Ray Dalio: Holding 'Some' Bitcoin, Ethereum Transactions Are More Efficient

Original title: "Dalio: Hold some bitcoins, you will experience more inflation, Chinese assets are attractive"
Written by: Zhu Xi, Gao Xing and Gong Shuxin
Source: Wall Street News

Dalio, founder of the world's largest hedge fund Bridgewater Fund, said in an interview at a CoinDesk event that there will be more inflation in the future. welcome. The interview was recorded on May 6 and was not made public until Monday's event.

Dalio: I own 'some' Bitcoin

Dalio said in the interview that the dollar is on the verge of depreciation, the last time it was in a similar situation was in 1971. In this environment, Bitcoin, with its gold-like properties, is increasingly attractive as a savings tool. Dalio said he would personally prefer to buy bitcoin over bonds in the context of inflation.

Dalio volunteered in the interview that he owns "some" bitcoin. However, he did not disclose information such as the price and quantity of bitcoin he bought. When it comes to transaction efficiency, Dalio believes that Ethereum is relatively more efficient, which also echoes Goldman Sachs' views.

Dalio's attitude towards Bitcoin has undergone a marked shift. His latest revelation of holding "some" bitcoin is his strongest affirmation of the cryptocurrency to date.

As recently as November last year, Dalio expressed doubts about Bitcoin, saying that "something may have been overlooked", and he was happy to accept corrections, but he still did not recognize the attributes of Bitcoin as a currency. At that time, he pointed out the four major problems of Bitcoin: first, Bitcoin is not a good trading medium, and you can’t buy too many things at all; is not a good store of wealth; three is that if Bitcoin is successful enough to pose a threat to government-controlled currencies, the government will declare it illegal and make the use of Bitcoin a dangerous behavior; The third largest reserve asset of the central bank is different, and it is completely unimaginable for the central bank, large institutional investors, and multinational companies to use it.

And in January, Dalio said there was a possibility that Bitcoin and its competitors could meet the growing need for asset preservation.

However, Dalio also pointed out in the latest dialogue that governments of various countries may suppress Bitcoin in order to prevent Bitcoin from threatening their national currency systems. Bitcoin's biggest risk is that it becomes too successful. This is consistent with his previous views. Dalio said the government has the ability to control almost any product, including digital currencies such as bitcoin. Governments may be concerned that bondholders will sell their bonds in exchange for bitcoin. The more money you can get in (Bitcoin), the more people want to hold Bitcoin instead of bonds. And then the more that happens, the more money goes into Bitcoin instead of credit, and then (the government) loses control of it.

Some market views believe that the traditional financial world has begun to embrace cryptocurrencies tentatively. Some people hope to profit from their fluctuations, while others are seeking a way to “release water” when governments print money during the new crown period. Inflation safe haven.

Bitcoin once fell below the $32,000 mark during the weekend. At that time, following the regulator’s statement to crack down on Bitcoin mining and trading, Huobi Mall, a subsidiary of Huobi.com, was also exposed to suspend the provision of mining machines and services to users in mainland China. Derivative Services. But then, the price of Bitcoin rebounded significantly. On Monday, Musk tweeted that miners are committed to operating in a more environmentally friendly way, and Bitcoin hit the $39,000 line during the session.

Inflation is coming

Dalio mentioned inflation several times in the conversation. He said there are two types of inflation, one is caused by supply and demand, where labor demand is high but production capacity is low, causing prices to rise. Another type of inflation is monetary inflation caused by currency depreciation. The two types of inflation intertwine as large amounts of money are injected into the economy.

Dalio said that because money is being thrown everywhere, we will have a lot of demand, and at the same time, as the money supply increases, yields have fallen to lows as investors snap up bonds and other assets such as real estate. That's going to change cash in the hands of individuals, and it's going to continue because cash is trash. Dalio said he had to say that about cash because it generates negative real returns.

Dalio believes that the second type of inflation will eventually dominate. This can be beneficial for assets such as real estate, stocks and cryptocurrencies, but only to a certain extent. As the prices of these assets rise, their expected future yields fall. When their yields are close to interest rates, then there is no longer an incentive to buy these assets. That's when you run into trouble. However, it will be very difficult to tighten monetary policy because once you do, everything falls apart. Everything is sensitive to interest rates. At that point, central banks will have to print more money, which could end up with negative real returns on assets, even as nominal returns appear to be growing, as happened in the 1970s.

US Dollar: Back to 1971

Dalio presented his research on the rise and fall of global reserve currencies, including the guilder, British pound and US dollar. He argues that a reserve currency can operate in three “cycles” that may occur simultaneously: a cycle of debt and financial asset creation; a cycle of internal cohesion conflicts (accompanied by widening wealth, value gaps); and a cycle of the rise of another powerful force. Whether a currency can survive these cycles depends on the economic strength behind the global reserve currency. The dollar is currently in the middle of the first cycle - where debt and credit create purchasing power.

Dalio said government debt will eventually need to be repaid. However, these debts have been issued but are becoming increasingly difficult. All financial assets have “power” over physical objects. Problems arise when they get large in size, but the incentive to hold is no longer there. This situation has happened in the United States before. In the 1960s, U.S. federal spending exploded and debts increased, eventually reducing U.S. gold reserves. So Nixon declared the United States off the gold standard, and the dollar has been a "legal" currency ever since. Dalio said the current situation is similar to 1971. Looking ahead to the budget, we know that America is going to need more money, more debt.

Dalio said:

Do you need to borrow money? Then you have to print money. Do you need more money? Then increase taxes. This creates dynamics. I know from the bitter experience of 1971 that it causes stocks to go up, it also makes gold, bitcoin, real estate, everything go up because the dollar is going down. This is the cycle we are in right now.

Chinese assets are attractive

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