Ray Dalio, an American billionaire investor, hedge fund manager, and philanthropist, has recently stated that financial markets are going through what he calls a “paradigm shift”. He is also head of the world’s large hedge fund, Bridgewater Associates, and often has a unique perspective on the market, based on years of experience. In other words, when Dalio speaks, everyone seems to listen intently. He recently published his own treatise on LinkedIn, which advised other fund managers and investors to consider a hedge in Gold, due to the dramatic shift he foresees down the line.
Many analysts have reacted to his warning call by suggesting that every argument that the hedge fund legend made in favor of Gold could also be made on behalf of Bitcoin and then some. Dalio’s actual entreaty is based on his belief that financial machinations over the last 50 years have created a situation where forecasting a course forward is extremely difficult: “For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.”
Dalio’s primary argument for the suddenness of his perceived shift is based on the recent 180-degree reversal of central bankers across the globe. The Fed had been leading the unwinding of the last decade of experimental and some say highly questionable monetary policy by instituting its “Normalization” program of gradually rising interest rates and balance sheet reductions. Other major nations were expected to follow. Now all central bankers seem determined to be more accommodative, thereby expanding money supplies and diluting their respective fiat currencies.
The best hedge in these circumstances has always been Gold and other precious metals, but lately, the investment world has also been looking toward Bitcoin, as another “safe haven” that might also offer potential speculative appreciation, as well. For these reasons, Bitcoin has often been called “digital Gold” or “Gold 2.0”, which has been music to the ears of Bitcoin evangelists, but anathema to Gold bugs and the firms that sell Gold for a livelihood.
Investors, however, have lately been disturbed by Bitcoin’s volatility over the past 30 days, thanks in part to the furor over Facebook’s Libra project. They have chosen, in some cases, to bypass BTC and consider other precious metals. Jim Iuorio, managing director of TJM Institutional Services, told CNBC:
I think one of the reasons that silver’s rallied like it [has] is because bitcoin’s kind of been taken off the list of safe havens with its recent volatility, so something had to replace it.
Not everyone, however, is convinced that Bitcoin is suddenly in disfavor. Another pundit reported that:
Last week the price of gold closed on a six-year high, with silver also having its best stretch of trading since 2016. While some analysts called for renewed investor interest in precious metals, others cautioned the price movement would be short-lived, and instead championed bitcoin.
There have already many several analytical studies that have revealed various correlations between Bitcoin surges and fundamental events in the marketplace. Surges have been traced back to Brexit events, for example, and recent trade negotiations with China have caused many Chinese investors to shift to Bitcoin, when the Yuan was threatened. Any geopolitical strife that has resulted in the devaluation of a nation’s fiat currency has also been accompanying by a rash of buying pressure for Bitcoin on global crypto exchanges. When risk tolerance increases, these temporary capital flows tend to reverse themselves.
The U.S. Dollar has remained strong, while deficits have soared, but analysts attribute its apparent strength to the weakness of all other contenders. If all fiat currencies depreciate in value, Gold will prosper, as will Bitcoin. Per one reporter:
Dalio, as head of the world’s largest hedge fund, has a proven track record and a treasure trove of knowledge on the markets.
However, many of the indicators he points to for gold are equally applicable to ‘gold 2.0,’–except bitcoin is only scratching the surface of its adoption potential.