- >Is Ray Dalio’s “Cash Is Trash” Sentiment an Endorsement For Bitcoin?
Is Ray Dalio’s “Cash Is Trash” Sentiment an Endorsement For Bitcoin?
American billionaire and CEO of Bridgewater Associates, Ray Dalio, is known for criticizing cash, debt-based assets, and, well, the entire capitalist economy. Dalio has published widely on why investing in debt-based assets does not make sense.
In his view, such assets have little to no yields, and returns take forever to mature. He occasionally talks about Bitcoin, and when he does, he may express some skepticism over it’s long-term potential as a good store of value. But in a recent article: “Why in the World Would You Own Dollar Debt?”, Dalio is definitely running a free multimillion dollar ad for Bitcoin.
Hope Mutie | May 5, 2021
Even though the word Bitcoin doesn’t appear anywhere, Dalio is whipping traditional investments and money front and center. We think some of his strongest sentiments in the article are a huge endorsement for Bitcoin, even if he doesn’t realize it yet.
This article is an attempt to link those sentiments to Bitcoin.
Ray Dalio’s Stances On Bitcoin Over The Years
Like many mega-billionaires, Dalio’s stances on Bitcoin are constantly see-sawing. But his views have at least evolved in recent months. In 2017 Dalio said Bitcoin is a “bubble” and “not an effective store of wealth”. Last year, he outlined in an interview with Yahoo Finance what he thought to be Bitcoin’s biggest weaknesses. Those were Bitcoin’s inability to be used as a day-to-day currency, volatility, and potential to be outlawed by governments.
Recently though, the Bridgewater founder appears to be relenting his stance on Bitcoin. Last November, he was up to being “corrected” about the currency on Twitter (and Bitcoin Twitter always obliges, as you know). This January, he admitted to Bitcoin being “one hell of an invention”. In a Reddit AMA, he said he thinks Bitcoin is an “interesting gold-like asset alternative”.
The Wall Street legend might not (yet) have explicitly endorsed Bitcoin as an alternative investment. But going by his recent article and past comments, he’s clearly not a fan of cash, bonds, bills, stocks, and other financial securities.
Dalio’s Case Against Bonds (and Other Financial Assets)
#1. Investing In Bonds Has “Become Stupid”
In the LinkedIn article, Dalio believes that the economics of investing in bonds has become “stupid.” His rationale is that bonds take time to mature. Investors have to wait for at least a year for them to start earning interest – which is paid once a year. Now, if you offset the interest rates with inflation rates, you’ll discover that investing in bonds is anything but lucrative.
Compare that with Bitcoin – returns are earned in real-time (or losses incurred in the same fashion). If you invested $100 today in government bonds and someone else puts the same amount in Bitcoin, whose investment will have more purchasing power a year later? Assuming it’s a US government-issued Treasury security with a maturity of 1 year, you will be 0.06% percent richer. But the US economy is projected to experience inflation at 2.24% in 2021, at least according to Statista. Then, if you invest in bonds, you are likely to reduce your purchasing power by 2.18% by the end of the year. Bitcoin would never treat you this way.
#2. Cash Remains Trash
In the article, Dalio repeats the claim that “cash remains trash.” This alludes to how easy it is for governments to mint new currency at whim.
So, what’s the logic in storing your purchasing power in an asset that can be generated infinitely? Assets like Bitcoin and gold are good stores of value because they’re scarce. New gold cannot just be produced at whim, just as Bitcoin has a limited supply of 21 million and hence scarce.
As governments print more money, the influx of money into the economy causes more inflation. Inflation eats into investors’ margins since the gap between inflation and interest rates widens. This makes bonds and similar securities unattractive.
That’s why Dalio believes “cash is and will continue to be trash”, advising folks to better borrow cash instead of keeping it as an investment. What to do with (such) cash? “Buy higher-returning, non-debt investment assets”, he says. This is a cheat-code that Bitcoiners seem to have cracked already.
A study revealed that most Bitcoin investors are willing to trade fiat – cash or credit – to buy Bitcoin. Bitcoin has way higher yields than cash could ever muster. Also, it’s a non-debt investment.
#3. The Government’s All Over Your Investment
The government controls interest rates, and interest rates affect bond yields. When interest rates fall, bond prices rise, and yields fall, with the reverse being true.
In tough economic times (is it ever not?), banks and governments usually push for reduced interest rates so that people are encouraged to borrow and hopefully revive the economy.
However, falling bond yields are usually almost always a predictable aftermath of that. It’s definitely unsettling that policymakers get to wield control over how much you can earn from these financial assets.
But fittingly (for Bitcoin fans, at least), in such times, the demand for Bitcoin rises as investors rush in to salvage their future purchasing power.
Savvy investors will look to diversify their portfolio with investments whose future has the semblance of being solid. And in recent times, Bitcoin has passed this with flying colors. That’s because the cryptocurrency dances to its own tune. It doesn’t bend to the whims of whichever side of the bed banks and regulators wake up on. Bitcoin is the epitome of a free market.
Putting It All Together
Ray Dalio has always expressed his aversion for cash and debt-based investments.
In his view, these and other assets do not even begin to offer security for investors, especially in these weird economic times. From devaluation, low yields, long periods of maturity, government manipulation, and what have you, the average traditional asset is just not it. Although he’s not outed himself as a Bitcoin fan, his evolving sentiments are a major rubber stamp for Bitcoin.