Cryptocurrency bulls are now holding a royal flush as Ray Dalio prefers Bitcoin to Bonds.
Ray Dalio is the latest top mind in the world of global macro-finance to pivot to the bullish cryptocurrencies camp, particularly those with the largest market capitalization.
Ray Dalio founder of Bridgewater Associates needs no introduction, the billionaire macro investor’s bullish stance on Bitcoin is now also in harmony with Paul Tutor Jones another billionaire global ace macro investor and trader. Regular readers of WTI may remember a piece we wrote entitled, “Paul Tutor Jones Turns Bullish on Bitcoin” dated October 2020.
“Ray Dalio is the latest top mind in the world of global macro-finance to pivot to the bullish cryptocurrencies camp”
WEALTH TRAINING COMPANY
Recently a string of top investors including Mark Cuban, Cathie Wood are bullish on cryptocurrencies. Put simply, Bitcoin and Ethereum bulls are holding a royal flush, which is where the top minds of finance are in accord that the Bitcoin bull market is likely to continue.
We are not referring to the market’s consensus on Bitcoin which is where you can be a contrarian and sometimes win big. What we are now looking at here is the collective intelligence of the top minds that agree on a bullish trajectory, that is a powerful consensus, and the probability of these aces being bang on the money is very high.
Ray Dalio prefers Bitcoin to Bonds as the cryptocurrency makes an almost 50% retracement of its recent all-time high of USD 63,729.5 on April 2021, then recovers
The question rattling the suits on Wall Street and the millions of retailers, was Ray Dalio’s stance on Bitcoin, which was answered at this year’s CoinDesk Consensus 2021 Conference.
“I would rather own bitcoin than bonds” said Ray Dalio.
Ray Dalio previously said that if cryptocurrencies continue to gain traction, investors might decide to invest in them rather than government bonds, with the result being that governments lose control over their ability to raise money.
“I would rather own bitcoin than bonds”
But the financial machine is complex with many moving parts that are difficult to identify.
Ray Dalio prefers Bitcoin to Bonds as a hedge fund investor but could other factors be attracting sovereign investors to US treasuries, other than yields
Remember what JP Morgan’s CEO Jamie Dimon said in December 2020 that he wouldn’t touch Treasuries with a ten-foot pole.
So that got me thinking; there is going to be a two trillion USD Fiscal stimulus which will then gets monetized as a treasury sale. But who is going to mop up all the surplus treasuries?
That took me to the TIC report in search of an answer.
Here is what we unraveled, the world’s largest buyer of US treasury bonds, Japan, has returned as an enthusiastic buyer of the US government bonds and they are not doing it only for the yields.
“Ray Dalio prefers Bitcoin to Bonds but Japan and China are still buying US treasuries to the tune of over 2 trillion USD” – Wealth Training Company
Often it is geopolitics that drives the mega-investment decision, particularly if the investor is a country
China’s relentless economic growth and militarization could be intimidating nearby neighboring countries in the Pacific.
So, US Secretary of Defence Lloyd Austin and his Japanese counterpart Nobuo Kishi agreed to strengthen the alliance between their two countries in January 2021 they agreed that Article 5 of the U.S.-Japan security treaty, which obliges the U.S. to respond to an attack on Japanese-administered territory, applies to East China Sea islands controlled by Japan but claimed by China.
Now if we look at the latest TIC Report the holdings of Japan, the largest non-U.S. holder of Treasuries, rose to USD 1.276 trillion in January, from USD1.251 trillion in December 2020.
Even China raised its holdings to USD 1.095 trillion in January from USD 1.072 trillion the previous month, probably to counteract Japan’s purchase.
Ray Dalio prefers Bitcoin to Bonds but Japan and China are still buying US treasuries to the tune of over 2 trillion USD
It is most likely a purchase motivated by geopolitics rather than yields. In other words, the rise of Bitcoin has no impact on US treasury sales in the Pacific because sovereign buyers are motivated by geopolitics rather than the depreciating USD or dismal treasury yields.
But Dalio noted back in January that investors looking for a store of value Bitcoin offers an alternative. As we noted previously, we prefer Ethereum because it offers utility, a piece of the world’s most secure Ethereum blockchain network favored by developers for building apps. The transaction fees for developing an application on the Ethereum blockchain network are known as tokens or gas prices.
“For gold, if you take out central banks and jewelry, you have a little over $5tn, so diversification between those things (bitcoin and gold), it’s like 80/20”
– Ray Dalio
Ray Dalio owns bitcoin, and prefers that to owning a bond, although when discussing payment efficiencies, he echoed Goldman: “it seems like Ethereum” he said.
Ethereum will soon launch a Proof of Stake (PoS) mining mechanism which will reduce computation power for mining Ethereum, and thereby requiring less energy. Ethereum, like Bitcoin, currently uses a consensus protocol called Proof-of-work (PoW), which requires a network of powerful computers to create an encryption key. PoW is an energy drain for high-frequency transactions and it has got high-profile Elon Musk concerned.
Ray Dalio also repeated his mantra that “cash is trash” and he also reiterated his solution, which is to have a well-diversified portfolio
So, Ray Dalio prefers Bitcoin to Bonds and here are some interesting figures to mull over. The cryptocurrencies market is currently worth one trillion dollars, relative to 23 trillion dollars in bonds,
“For gold, if you take out central banks and jewelry, you have a little over $5tn, so diversification between those things (bitcoin and gold), it’s like 80/20″ said Ray Dalio.
That is how JP Morgan arrives at a price target of $140,000 on bitcoin, which is where the market cap of gold and bitcoin (i.e. digital gold) is roughly in balance.
But as explained above not everyone is going to jolly up on the big cryptos, despite Bitcoin reaching a top in Q1 capital flows still went into US treasuries, particularly in the Pacific region with Japan and China snapping up over 2 trillion USD in US paper.