index to track cryptocurrencies and blockchain companies, providing some trading services, market analysis, and technical support.

Jones began purchasing Bitcoin in May, calling it a hedge against inflation and the "fastest horse" in the cash alternative space. Since then, Bitcoin's price has doubled. Last week, the world's largest asset management company, BlackRock Inc., took its first step into cryptocurrencies. The company notified regulators that cash-settled Bitcoin futures would be eligible for investment in its two funds.

Before the COVID-19 pandemic, Dalio had been grappling with the question of how to preserve wealth in a world of zero interest rates, debt monetization, and increasing demands for fiscal spending. He stated that a paradigm shift is occurring in the global economy, and ultimately, investments that are currently favorable, such as stocks and credit, will not perform well.

In 2019, he asked, "What would be the second-best currency or store of wealth when most reserve currency bankers want to devalue currency in the fiat system?" and suggested gold as a way to reduce risk and enhance returns.

In Thursday's published notes, Dalio further elaborated on this idea. He expressed the need to "clarify my views on Bitcoin" and warned clients that he is not an expert.

Some of his other comments include:

• Bitcoin has successfully transitioned from the "valley of death" to something that may have value.

• "Due to the lack of many financial storage assets similar to gold that can be privately held, and the relatively small market size, there is a possibility that Bitcoin and its competitors can meet this growing demand."

• Another risk is supply: while a limited number of Bitcoins can be mined, nothing prevents the emergence of new cryptocurrencies, and "I believe better coins will emerge and replace Bitcoin."

• It is naive to think that digital assets will not be hacked when even the Department of Defense cannot protect its systems from hacking.

• If there are restrictions on the use of Bitcoin, "then the demand for Bitcoin will decline."

• "Don't think that the risk of the government banning the use of Bitcoin and its competitors is alarmist; in my view, the more successful Bitcoin becomes, the greater this possibility."

• "My colleagues and I are focused on finding alternative ways to store wealth, and we expect Bridgewater will soon offer alternative cash funds and wealth preservation funds to better cope with the anticipated devaluation of currency and credit, which we see as both a significant risk and an opportunity, and we will certainly consider Bitcoin."

Source link: www.bloombergquint.com