Bitcoin Will Not Be an Effective Money, Says Ray Dalio

Ray Dalio – founder of Bridgewater Associates – doubts Bitcoin’s ability to work as money, and thinks it receives outsized attention compared to the size of its market cap. 

That said, the billionaire believes the existing monetary system is “in jeopardy,” due to excessive money printing by central banks globally.  

Bitcoin: Not Related to Anything

In an interview with CNBC’s Squawk Box on Thursday, Dalio said that while Bitcoin has accomplished “amazing” things over the past 12 years, it ultimately has “no relation to anything.”

“It’s a tiny thing that gets disproportionate attention,” he said. “The value of Bitcoin is less than a third of the value of Microsoft stock.”

The investor added that industries like Biotech are far more interesting than Bitcoin and that the latter cannot be an “effective money” – whether as a store of wealth or a medium of exchange. 

This criticism is nothing new: Multiple central bankers including former Fed chair Ben Bernanke, and Riksbank – the central bank of Sweden – argue that Bitcoin’s price volatility makes it a poor value preserver and ineffective tool for trade. Supporters of the asset argue that Bitcoin’s long-term performance provides evidence to the contrary, and that its fixed supply could make it a global store of value within a decade. 

In fact, Dalio concedes the unlimited supply of fiat currencies is proving that they are not entirely stable either, given their high rates of money printing and 

“It’s not just the United States,” he said. “All the reserve currencies – what’s going on in Euro-land, what’s going on with the Yen. In that world, the question is ‘what is money, and how is that going to operate?’”

The Federal Reserve has been engaged in a battle to quell inflation for over a year after underestimating the extent and persistence of climbing prices in 2021. It’s now risen its benchmark interest rate above 4.5%, the highest since 2007. 

Many question whether the Fed can continue to hike rates at this pace without causing major damage to the global economy. Both the United Nations and an analyst from JP Morgan have called for the Fed to pivot as soon as possible. 

What is the Optimal Digital Currency?

Pivoting to China, Dalio believes its move to a digital renminbi will become more of ‘a thing.’ As the nation denominates more of its trade in the renminbi, the currency may become a more effective store of value.

When asked for cryptocurrency alternatives to the fiat system, Dalio recommended neither Bitcoin nor stablecoins (cryptos pegged to traditionally “stable” currencies, like USD.)

Instead, he suggested an “inflation-linked coin” that secures an individual’s buying power, similar to an inflation index bond. 

“I think you’re going to see the development of coins that you haven’t seen, that will probably end up being attractive and viable coins. I don’t think Bitcoin is it,” he concluded. 

Some groups, including the stablecoin company Tether and the Russian government, are now experimenting with gold-backed stablecoins.