Ray Dalio gives his insights in a recent podcast where he discusses an array of issues from Bitcoin versus gold and the five great cycles he sees playing out, which have happened before, albeit not in our lifetime.
“Right now, we have many central banks buying gold,” he said.
Ray Dalio believes that while gold and Bitcoin are perceived as a store of value, they are not the same
The issue comes down to the custody of the asset. Ray Dalio questions holding crypto assets on an exchange.
Who controls it, who possesses it, or is it controlled behind the scenes?
“For those reasons, I prefer gold to crypto,” he said.
“Right now, we have many central banks buying gold”
RAY DALIO
When crypto investors hold cryptos on an exchange, they entrust the exchange with the private keys, who then become the custodian owner holding and protecting the asset, in theory, on behalf of the investor.
Similarly, if a gold investor holds bars at a safe with their bullion dealer, the dealer becomes the custodian owner.
Both gold and crypto investors can have custodian ownership, thereby avoiding third-party risk.
The gold investor takes physical possession of his bars, storing them how they like.
Similarly, crypto investors can hold the private keys on a hard wallet or on cold storage on a device or medium not connected to the internet.
So, for the digital generation, who has lived through pandemics, lockdowns and war, the transportability of Bitcoin across borders beats gold.
“The gold investor takes physical possession of his bars, storing them how they like”
WEALTH TRAINING COMPANY
As a veteran macro investor, Ray Dalio gives his insights into what he sees as five big cycles playing out
“I have been a global macro investor for about 50 years and was surprised by things that didn’t happen in my lifetime but happened earlier, so I found that studying history before helped me,” said Ray Dalio.
“For example, I studied the 1930s and the Great Depression, and I was able to anticipate the 2008 financial crisis and do well when others were in trouble,” he said.
“I watch these five forces move in great cycles. What is occurring now is very familiar to the 1930s 45 period” – Ray Dalio
Ray Dalio gives his insights into five significant forces reaping cyclically
“The First force is the credit debt economy, which gives buying power, which creates debt,” he said.
But he noted that debts need to be paid back, which becomes a cycle driving the economy and markets.
The second is the internal order, where irreconcilable wealth imbalances create instability.
Third, external world order is where the hegemon is being challenged by rising world powers.
“We are seeing that now, with China rising to become competitive,” he said.
The fourth is climate change, and the fifth is new technologies, which is the case with AI and blockchain.
The 1930s to 45 is playing out; Ray Dalio gives his insights
“So I watch these five forces move in great cycles. What is occurring now is very familiar to the 1930s 45 period,” said Ray Dalio.
“When there is a lot of debt compared to GDP, it becomes a difficult balancing act where interest rates should be attractive enough for the creditor but too high for the debtor. This imbalance causes central banks to create more currency,” he said.
“The creation of more debt and printing a lot of money create inflationary pressures, making the currency a poor store of value.
Demand for alternative stores of wealth like Gold and Bitcoin is rising,” added Ray Dalio.
“The question is whether cryptocurrency is attractive relative to gold” – Ray Dalio
Ray Dalio gives his insights into the incoming Trump administration
Ray Dalio believes Trump will preside over a protectionist administration, raise tariffs and implement an American First policy.
“There is a sense that self-sufficiency is needed in case we get into a war,” he said.
“You are going to see that in chips and electricity, strategic industries,” he said.
“The Federal government can’t print money, but they can distribute money.
So they borrowed money, the Fed lent money to the central government that sent out checks, and they sent out more than twice as much money as the negative impact from COVID.
In other words, income was set back,” he said.
“If you send out more money with buying power, then you create higher prices and the inflation we experienced.
I think people are looking at prices,” added Ray Dalio.
Dalio gives his insights into cryptocurrencies
“My view of cryptocurrencies remains pretty much the same.
The question is whether cryptocurrency is attractive relative to gold.
I think there is the old man’s gold and the young man’s crypto.
Ideally, both should be in your portfolio.
Don’t be so fanatical that you are just having one and not the other,” he said.
Ray Dalio looked at crypto and how it evolved, and a few things that he has observed.
You can tax it easily. The same element of that privacy, there is a saying that gold is the only asset that you can own that is not someone else’s liability.
Ray Dalio noted that gold has been a reserve currency since time immemorial.
“It is the third largest reserve currency, in other words, the largest is the dollar. The second is the euro. The third is gold, and the fourth is the Yen.
Right now, we see many central banks acquiring gold. It is not the same as crypto,” he said.
Recognition of the issue, whether we can trust central banks not to print the money to make the debt service easier.
“So you want anti-debt assets,” he said.
“Gold is something if you look at how it behaves in relation to inflation and interest rates. It behaves in a way more understandable than Bitcoin, which is more speculative,” he said.
Ray Dalio believes gold is an effective diversifier in a portfolio.
“You diversify your risk by having 10 to 15% of your portfolio in gold,” he said.
