Why Bitcoin Is This Billionaire’s Favorite Cryptocurrency

Ray Dalio, the billionaire co-manager of the world’s largest hedge fund, is well versed in microeconomic trends, and his long experience tracking global economic trends has also helped him recognize growing changes in the macroeconomic environment before they become mainstream.

A shift he predicts will involve the increasing competition between different forms of money. And he believes Bitcoin (BTC 0.75%) will become a viable competitor among these forms – so much so that he has allocated 2% of his own portfolio to the cryptocurrency.

But why would a billionaire take on such a large position in such a risky asset? Fortunately for those of us who are curious, he recently elaborated on his reasoning.

The billionaire’s cryptocurrency of choice

During his performance at Lex Fridman Podcast, Dalio was asked a handful of questions about finance and economics, but eventually the topic of Bitcoin arose. At this point, the discussion devolved into a monologue as Dalio explained his expectations for Bitcoin’s growing role in an increasingly digital future, how it stacks up against gold, and even delved into the concept of money itself.

Dalio offered several rationales to support his decision to invest in Bitcoin. At the top of the list was how far Bitcoin has come from its humble beginnings, and how it has “achieved the status of having added value.”

When the crypto was launched in 2009, there were practically no users of the network. Fast forward to today and the Bitcoin blockchain has become a massive decentralized network based on true organic growth. Not only has it grown exponentially, but Bitcoin’s code has proven to be virtually unhackable — a fact that doesn’t get enough recognition, in Dalio’s opinion.

The demise of the dollar

After Dalio celebrated Bitcoin’s monumental rise, he then delved into his reasoning for why it has a legitimate future as a form of currency. As he put it, the coming years and decades are likely to be “an era where there will be competition between money.”

Due to the ever-increasing supplies of government-backed fiat currencies, citizens today are getting the proverbial short end of the stick. They see their paychecks decrease in purchasing power as the circulating supply of money continues to increase. As a result, Dalio believes that the idea of ​​money itself is “increasingly being considered” by the citizens of these governments.

As he put it, “money has two purposes”. It should serve as a medium of exchange and a store of wealth – a combination of characteristics that Bitcoin possesses and that, in his view, currencies such as the US dollar are beginning to lack. In this future of alternative money, Dalio sees Bitcoin becoming a formidable rival to fiat currencies.

Gold or digital gold

Due to its use-case similarities to gold, a common approach by investors is to create an “one or the other” dichotomy between Bitcoin and gold. But Dalio doesn’t see it this way. When asked if he prefers Bitcoin or gold, Dalio explained that he sees the two as having similar characteristics but serving different purposes.

He noted that Bitcoin has a role in our digital future where the ability to send value over the internet is important, but argued that there may also be a need for people to exchange value “offline”. While Bitcoin transactions are anonymous, they are technically traceable.

Despite the fact that gold still provides value in today’s economy, Dalio believes that Bitcoin is “the younger generation’s alternative to gold”. As this generation begins to become more integrated into the economy, Bitcoin is likely to benefit.

Advice for non-billionaires

As previously mentioned, Dalio is said to have allocated around 2% of his portfolio to Bitcoin. But Dalio has a net worth of more than $19 billion. His appetite for risk has probably waned as he tries to preserve his wealth rather than grow it.

Depending on your investment time horizon and tolerance for risk, you may feel comfortable allocating a larger proportion of your portfolio to a volatile asset like Bitcoin. If you’re in a wealth preservation mode like Dalio, a 2% allocation might be a healthy level for you. But those closer to the start of their investment journeys will more than likely be in the market long enough to see how Dalio’s predictions about competitive money play out over the long term.